So you wanna learn economics?

Part One — My economic journey

Here’s some background, off the top of my head. Please correct any mistakes and/or ask for clarifications! I recommend books, videos, etc in Part Two.

I’ve been “doing” economics since I took Econ 1 in 1988. I was very very lucky to have Russ Roberts as my professor. He opened his first lecture with “you don’t need anything, man acts in his own self interest, and there’s no free lunch” and then argued with students for the next two hours — as a U Chicago economist would! I was hooked.

Adam Smith is famous for founding what we now call economics, with the 1776 publication of An Inquiry into the Nature and Causes of the Wealth of Nations. In that book, he explains why self-interested buyers and sellers contribute to the “common good” by making markets more efficient. He also explains how larger and deeper markets increase these gains from trade, which went against the merchantilist ideas that were popular then (and are still popular with people like Trump). The Economist “newspaper” was founded in 1843, by the way, to advocate for free trade in “corn” (grains), which lowered the profits of British farmers but also lowered food prices, for a net social gain. (Note that the colony of Ireland did not get those advantages, which contributed to the Great Famine that began in 1845.)

Most people know that Smith advocated for laissez faire free markets, but he also called for public education, blamed businessmen for conspiring to raise prices against the public, and opposed corporations because managers would take advantage of shareholders. Far more important is the message in his complementary 1759 book, The Theory of Moral Sentiments, where he writes of the need for moral behavior, as if observed by an impartial spectator. It’s with these two books that you can see how Smith, as a moral philosopher (the term “economist” came much later) balanced between one’s place in society versus the marketplace.

Side note: Thomas Carlyle called economics a “dismal science” for its advocacy of freedom from slavery, which Carlyle supported.

After Smith came Malthus, who wrote in 1798 about the inevitability of starvation as geometric population growth outpaced arithmetic growth in food supply. Malthus was wrong in his example and timing (the Industrial Revolution led to spectacular increases in food supply and population), but not in the big picture, as we are now seeing with out “exponential destruction” of ecosystems, via biodiversity loss and climate change, due to the use of fossil fuels, which began in the Industrial Revolution.

Ricardo was also a “classical” economist who explained comparative advantage — still one of our greatest insights as well as one of the more popular exam questions — when he was not making huge sums in the stock market or policy in the British Parliament.

I have not read anything by John Stewart Mill, a giant in the field for his many contributions — including those to rights for women and slaves.

I have read Marx’s Capital (Book 1, 1867), which is correct in observing the grim conditions of Industrial England, but wrong in claiming that all value is due to “embedded labor” (the supply curve) as well as completely misunderstanding the roles of entrepreneur and risk. Many people claim that Marx has been misunderstood, or that “we just need to do Communism right” (the 1848 Communist Manifesto is an excellent example of wishful thinking, just as the Soviet Constitution(s) were outright lies), but the reality is that Marx didn’t think all his ideas through before he died. Engels published Books 2 & 3 after Marx’s death, so we can’t blame Marx for all the blood that’s been spilt in his name by Lenin, Stalin, Mao, et al.

Around 1870 came the “marginal revolution,” which lead to the phrase “on the margin” (as in, what will you choose, given what you already have). The marginalists were far more mathematical than the classical political-economists, and it’s around this time that political science and economic “science” split, which I consider to be a huge mistake. (Tyler Cowen and Alex Taberrok’s Marginal Revolution blog, OTOH, is exceptional in many ways.)

And thus we came to neoclassical economics, where interacting supply and demand played a huge role “as two sides of the scissors” do when cutting. Alfred Marshall dominated this field with his Principles of Economics (first ed. 1890; last ed. 1920). I thought I would read that book and write a quick review, but no such luck, as it was full of insights. I wrote a blog post per chapter for 72 weeks, to discuss the book’s insights a century after its publication.

The 20th century has a lot more economic history to explore and explain, but I will keep it brief, as there are better summaries (Heilbroner is a classic). First, the Great Depression blew up everything, but gave us Keynes’s “General Theory,” which gives good advice (stimulate demand) that is often over-used (too much stimulation). The Austrians (van Mises, Hayek) and “fresh-water” economists of U Chicago were more free market. The rise and domination of mathematical economics and game theory after WWII (Van Neumann and Morgenstern, 1944; Samuelson, 1947) was helpful in some ways, but ultimately unproductive, IMO, in the ways that it favored “science” over “social” and ultimately failed to provide useful predictions of human behavior, especially outside of competitive markets.

Here’s how I compare the social sciences to each other and across disciplines.

In the 60s and 70s, economists “discovered” the environment, information, public choice, behavioral/experimental economics, and “new” institutional economics (as opposed to the “old” IE that was common before WWII). I get many of my insights from those “fields,” but I often still use supply and demand.

I call myself a political economist, as I find the most interesting and important problems arise at their intersection. Here’s the best paper I’ve read on the topic [pdf]. I’ve heard some people claim that the term referred to the economy of a nation, as opposed to a household (“home economics”), but I use it to refer to a discipline where economics and politics affect each other.

For my PhD dissertation — Conflict and Cooperation within an Organization: A Case Study of the Metropolitan Water District of Southern California (UC Davis Agricultural & Resource Economics, 2008) — I used institutional economics, public choice, experimental economics and auction theory to explain how Met members were fighting over water and money, how that non-cooperative behavior denied their claims of “public service” [pdf], and then proposed auctions to fairly and efficiency allocate that water [pdf]. AFAIK, the mangers at Met preferred to fight and/or waste money rather than adopt (or even discuss) my ideas.

When I got a postdoc at UC Berkeley, as a Wantrup Fellow, I stopped blogging at “Sex Drugs and Water Utilities” and started Aguanomics, where I blogged ten years (The Best Of, 2018).

In my academic work, I have written a lot on water but also many other topics. I’ve published The End of Abundance (2011), which I revised in a more compact (50k fewer words), less academic Living with Water Scarcity (2014/2022). The Little Book of the Commons (2022) is an offshoot in the sense of taking an important factor in water management and looking at the importance of the commons in general. These are all free to download.

Part two — Learning economics

I’m going to recommend ways to learn economics and then list other sources for those who want to dive deeper. I will update this page when I can improve it.

It’s kind of hard to know where to start, if you’re trying to understand a different way of thinking. The good news is that everyone uses economics (making choices, facing tradeoffs, managing scarcity), so you just need to find a source that connects with your tacit understanding.

For books, I recommend*

NB: Econlib(rary) has many classic texts that are out of copyright.

I do not recommend* these well-known books (read my reviews to see why): Free to Choose, Doughnut Economics, Freakonomics, Economics: The User’s Guide and Thinking Fast and Slow

To go deeper, I recommend*

*Many links go to my reviews, which then link to the books. I also advise that you follow Tyler Cowen’s rule: If you don’t like the book, then stop and read another (opportunity cost!)

**Read my Little Book of the Commons on collective action and Living with Water Scarcity on water.