The new revised edition of The Armchair Economist is now on sale in paperback and electronic versions. Last week’s glitch (where the electronic versions were of the wrong edition) is fixed.
For almost twenty years, Armchair has been widely recognized among economists as the book to give your mother when she wants to understand what you think about all day. In this new version, fully updated for the 21st century, I’ve completely rewritten several chapters to make them even clearer, livelier and more contemporary.
I (and you if you buy the book) am deeply indebted to Lisa Talpey who read every chapter multiple times, insisting that I keep rewriting until everything met her meticulous standards of clarity. Chapters I’d thought were pretty good are vastly improved thanks to Lisa; these include:
- Why Popcorn Costs More at the Movies (and Why the Obvious Answer is Wrong)
- Was Einstein Credible? (The Economics of Scientific Method)
- The Indifference Principle (Who Cares if the Air is Clean?)
- Why Taxes Are Bad (The Logic of Efficiency)
and
Others are almost completely rewritten to focus on issues that are in the news today; these include
- The Mythology of Deficits
- Unsound and Furious: Spurious Wisdom from the Media
and
By way of general housecleaning, I’ve excised all references to cassette tapes, Polaroid film, and Walter Mondale.
You can read the preface here. You can buy the book here. Here are direct links to the updated Kindle and Nook editions. (These editions are advertised as “published November 2007”, but don’t panic; that’s just the lingering shadow of last week’s glitch. They’re actually the brand-new 2012 edition.)
Dan Seligman at Fortune called the first edition of The Armchair Economist “enormous fun from its opening page”; Alfred Malabre of the Wall Street Journal called it “the most enjoyable and sensible book by an economist about economics that I’ve read in donkey’s years”; Milton Friedman called it “an ingenious and highly original presentation of some central principles of economics for the proverbial Everyman”; George Gilder called it “a crisp, lively, pungent display of the economist’s art”. This second edition is, I believe, all that and more.
The Armchair Economist is indeed the perfect gift for your mother, or for your father, or for the new college grad in your life, or even for yourself. Enjoy it, and come join the discussion right here.
What about a Kindle edition in the UK?
I have a long trip today, and I just took my old “the armchair economist” with me. What a coincidence!
Andrew: I will look into this.
I first heard about TAE from my economics lecturer (who’s an occasional co-blogger here. He introduced it as “a reason people don’t like economists”.
Maybe he has a point. I lent the book to my father once. He tends libertarian but could not be convinced despite my exhaustive efforts that Grimyville tenants could be made worse off by the existence of clean air legislation. I wonder how he would have reacted to the analogy of anti-polygamy laws being a cartel in the romance industry.
I read the first edition, and it’s a terrific book. Don’t judge Steve by his blog! :) [Just kidding Steve]
Henry: ” I wonder how he would have reacted to the analogy of anti-polygamy laws being a cartel in the romance industry.”
I thought that argument, which I believe goes back to Becker, was the weakest in the book. It makes certain fine-print assumptions about the choices and rights women would have. In actual polygamy as actually practiced in the world today those are all false, and it seems that the incentives are actually reversed by the changes.
Steve – out of interest how many copies of the original have you sold?
Just finished the new version and truly enjoyed it. Lots to think about. A few nitpicks, but that’s what makes reading books like this fun.
Thanks a bunch!
Awesome! I just bought my copy.
What? No quotes from Krugman?
@Henry: I’ll have a chat with Seamus (the mentioned co-blogger) about that. But I’ve been a huge fan of Armchair since I first read it – in Tyler Cowen’s Micro III class at Mason.
Henry,
That is only a half-quote. I described TAE as a great book if you already know some economics (and I have used the chapter on cost-benefit analysis in my Honours class). But I also felt that for someone who is not used to reasoning from deductive logic and doesn’t already know some economics, TAE is likely to be a bridge too far.
I wish you added some new chapters, but I’m still buying the updated version.
AC:
I wish you added some new chapters, but I’m still buying the updated version.
You’ll find that some of the chapters are entirely new, though they have the same names as the old chapters they replaced.
Why taxes are bad. That is such an easy one. Just once I’d like a knowledgeable libertarian to explain to the average joe why taxes are good. If you want a society without taxes, try anarchy for a week.
Taxes are bad because they are distortionary. Spending is the government activity with benefits. The two are not the same. Read the book.
And how do you propose to finance government spending without taxes? User fees? Then you do not need government.
I never said (few have) that there should be no taxation. I said taxes are bad because they’re distortionary. The trick is to find the least harmful forms of taxation.
I will get the new edition. I loved the way the first one challenged a lot of my pre-conceptions. I often thought “that can’t be right!”, but could not figure out where it was wrong.
I did think the Grimyville one was wrong though. If I remember correctly, (which I probably don’t,) Grimeyville and something like Cleantown had houses at £500 and $1000 repectively. As Grimeyville got cleaned up, the price of houses rose, but for some reason the prices in Cleantown did not fall. I never quite got that, but I am going on memory from a while ago, and that probably wasn’t the point anyway.
Taxes are good because they fund necessary government spending, and there is no other way of doing it. Some forms of taxation are bad because they unnecessarily distort economic decisions. The title of the chapter should be “Why some taxes are bad”.
Neil. I think the “good” you refer to is the spending, or the things done with the spending. The taxing itself is not a good, but it is a necessary bad. To decide if a program is generally good, you must balance the good done by the spending with the bad done by the taxing.
If I want a cup of coffee, I consider the coffee a good. I consider that I have to fork out for it a necessary bad. On balance, I may think the good outweighs the bad, depending on my thirst and the price.
I think the tax issue is slightly different from my coffee, because tax of $X will raise $X for the Govt to spend, but the rest of society will have more than X dollars removed from it because of distortions the tax introduces. Alternatively, Keynes has it that in certain circumstances, everyone else has less than X dollars removed because of stimulus effects. Either way, the tax does not just move money around, but affects the total amount of money available.
Ignore my previous Keynes comment. The tax will still be bad, but the spending will more than make up for it in this situation.
To me a price is a good thing. When we don’t have them, bad things happen, like traffic congestion. A price does something good for a society. It finances production while conveying information about costs in a decentralized economy so that consumers can decide on an appropriate quantity. Taxes are good in a similar way. First they are good because they finance the public good while solving the free rider problem (which makes voluntary contribution undesirable). Second, they are good because they convey the costs of public goods to the electorate who must decide collectively on an appropriate quantity.
Neil: I am sure that you and I have no substantive disagreement about the upside and the downside of taxes in general (though of course we might disagree about the magnitudes of these upsides and downsides in some specific cases).
The chapter you’re referring to is about the logic of the efficiency criterion, and encompasses all sorts of cost-benefit analysis, monetary theory, questions of personal ethics, etc. The first step toward understanding all this stuff is understanding the sense in which taxes cause inefficiency. Of course they also make a lot of good things possible.
In particular, naive readers sometimes think that “taxes are bad” because it’s no fun to pay them. The chapter starts by debunking that error (from a social viewpoint, the pain of paying taxes is exactly balanced by the pleasure of collecting them) as I’m sure you’ll appreciate.
I’m not sure whether you’ve read the chapter and are quibbling over the choice of title, or whether you haven’t read the chapter and are objecting to oversights you’re guessing (incorrectly) that it might contain.
Harold:
I did think the Grimyville one was wrong though. If I remember correctly, (which I probably don’t,) Grimeyville and something like Cleantown had houses at £500 and $1000 repectively. As Grimeyville got cleaned up, the price of houses rose, but for some reason the prices in Cleantown did not fall. I never quite got that, but I am going on memory from a while ago, and that probably wasn’t the point anyway.
1) The prices in Cleantown won’t fall if there are few Grimeyvilles and many Cleantowns.
2) That chapter is substantially rewritten for greater clarity. Let me know if I’ve succeeded!
Thanks, Steve. I expect we do not have any substantial disagreement. I am reacting to the unrelenting “taxes are bad” rhetoric that pervades political discussions in some circles. I believe it is a bigger challenge to explain to people why taxes are good (in the sense I described), than why they are bad.
Actually I think the starting point for wisdom on the subject of taxation is to realize that Marshall’s “The power to tax is the power to destroy” and Holmes’ “Taxes are the price we pay for civilization” are both true statements.
“To me a price is a good thing.”
Costs are a bad thing but prices are a good thing to have when there are costs.
“1) The prices in Cleantown won’t fall if there are few Grimeyvilles and many Cleantowns.” Wouldn’t they fall a bit? No need to answer now, I will read the new edition!
Steve, how would your discussion and examples of the indifference principle in the (original) Armchair Economist be affect by the introduction of transaction costs? After all, in real life you can’t just effortlessly move between alternatives. Are transaction costs and how they affect economic theory discussed in the revised edition?
Keshav Srinivisan:
Steve, how would your discussion and examples of the indifference principle in the (original) Armchair Economist be affect by the introduction of transaction costs? After all, in real life you can’t just effortlessly move between alternatives.
A key example in the book is that of Cleanstown and Grimyville which are identical in all respects except that Grimytown is polluted, and therefore has cheaper rents. People are therefore indifferent about where to live. (If one city were clearly preferable to the other, the rents would adjust until that was no longer true). A Clean Air act raises the Grimytown air quality (and hence the rents) to Cleanstown levels. Conclusion: the residents of Grimyville are no better (or worse) off than before. Here is the passage (from the new edition) that answers your question:
The conclusion is stark, but, to be fair, the discussion
is oversimplified. When we say that people are
indifferent between Cleanstown and Grimyville, we
implicitly assume that everyone shares identical
circumstances. In actuality, the world is more
complicated. There might be people with special reasons
to want to live in Grimyville, and among those there
might be some who consider cleaner air in exchange for
higher rents a bargain. Such people win when the Clean
Air Act is passed. On the other hand, there could
just as well be others who considered the old Grimyville
a bargain, because they are less disturbed by pollution
than their neighbors are. Those people are net losers
when Grimyville turns into Cleanstown. An unusual
preference is a fixed resource, which renders its owner
liable to share in economic gains {\it and\/} losses.
So if there are important differences among
nonlandowners, then the Clean Air Act affects some of
them positively and some negatively, with no clear
presumption about which effects dominate. On the other
hand, if the Grimyville Press was right when it
editorialized that “clean air is something whose value
we can all appreciate equally,” then only landowners
stand to gain. If clean air is worth \$5,000 a year to
everyone, then clean air legislation raises rents by
\$5,000 a year, making no net difference to anyone but
the landlord.
Note that moving costs for existing residents can count as “special reasons to want to live in Grimyville.”
Armchair Economist is perhaps the most formative book for me. While I started studying economics a couple of years before then, I only started to think about what it means when I came across this delightful book. Maybe I am particularly susceptible to it’s arguments coming from a pretty liberal (in the classic sense) background, but it is always important to think through your beliefs and find strong arguments behind them. This is what this book has done for me. Obviously once you are on the right way you would want to read deeper works but I doubt there is anything quite like AE to get you thinking.
Highly recommended.
I have a question about the indifference principle as discussed regarding the Springfield Aquarium. I feel like I have an answer to it but am having difficulty nailing it down succinctly. If the park and the aquarium are equally desirable, what of the desirability of the mere existence of a choice. Surely there is a benefit to not having the park as your only option. I also suspect that the Simpson’s tolerance of lines at the aquarium would increase the more days in a row they spent at the park.
I suspect that the answer has something to do with having a choice being something else to which the indifference principle applies, but was left out for simplicity’s sake. I also suspect that the increasing tolerance for the aquarium lines would be reflected equally among all the townsfolk.
Am I anywhere close on this, or am I thinking myself in circles?
Steve, for Library of Congress purposes is the new edition officially considered a 2nd edition, or a separate book?
Keshav Srinivasan:
Steve, for Library of Congress purposes is the new edition officially considered a 2nd edition, or a separate book?
Due to an epic screwup by the publisher, the two editions both have the same ISBN and hence (I believe) are considered the same book. This has a lot to do with why the new Kindle edition was delayed (though it’s available now); apparently Amazon’s software can’t handle two Kindle editions of the same book. It’s also why the Amazon page continues to describe the Kindle edition as “published 2007”, since that’s when the *first* Kindle edition was published. This has caused no end of difficulty over the past couple of weeks, but I think we’re past the worst of it.
Steve, just to clarify, do they have completely the same ISBN number, including the last digit, meant to identify editions? If so, then second edition copies will literally be treated as first edition, which will make getting it from a library catalog difficult.
Steve, just wanted to say that the original was inspiring when i first picked it up 7 years ago and i’m looking forward revised version!
Just a little note for the next edition. During the discussion of different prices for men’s and women’s shirts you’d said that men’s unwillingness to try and pass their wives shirts off as their own might have played a factor. Actually, you can’t do that because men’s and women’s shirts button opposite of each other (the buttons are on opposite sides of the shirt.) Dry cleaners would undoubtedly be aware of this.