Andrew Samwick sums up everything that is wrong with economics as practiced in the nation's economics departments (as opposed to departments of urban planning, public policy, geography, sociology, political science):This raises two issues that bear further comment. First, what have I left out? The challenge for Max, and anyone else who wants to play, is to enumerate other ideas in economics that are as fundamental as optimization and equilibrium that should be included in the statement. Certainly "behavior" and "outcomes" aren't ideas in the way that I have used the term (if that was the intent of including them). The Comments section is open and awaits your entries.
"What does it mean to "see the economics" in a given situation? Economics consists of exactly two ideas: optimization and equilibrium."
Insofar as optimization and equilibrium do not explain behavior and outcomes, which is to say a ton, "economics" is useless, if not toxic. I should say that theories founded on optimization and equilibrium as employed by Steve Levitt, Samwick, and others can be illuminating, in and of themselves, but I don't think I've ever seen such a breathtakingly narrow characterization of economics.
Second, Max has the proposition inverted. Neither Freakonomics nor my last post are an attempt to "see the economics" to the exclusion or even the diminution of other disciplines that may be relevant in understanding a given situation (unless statistical evidence bears that conclusion out). On the contrary, what Levitt has done is to show that economics (characterized by me, not necessarily Levitt, as optimization and equilibrium) is relevant in situations where it might not seem to apply: baby naming, teacher cheating, sumo wrestling, criminal activity, and others. As I noted in the previous post, this ability to spread the insights of economics into new areas has been the hallmark of the Chicago School and Levitt is its leading member in this generation.
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