Reading Notes on Partha Dasgupta, Economics: A Very Short Introduction
Read the very short: Partha Dasgupta (2007): Economics: A Very Short Introduction (Oxford: Oxford University Press: 0192853457) http://amzn.to/1Q5Fl97. Come to your first section prepared to discuss the book.
The Prologue to Dasgupta is up on the web at: http://tinyurl.com/hbz9mvp
- An account of how economists reason
- Examples of how that reasoning can be applied to (some of) the most urgent problems Humanity faces today
- The lives of Becky--the daughter of a Chicago lawyer--and Desta--the daughter of an Ethiopian farmer couple
- Becky's household income $150K/year as the daughter of a Chicago lawyer (and stay-at-home mom)
- Desta the daughter of an Ethiopian corn-growing farmer couple with a household income of $5K/year
- Desta's household's income subject to much greater risks Economists look at things from the bottom up: resources, institutions, choices, histories, destinies
- Economists use models and quantitative models
- Annual GDP per capita as a measuring rod:
- GDP per capita in the world today: $7K/year
- GDP per capita in the year 1: $500/year
- GDP per capita in 1800: $1500/year in western Europe; $500/year in Africa; $750/year global average
- Rule of 72
- The world today:
- 1B people with an average per capita income of $20K/year at the top
- 3.5B people in the middle
- 2.5B people with an average per capita income of $2.1K/year at the bottom
- Agriculture 25% of GDP in poor countries, 5% of GDP in rich countries
- Proximate causes of the difference: (physical) capital, (human capital) education, gender equality, public health, technologies? markets? division of labor?
- Deeper causes: institutions (corruption), institutions (markets), institutions (incentives), the application of ideas (technological and organizational), natural resources vs. population growth
- Virtuous and vicious circles
- How different do you think the lives of Becky and Desta are?
- How would you go about explaining why the lives of Becky and Desta are different?
- How would an economist go about explaining why the lives of Becky and Desta are different?
- What are the costs and benefits of thinking like an economist?
- What kind of person would start an analysis by asking: "What are the costs and benefits of thinking like an economist?"
- Why does Becky's household live outside of Chicago and earn money by having the father work all day outside of the house doing transactions processing rather than, say, living 100 miles further west and growing corn in DeKalb County?
- How different would Becky's life be if her father (and mother) were corn-growing farmers in DeKalb County?
- Why did they choose to become suburban Chicago yuppies?
- Why doe Desta's household live in rural Ethiopia and grow their own corn rather than, say, living in Addis Ababa and earn money by having the father work all day outside of the house doing transactions processing?
- How different would Desta's life be if her father were an Addis Ababa lawyer?
- Why did they choose to become rural Ethiopian subsistence farmers?
- In the long sweep of human history, is Becky very lucky, lucky, unlucky, or very unlucky?
- In the long sweep of human history, is Desta very lucky, lucky, unlucky, or very unlucky?
- How much richer is the world today than it was in the long centuries from 5000 BC to 1800?
- How much richer are the world's rich today than the world's poor today?
- What would count as an explanation of this divergence across space and time--that is, what kinds of things would count as "causes" and make you happy that you understood what was going on?
- How many useful "hierarchies of causation" can you imagine here?
- About what fraction of our wealth is the result of--or, perhaps, is enabled by--our collective ability to engage in a very large distribution of labor (rather than requiring that each extended household be close to self-sufficient)?
- What are the possible ways of creating the "trust" needed for a small-scale--within the village or within the herding band, say--distribution of labor?
- What are the possible ways of creating the "trust" needed for a large-scale division of labor?
- What, in the world we see around us, turn out to be the most important ways of creating the "trust" needed to maintain a large-scale division of labor?
- Suppose that we have the norm (or the strategy) that a failure to share in any case leads to the end of the sharing relationship forever. How much of a large-scale social distribution of labor can be supported by tied engagements of this type?
- What are the advantages to having an economic network built out of "weak ties"?
- What are the difficulties in creating and maintaining an economic network built out of "weak ties"?
- How is having access to an ideal market the same as or different from having an economic network of ties (strong or weak) extending over the entire world?
- In what sense is what Dasgupta calls an "ideal market" ideal?
- Why did Friedrich von Hayek deserve his Nobel Prize?
- How can a central planner nevertheless add value for society, even though Friedrich von Hayek did deserve his Nobel Prize?
- Why should we worry about each of the four kinds of market failure that Dasgupta sees: distributional, free-riding, market power, and macroeconomic?
Science and Technology as Institutions:
- Given that knowledge is non-rival--if I teach it to you, I don't have any less of it than I did before--what justification could there possibly be for charging people for access to knowledge and its uses?
- If people weren't allowed to charge others for access to knowledge and its uses, would there be any reason to think that society would be putting a properly-large share of our resources into creating and disseminating knowledge?
- Why can contests and the rule of priority be good ways to spur the creation and dissemination of knowledge?
- How well do contests and the rule of priority fit with a private-property market economy?
Households and Firms:
- Where have all the women gone?
- Why do we think that Africa's population is likely to grow much faster than India's population over the next fifty years?
- How does Desta's household react to the fact that GEICO does not sell insurance policies in their neighborhood?
- How does Becky's family react to the fact that they can borrow from Umpqua Bank and invest in the Vanguard Funds--rather than having to deal with the local moneylender?
- Why does Becky's world have large-scale firms?
- Why does Becky's world have joint-stock limited-liability companies?
- Why does Becky's world have tradable financial assets?
- Why are we destroying our fisheries? Why are we rapidly using up our atmosphere's capacity to absorb carbon dioxide without substantial increases in temperature? Why is such a large chunk of our population potentially short of fresh water?
- Why have we been able to successfully capture and use 40% of the photosynthesis on earth without already severely disrupting our planet?
- How have we managed to become so much more numerous and rich since 1800 without rapidly-rising prices of pretty much all natural resources?
Social Welfare and Democratic Government:
- What are T.H. Marshall's "three revolutions"?
- Why is each of them important?
- How does a government based on T.H. Marshall's "three revolutions" tend to promote a prosperous market economy?
- Does a prosperous market economy tend to promote T.H. Marshall's "Three Revolutions"--and if it does, does it promote them all?
- What distinction does Dasgupta draw between problems and challenges?
- Which--problems or challenges--is better suited for analysis with the tools of economics?
- What, after finishing this book, do you now think the most important tools of economics are?
Reviews of Dasgupta from its Amazon page: http://delong.typepad.com/econ_1_fall_2010/2013/12/econ-2-spring-2014-why-we-read-partha-dasgupta.html
Adam Smith: "The difference of natural talents in different men is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause as the effect of the division of labour. The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature as from habit, custom, and education. When they came into the world, and for the first six or eight years of their existence, they were perhaps very much alike, and neither their parents nor playfellows could perceive any remarkable difference. About that age, or soon after, they come to be employed in very different occupations. The difference of talents comes then to be taken notice of, and widens by degrees, till at last the vanity of the philosopher is willing to acknowledge scarce any resemblance.
“But without the disposition to truck, barter, and exchange, every man must have procured to himself every necessary and conveniency of life which he wanted. All must have had the same duties to perform, and the same work to do, and there could have been no such difference of employment as could alone give occasion to any great difference of talents. As it is this disposition which forms that difference of talents, so remarkable among men of different professions, so it is this same disposition which renders that difference useful.
“Many tribes of animals acknowledged to be all of the same species derive from nature a much more remarkable distinction of genius, than what, antecedent to custom and education, appears to take place among men. By nature a philosopher is not in genius and disposition half so different from a street porter, as a mastiff is from a greyhound, or a greyhound from a spaniel, or this last from a shepherd's dog. Those different tribes of animals, however, though all of the same species, are of scarce any use to one another.
“The strength of the mastiff is not, in the least, supported either by the swiftness of the greyhound, or by the sagacity of the spaniel, or by the docility of the shepherd's dog. The effects of those different geniuses and talents, for want of the power or disposition to barter and exchange, cannot be brought into a common stock, and do not in the least contribute to the better accommodation ind conveniency of the species. Each animal is still obliged to support and defend itself, separately and independently, and derives no sort of advantage from that variety of talents with which nature has distinguished its fellows. Among men, on the contrary, the most dissimilar geniuses are of use to one another; the different produces of their respective talents, by the general disposition to truck, barter, and exchange, being brought, as it were, into a common stock, where every man may purchase whatever part of the produce of other men's talents he has occasion for..."