How Economists Transformed the World as You Know It
EspañolEconomists do far more than create economic forecasts and models — at least that’s the takeaway from the latest book by famed public economist Robert Litan.
In Trillion Dollar Economists, Litan dives into the history of the modern economics as a profession, focusing on how its ideas have created and transformed businesses across the board, from Google Ads to finance, from dating websites to fracking.
While dozens have waded into the intersection of business and economics before him, Litan’s eminently readable work is unique because of the author’s extensive experience with government, think tanks, the private sector, and his personal interactions with some of the field’s great thinkers.
It begins with a simple notion: the public has no idea what most economists actually do, and holds many misconceptions of them as a group. To counter this, Litan repeatedly illustrates the ways in which economists have improved peoples’ lives through the formation of businesses that create value for consumers.
For example, Litan explains how the ideas of economist William Vickery underpin the way Google sells its ubiquitous online ads through what are known as “second-price auctions,” rather than its original model, which involved hordes of salespeople trawling the country for buyers like the newspapermen of old.
This innovative technique has allowed Google to earn billions from its search engine and made reaching customers easier for millions of businesses. The book goes on to detail numerous other businesses created by innovations in economics, each one based on the work of different economists, many of them Nobel Prize winners.
Still greater rewards have come when economists helped to deregulate various industries — trucking, freight rail, and airlines — to bring the flexibility needed in modern economies. Behind each successful deregulation, economists worked in tandem with policy makers to unwind command-and-control systems that few growing up today can imagine.
Especially enlightening to the reader is Litan’s description of how Alfred Kahn and Betsy Bailey teamed up with Senator Edward Kennedy to bring about the end of airline regulation in the early 1970s. By combining reform from both within the bureaucracy and from Congress, prices and route flexibility were gradually introduced into what was once among the most centrally-planned of industries.
Behind each successful deregulation, economists worked in tandem with policy makers to unwind command-and-control systems that few growing up today can imagine.
Around the same time, under the influence of Kahn and Darius Gaskins, trucking would be deregulated, making the economy even more responsive. Litan makes it clear that without these reforms, the internet age, and the modern economy that comes with it, would never have happened.
By bringing down costs to move goods and people over long distances, millions of new businesses were made viable and the barriers to entering new markets fell dramatically. Better, by making “just in time” shipping reliable, businesses’ inventory costs melted away, allowing for greater productivity and making the nation even more competitive in world markets.
Nearly everyone has a friend or family member that can attribute their livelihood to the economist-led deregulation of the 1970s. When some say that economists are only about models and numbers, one need only point to this period to see that this is simply not true.
The book is filled with short, page-long biographies of influential economists working throughout the last half century. Each of them provides interesting insight into some of the great personalities that led to the innovations in each chapter.
It is here that Litan shines as a public economist, breaking down complex individuals and their work into digestible mini-biographies, including many that he worked with throughout his long career in government and at the Brookings Institution. Of all the aspects of the book, these stand out in terms of insight by clearly explaining what helped bring great thinkers to the ideas that would later make them famous.
While there is little to object to in the book, it runs the risk of becoming dry at times. The long chapter devoted to financial innovation is slow, albeit perhaps understandably, as Litan works to humanize a sector often misunderstood by the general public.
He is almost too careful not to overstate the promise of future innovation, and as such largely avoids making predictions about the next wave of influence economists may have on business.
Despite these minor drawbacks, the book is a great read, and is recommended for any layman looking to understand what it is that economists really do. There author takes pains to avoid any overtly ideological points, instead offering an excellent broad treatment of the last 50 years of business economics. Trillion Dollar Economists serves as a great primer for those looking to dig deeper.
Edited by Laurie Blair.