It is called Trillion Dollar Economists. The concept is to show how useful the ideas of economists have been in business, finance, and public policy. For example, auctions have been used in business (Google’s ad words, e-Bay’s classified ads), price discrimination is very important in the real world (I like to tell students that “price discrimination explains everything”), option pricing is important, etc.
I like the concept, and I like much of the material. Litan’s taste in economics–what he considers to be valid and useful–is much closer to mine than that of just about anyone else who might attempt a similar project. However, this is one of those books that I wish had been structured differently. I will put my extended remarks below the fold.
1. I would have liked to see Litan’s personal reminiscences consolidated into a single autobiographical chapter. That would have helped the reader get to know Litan better. It would have had the side benefit of keeping some of his anecdotes out of other chapters, where they often came across to me as annoying digressions.
2. I would have suggested writing the book explicitly to work as a supplemental reading for freshman economics courses. The classic model I have in mind is Heilbroner’s The Worldly Philosophers, which profiled some of the most famous economists (Smith, Malthus, Ricardo, Keynes, and others) and tried to convey the context and significance of their ideas. I very much enjoyed Heilbroner as a supplemental reading over 40 years ago, but I would never use it in a class today, because it is so leftist and outdated. Teachers of introductory economics courses could very much use a book with Litan’s ideas and Heilbroner’s style.
The version of Litan’s book that I have in mind might have been entitled “Practical Men,” after the famous quote from Keynes that Litan employs in front of the first chapter. The point of this title would have been to show the practical influence of the economic ideas described in the book.
As with Heilbroner, I would have organized chapters by economists. The economists might have been Vickrey, Coase, Walter Oi, Alfred Kahn, Alvin Roth, Vernon Smith, Hal Varian (I would have liked to see more about Information Rules), Eugene Fama, Fischer Black, Sam Peltzman, and Bill James, not necessarily in that order.
3. One topic on which my taste differs from Litan’s is econometrics. Litan’s exemplary empiricist is Lawrence Klein, a bad choice in my view, given that I regard Klein’s macroeconometric modeling and forecasting project as a grandiose and dismal failure. I view multiple regression in general as a weak method, and on this I have plenty of company–see Angrist and Pischke. To me, a good empiricist is someone who frames questions carefully and thinks about how to use data to arrive at reliable answers. That is why I would include Bill James, even though he is a quantitative baseball analyst and not a published economist.
4. Another topic on which I feel strongly is financial regulation. I am much more sympathetic to Litan’s take than I would be to that of most other economists, but I still would like to have seen something a bit different. My suggestion would be to include financial regulation in my proposed chapter on Sam Peltzman. I believe that financial regulation suffers frequently from the “Peltzman effect,” in which the intended goals of regulation are often thwarted by changes in behavior.
5. Very often, Litan stops short of explaining the ideas that he mentions. He leaves it as an exercise for the reader to try to find out what a Shapley value is. He calls Street Smarts “the best practical guide for entrepreneurs ever written” without sharing a single idea from that book. I understand that you don’t want to write a 500-page book, but I think he needs a more reader-friendly approach.
I would have suggested the following:
–for a few central ideas, go into depth. Litan does this in the case of price discrimination. However, I think that for an introductory student, Walter Oi’s “Disneyland Dilemma” article is much more accessible than Ramsey’s “Theory of Taxation” piece. Oi does not appear in Litan’s index, but I would have recommended having a chapter on Oi and putting the price-discrimination material in that chapter.
–For the ideas that are not central enough to merit their own chapters, remove them from the main body of the text. Instead, put them into appendix-like additions to each main chapter. This approach would improve the flow of the book and keep students from getting lost in the forest. The appendices could be “suggestions for further exploration,” in which Litan would strike a conversational tone, talking to the reader as if he were talking to a student who had come to his office with curiosity about a particular topic.
6. If Litan would have rejected my advice, I can understand. As the song says, “You can’t please everyone, so you gotta please yourself.” That is the way I felt about my macro memoir. Both Litan and I inject our feelings and reminiscences into these works. His tone is upbeat, while mine is bitter. Because his book concerns microeconomics and mine concerns macro, I would say that our respective tones are appropriate.