Sunday, February 8, 2009

What I've Been Reading

This post connects to the following Keystone Economic Principles:
1. We all make choices.
3. All choices have consequences.
8. Quantity and quality of available resources impact living standards.
9. Prices are determined by the market forces of supply and demand…and are constantly changing.

I seem to be stuck on books so here's something for the high school. I recently finished The Price of Everything: A Parable of Possibility and Prosperity by Russell Roberts.

If you're a visitor to the EconTalk website, you know the author, a professor of economics at George Mason University. But you may not know that Russ also uses fiction to illustrate economic principles to very good effect.

In this relatively new book, the main characters are a tennis athlete on scholarship at Stanford and the provost and economics professor at that school. They come together in the aftermath of an earthquake, largely as a result of a large chain store's pricing policies immediately following the event.

The story provides a rich setting to explain the spontaneous order provided by market pricing. It also demonstrates how price is set by competition, while also spurring innovation. The messages of price (what to produce, how much, and for whom) are handled well as the two main characters meet in a variety of situations.

I'm not proposing that the book be part of the Western Canon, but it is a different, and in some cases more amusing, way of examining the power of market pricing. If you’re looking for a lighter approach to the concept, this could be useful. At the very least it is a welcome tool to help illustrate some of the basics of microeconomics.

I look forward to your comments.

And courtesy of Reason magazine, here's a real-life parallel to Russ's book. Side-step a lot of the political rhetoric, and you've got a ready-made discussion for class about entrepreneurship, innovation, and price. Did uncoordinated activity achieve what coordinated activity could not?


Mike Fladlien said...

The Price of Everything is brilliant...I am thinking about getting a classroom set to use in my micro class next year....

Steven Lauridsen said...

I too am adoring "The Price of Everything." Roberts' earlier 'economic romance' entitled "The Invisible Heart" has been summer reading some years, although it's a little less perfect in content for HS. And he has an even earlier novelistic effort on the gains from trade that is, I'm sure, excellent.

P Stack said...

Just finished Price of Everything and found it useful for my non-economist friends. It illustrates Hayek's principle, "Many of the greatest things man has achieved are not the result of consciously directed thought, and still less the product of a deliberately coordinated effort of many individuals, but of a process in which the individual plays a part which he can never fully understand." No one can possess sufficient knowledge to direct an economy more efficiently than individuals in uncoordinated activity. Roberts does a great job showing this principle.

Mike Fladlien said...

The article about the ice storm raises some interesting normative questions...After reading the Price of Everything, my mom and I had an interesting discussion about library books...she thought that the most popular library books should not be rented out for $3...I felt that the price system allocated the books better than first come, first served...Last summer when our state was ravaged by a flood, I was thankful for all of the work that the government did to help...I'm afraid I favor government aid in some cases....