Priceonomics

“The dismal science has been getting a makeover,” The Economist writes in a review of Tyler Cowen’s book An Economist Gets Lunch: New Rules for Everyday Foodies. “Long associated with the abstruse art of mathematical modelling, economics has become the discipline of choice to explain all sorts of phenomena, from human decision-making to the mysteries of the housing market.”

If you haven’t noticed the trend, you’ve been living under a rock -- or at least not following the same reading list as your average Priceonomicist. The book Freakonomics, which compared the organizational charts of McDonalds and drug dealing gangs, and data mined sumo wrestling tournament results to expose match fixing, sold 4 million copies. Financial Times columnist Tim Hartford’s Undercover Economist series is another popular example and NPR’s Planet Money podcast has gained popularity with the tagline:

Imagine you could call up a friend and say, "Meet me at the bar and tell me what's going on with the economy." Now imagine that's actually a fun evening.

The trend extends beyond economics to behavioral economics and its pop sci cousin psychology. Malcolm Gladwell’s best sellers turn social science abstracts into cocktail party conversation. Nobel Prize winning psychologist Daniel Kahneman’s Thinking, Fast and Slow, an investigation of the fallibility of human judgment, seemed to be recommended by every member of Foreign Policy’s Global Thinkers list

So what is the appeal? Why have economic concepts and psychology studies escaped from niche conferences and the pages of overpriced textbooks into popular nonfiction and media?

Without achieving quite as much renown, the Priceonomics blog fits right in with these economic and social science takes on pop culture and everyday life. In this author’s experience, part of the appeal lies in that an economics slant can be a cheat code, offering the ability to approach a well discussed topic in a novel, more explanatory way. 

The food truck scene has inspired plenty of conversation, critical reviews, and commentary. But Priceonomics talked cost structures with truck owners rather than ingredients. We learned that San Francisco food trucks have lower fixed (startup) costs than a restaurant, but still have high marginal costs, and that the main challenge of a food truck is to stand out and establish a brand among all the food trucks attending marketplaces like Off the Grid

So while many customers assume buying from a truck means low prices, then are disappointed by their $10 sandwich in a paper tray, Priceonomics discovered the actual merits of food trucks: for foodies, the opportunity to buy lunch in an environment optimized for creativity and novelty; for owners, lower barriers to entry that allow them, especially minority, low-income, and immigrant chefs, the opportunity to start their own business.

Similarly, everyone has an opinion about why television shows have been so great (or terrible) recently. Or they complain about producers relying on tired, old formulas instead of taking risks on novel shows. But by following the money in Hollywood, and describing the path shows take from script to screen, Priceonomics contributor Jon Nathanson elucidated how producers do nothing but take risk in the search for the next critically acclaimed hit show and how the emergence of content providers like Netflix has heightened the stakes in the search for the next Breaking Bad or Game of Thrones.

Nobel Prize winning economist Paul Krugman explains the allure of economics’s conceptual clarity as the difference between history’s focus on the what -- chronicling the past in all its dizzying detail -- and economics’s attempt to explain the why -- the simple underlying principles. A New Yorker profile explains why economics appealed to Krugman, who originally intended to study history as an undergraduate:

Why did some societies have serfs or slaves and others not? You could talk about culture and national character and climate and changing mores and heroes and revolts and the history of agriculture and the Romans and the Christians and the Middle Ages and all the rest of it; or, like Krugman’s economics teacher Evsey Domar, you could argue that if peasants are barely surviving there’s no point in enslaving them, because they have nothing to give you, but if good new land becomes available it makes sense to enslave them, because you can skim off the difference between their output and what it takes to keep them alive. Suddenly, a simple story made sense of a huge and baffling swath of reality, and Krugman found that enormously satisfying.

Traditional journalists and writers of economics-laced journalism and nonfiction mirror this historian-economist divide.1 Traditional reporting offers a wealth of details while its social science-y peers provide tools to understand underlying principles driving the story. 

This author enjoys looking for theories and concepts to illuminate stories in the way described above, and at its best, this popular renaissance of the dismal science reveals a celebration of nerdy curiosity and complements traditional reporting.

Yet it’s curious that readers have embraced this pop sci writing during a backlash against ivory tower economists’ grand theories. (Perhaps the best, quick example of this backlash is psychologist Daniel Kahnemann’s reception of the Nobel Prize in Economics for his work undermining the neoclassical economics assumption of individuals as rational actors.) For as many a dissenter has argued, theories and models can act as blinders just as easily as they can uncover underlying patterns.

Krugman gives an example of this limitation through the history of serfdom. In a reflection on the merits of economics, he writes of the conceptual clarity of the Ricardian model of land rent:

Every economist knows it: peasants cultivate the best land first, then the next best, and so on. Competition among the landowners ensures that each peasant gets no less than what he could grow on the best uncultivated land; competition among the peasants that he gets no more. It's a beautiful example of economic reasoning in action.

Unfortunately, he notes, the theory doesn’t always hold:

I had a sudden fantasy vision of a bright but cynical undergraduate declaring that this was nonsense, that the landowners would conspire to keep the peasants down. And that undergraduate would, historically, often - but not always - have been right. Indeed, my old teacher Evsey Domar wrote a classic paper arguing that serfdom and slavery often were the response of ruling classes to labor shortage. Thus Russia imposed strict restrictions on the mobility of peasants from the late 16th century onward, precisely because the availability of rich new farmland on the expanding frontier would otherwise have increased their bargaining power against landlords….

On the other hand, of course, it has not always worked that way. England's peasants were not reenserfed after the Black Death drove up their wages; attempts to build a system of indentured white servitude in America failed; slavery was abolished; and in the modern world wages do more or less reflect marginal productivity.

History and economics are a trade-off. But as Krugman notes, “the clarity and power of economic analysis can spoil you.” The downside of the interest in economics-laced journalism and commentary is potential blindness to when it overgeneralizes, or even an arrogant assumption that the world’s complexity can repeatedly be explained by the same concepts -- a mindset too easily exemplified by investment bankers, management consultants, or tech executives who explain everything with their favorite business lingo and announce their place in the monied, professional class.

Luckily, journalists and bloggers borrowing from economics and social science have the option to be unfaithful to their models. History, outliers, and everything that fails to fit within the clean conceptual lines may be the enemy of academics, but it’s journalistic bread and butter. 

Using social science concepts helps clarify underlying principles that explain complex stories -- as well as illuminate where complexity overwhelms expectations. Where the human story overwhelms the social dynamics, whether it’s the possibility that tipping actually results in worse service, how cultural changes have led courts to value children as priceless in modern wrongful death suits but only by the value of their wages in the 1800s, or the fact that America’s only successful mile high club airline is located in the Bible Belt

The rise of economics-laced journalism, commentary, and conversation is a nerd’s dream come true and a boon to writing in that it complements traditional reporting’s attention to detail with tools that can frame and explain the principles underlying larger stories. Journalists and readers just need to remember to balance the two -- and enjoy economic analysis responsibly.

This post was written by Alex Mayyasi. Follow him on Twitter here or Google PlusTo get occasional notifications when we write blog posts, sign up for our email list.

Of course, traditional journalists have long used statistics and drawn on the occasional social science theory just as plenty of historians have looked for grand theories since Edward Gibbons’s The History of the Decline and Fall of the Roman Empire. 



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