New Books in Economics

John Quiggin, "Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So Badly" (Princeton UP, 2019)

Jan 10, 2024

John Quiggin, author of Economics in Two Lessons, discusses the flaws in the belief that markets are always correct, highlighting externalities such as unemployment, income inequality, and pollution. He proposes policies to make markets work better by addressing opportunity costs. The podcast covers topics like the concept of opportunity cost, the market's inability to solve pollution issues, addressing income inequality through tax rates, the shift from monopoly to monopsony, and the importance of balanced regulation and property rights.

46:51

Episode guests

John Quiggin

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Episode notes

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Quick takeaways

Markets are not always efficient and can fail due to externalities and factors that distort opportunity costs.

A mixed economy that combines market mechanisms with regulation and redistribution can address the limitations of markets and create a fairer society.

Deep dives

The history and significance of Economics in One Lesson

The podcast episode explores the book Economics in One Lesson by Henry Hazlett and its influence. Hazlett's book argues that there is no such thing as a free lunch and that even seemingly costless government actions have hidden costs. The book has been widely read since its publication in the 1940s. However, the guest, John Quiggin, author of Economics in Two Lessons, challenges Hazlett's idea and suggests that it is incomplete. Quiggin believes that while markets work, they don't always work in the way that Hazlett suggests. He argues that the logic of market economics only applies when certain conditions are met.

Introduction

3min

Opportunity Cost and Economic Systems

13min

Support for HNET and the Market's Inability to Solve Pollution Issues

3min

Consideration of Carbon Charges and the History of Macroeconomics

17min

Addressing Income Inequality and the Role of Tax Rates

3min

The Shift from Monopoly to Monopsony and the Importance of Balanced Regulation

4min

Understanding Economics and the Importance of Property Rights

3min

Trying to follow the key macroeconomic debates that are swirling around DC, CNBC, the WSJ and the NYT? If you are but don't want to go back to graduate school or re-open your college macroeconomics textbook, John Quiggin has a solution. His Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So Badly (Princeton University Press, 2019) achieves several goals. First, it frames the current debates, providing a concise, well-written history of macroeconomics and the key twists and turns in economic policy that have brought us to our current state of (general) disagreement on economic policy. Second, he structures his view of macroeconomics as a rebuttal to a 1946 book by Henry Hazlitt in 1946 called Economics in One Lesson. Seventy years later, Quiggin counters Hazlitt's view that markets are "correct," in that their prices accurately reflect opportunity costs for buyers and sellers. Quiggin's second lesson highlights the externalities and factors that distort those opportunity costs and lead to suboptimal outcomes such as extended unemployment, excessive income inequality, and the seemingly intractable problem (from an economics perspective) of pollution. In the final portion of his book, Quiggin argues what policies he thinks would make markets work better by generating a more accurate understanding of opportunity costs. To some, his prescriptions will look like the program of the Left. The great irony is that his goal is to make markets function better, not rid us of them. Whether you agree with his prescriptions are not, this is a very interesting book and a great way for non-economists to get up to speed on current debates and policy issues without having to do a single test for statistical significance or worry about heteroscedasticity.

Daniel Peris is Senior Vice President at Federated Investors in Pittsburgh. Trained as a historian of modern Russia, he is the author most recently of Getting Back to Business: Why Modern Portfolio Theory Fails Investors. You can follow him on Twitter @Back2BizBook or at http://www.strategicdividendinvestor.com

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