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Monday, May 1, 2006

Book Review: Learning Economics, by Arnold Kling

Learning Economics

by Arnold Kling

Xlibris Corp. • 2004 • 376 pages • $32.99 hardcover; $22.99 paperback

Reviewed by Donald J. Boudreaux

Because the marginal social value of eloquent explanations of basic economics exceeds the mar­ginal social cost of supplying these explanations, efficiency requires that more such explanations be pro­duced.

Got that?

The jargon-laden opening sen­tence of this review is typical of much too much eco­nomic writing. Economists have many important and interesting things to say about the world, but it’s the rare economist who is both able and willing to share eco­nomic insights with non-economists. It’s the even rarer economist who does so from a market perspective.

Boasting a Ph.D. in economics from M.I.T. — he was a classmate of Paul Krugman — Arnold Kling is as well­ credentialed and technically skilled as any economist. He has a knack for using metaphors and analogies effective­ly; his sentence construction is clear; he assiduously avoids jargon; and he’s interested in relevant topics.

Learning Economics is a collection of 57 essays — each about the length of an op-ed — on public-policy topics ranging from health care to education to stock prices. The engaged reader will learn, up-close and clearly, just how a master economist uses the economic way of thinking in ways that matter most.

Learning Economics reminds me of Capitalism and Free­dom. Like Milton Friedman, Kling isn’t shy about using basic economics to push market-oriented policy pro­posals. Most of these proposals will be agreeable to Free­man readers. For example:

“One of the silliest government positions ever created was that of ‘Chief Trade Negotiator.’ There is no need to negotiate—we can do our part for free trade now. The whole concept of trade negotiation is absurd. It is like saying to your spouse, ‘I’ll change my underwear regularly, but only if you’ll agree to brush your teeth.’ We should eliminate our harmful trade barriers, not keep them in place just to have ‘negotiating leverage.’”

Some of Kling’s proposals will strike many libertari­ans as dancing with the devil. For example, he advocates what he calls the “bleeding-heart libertarian approach to income redistribution.” The libertarian part is to abolish government schooling, health-care subsidies, Social Security, and income taxation. But this plan also relies crucially on instituting a tax on consumption.

Many libertarians disparage such proposals. “It leaks,” as some say, using Leonard Read’s famous phrase. And indeed it would leak if it were an answer to the question “What’s the best possible way to arrange reality?” But Kling isn’t here laying out a picture of his ideal world; rather, he’s offering a specific proposal to improve the world.

Such efforts as this are easy and tempting to reject. While I believe that we should never lose sight of the attainable ideal, we should also recognize that moving toward that ideal is most likely to be achieved by a series of small steps rather than one heroic leap. We should understand that even small improvements that fall short of the ideal generally are better than no movement at all. Spelling out the details and benefits of practical policy improvements that might be politically doable is a strength of this book.

Not that I agree with everything Kling writes. His macroeconomics is too Keynesian for my taste. But even his Keynesianism is well-argued and should be under­stood and engaged by serious thinkers.

On almost all non-macroeconomic issues, however, I find myself in enthusiastic agreement with Kling. Here are two of my favorites.

To explain that lower wages paid to foreign work­ers—such as Indian software programmers — reflect their correspondingly lower productivity, Kling asks the killer question to those who insist that lower foreign wages will drain America of all jobs: “Why don’t firms hire more programmers, since they are getting more in value than what they are paying? If the reason that firms do not increase their hiring is that all of the qualified pro­grammers are already working, then why do the work­ers not demand higher wages? Until wages come in line with productivity, there are unexploited profit opportu­nities.”

Therefore, the fact that American firms still hire lots of American workers means that hiring foreign workers at lower wages generally is no better a deal than hiring American workers at higher wages. In other words, don’t hold your breath for the giant sucking sound.

Cutting clean through to the heart of the matter on health insurance, Kling observes, “The fundamental problem is that we believe that health insurance is some­thing that only should be received as a gift — never obtained for oneself. Thus, we immediately assume that when a family does not have health insurance, they are to be pitied for not having received the gift, rather than being blamed for not having taken responsibility.”

Learning Economics is intelligently and clearly written. I welcome Arnold Kling to my gallery of champions of economic literacy.

Donald J. Boudreaux ([email protected]) is chairman of the economics department at George Mason University.

  • Donald J. Boudreaux is a senior fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University, a Mercatus Center Board Member, and a professor of economics and former economics-department chair at George Mason University.