The Hindu Business Line : Three tests to separate good economics from bad

To too many of us, economics is excruciatingly verbose, unnecessarily obscure and plain unruly on the ears! But we can filter out the good from the bad, using three tests that Tyler Cowen suggests in Discover Your Inner Economist ( www.crosswordbookstores.com).

The first is the postcard test. “It should be possible to take a good economics argument and write it out on the back of a moderate-sized postcard.”

Next comes the grandma test, meaning that your grandmother should be able to understand what the economist is talking about.

And the final test is the ‘aha’ principle. “If the basic concepts are presented well, economics should make sense,” argues Cowen. “So if some clearly expressed economic observation is to the point, it ought to stimulate the ‘aha’ parts of our brains… It should be a revelation.” The more you have of these ‘ahas’, by finding hidden patterns, the stronger does become your ‘inner economist,’ the author assures.

He discovers, for instance, that money isn’t the best motivator, whether in family or at work.

“Payment does not always lead to a better job done,” lab experiments have reportedly shown, one learns. “Often the subjects do just as well, or sometimes even better, when nothing is on the line.” Another insight in the book is about meetings – that they are not always about the efficient exchange of information, or about discovering a new idea.

“Many meetings only pretend to be aimed at such ends. In fact most meetings are a kind of trick, serving some end other than their stated purpose.”

A meeting might give attendees the feeling of being insiders and in charge of decisions, of having perhaps some illusory sense of control, postulates Cowen.

A chapter titled ‘the dangerous and necessary art of self-deception,’ opens with a revealing thought: that delusion is one secret to a good marriage. Don’t, however, bandy about the insight at the dinner table, reads a warning!

“Marital bliss is based on, among other things, selective forgetfulness,” the author counsels.

“A good marriage requires knowing when to forget, and known when not to notice in the first place.”

Professional economists have begun to study self-deception only recently, Cowen informs. They were all along thinking that people value information, or have ‘rational expectations.’

Be less deluded on critical issues, while retaining the enthusiasm for life, he exhorts. “If we can improve our perception of reality, the wisdom of the world lies literally at our fingertips.”

Stirring read.

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Three tests to separate good economics from bad