Naked Economics by Wheelan, Charles (best books to read .TXT) 📗

Ms. McCarty exceptional is that she was by no means poor. In fact, four years before her death she gave away $150,000 to the University of Southern Mississippi—a school that she had never attended—to endow a scholarship for poor students.

Does Oseola McCarty’s behavior turn the field of economics on its head? Are Nobel Prizes being recalled to Stockholm? No. She simply derived more utility from saving her money and eventually giving it away than she would have from spending it on a big-screen TV or a fancy apartment.

Okay, but that was just money. How about Wesley Autrey, a fifty-year-old construction worker in New York City. He was waiting for the subway in Upper Manhattan with his two young daughters in January 2007 when a stranger nearby began having convulsions and then fell on the train tracks. If this wasn’t bad enough, the Number 1 train was already visible as it approached the station.

Mr. Autrey jumped on the tracks and shielded the man as five train cars rolled over both of them, close enough that the train left a smudge of grease on Mr. Autrey’s hat. When the train came to a stop, he yelled from underneath, “We’re O.K. down here, but I’ve got two daughters up there. Let them know their father’s O.K.”3 This was all to help a complete stranger.

We all routinely make altruistic decisions, albeit usually on a smaller scale. We may pay a few cents extra for dolphin-safe tuna, or send money to a favorite charity, or volunteer to serve in the armed forces. All of these things can give us utility; none would be considered selfish. Americans give more than $200 billion to assorted charities every year. We hold doors open for strangers. We practice remarkable acts of bravery and generosity. None of this is incompatible with the basic assumption that individuals seek to make themselves as well off as possible, however they happen to define that. Nor does this assumption imply that we always make perfect—or even good—decisions. We don’t. But each of us does try to make the best possible decision given whatever information is available at the time.

So, after only a few pages, we have an answer to a profound, age-old philosophical question: Why did the chicken cross the road? Because it maximized his utility.

Bear in mind that maximizing utility is no simple proposition. Life is complex and uncertain. There are an infinite number of things that we could be doing at any time. Indeed, every decision that we make involves some kind of trade-off. We may trade off utility now against utility in the future. For example, you may derive some satisfaction from whacking your boss on the head with a canoe paddle at the annual company picnic. But that momentary burst of utility would presumably be more than offset by the disutility of spending many years in a federal prison. (But those are just my preferences.) More seriously, many of our important decisions involve balancing the value of consumption now against consumption in the future. We may spend years in graduate school eating ramen noodles because it dramatically boosts our standard of living later in life. Or, conversely, we may use a credit card to purchase a big-screen television today even though the interest on that credit card debt will lessen the amount that we can consume in the future.

Similarly, we balance work and leisure. Grinding away ninety hours a week as an investment banker will generate a lot of income, but it will also leave less time to enjoy the goods that can be purchased with that income. My younger brother began his career as a management consultant with a salary that had at least one more digit than mine has now. On the other hand, he worked long and sometimes inflexible hours. One fall we both excitedly signed up for an evening film class taught by Roger Ebert. My brother proceeded to miss every single class for thirteen weeks.

However large our paychecks, we can spend them on a staggering array of goods and services. When you bought this book, you implicitly decided not to spend that money somewhere else. (Even if you shoplifted the book, you could have stuffed a Stephen King novel in your jacket instead, which is flattering in its own kind of way.) Meanwhile, time is one of our most scarce resources. At the moment, you are reading instead of working, playing with the dog, applying to law school, shopping for groceries, or having sex. Life is about trade-offs, and so is economics.

In short, getting out of bed in the morning and making breakfast involves more complex decisions than the average game of chess. (Will that fried egg kill me in twenty-eight years?) How do we manage? The answer is that each of us implicitly weighs the costs and benefits of everything he or she does. An economist would say that we attempt to maximize utility given the resources at our disposal; my dad would say that we try to get the most bang for our buck. Bear in mind that the things that give us utility do not have to be material goods. If you are comparing two jobs—teaching junior high school math or marketing Camel cigarettes—the latter job would almost certainly pay more while the former job would offer greater “psychic benefits,” which is a fancy way of saying that at the end of the day you would feel better about what you do. That is a perfectly legitimate benefit to be compared against the cost of a smaller paycheck. In the end, some people choose to teach math and some people choose to market cigarettes.

Similarly, the concept of cost is far richer (pardon the pun) than the dollars and cents you hand over at the cash register. The real cost of something is what you must give up in order to get it, which is almost always more than just cash. There is nothing “free” about concert tickets if you have to stand