The Minds of Economists
The Minds of Economists
How We Think, What We Think, What We Do, How We Act
NOTE: I’m posting excerpts from my not-yet-published book, Fifty-Million-Dollar Baby: A Skeptic’s Eyes on Economics, Ethics, and Health. The goal is to edit the manuscript in plain view—to seek your comments, corrections, and suggestions.
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Before I could understand economics, I had to understand the minds of economists. Some of my earliest insights into the field came from observing the often-eccentric lot of professors at Columbia University, where I began my doctoral studies in 1980. Here are five anecdotes about five professors that have stuck with me over the years. The first told us in our first week that economics would take over our minds like something out of Invasion of the Body Snatchers; he was correct, but the results weren’t ominous, as we imagined. The second saw a world of traffic congestion and other annoyances and set out to change it—only to die quietly in traffic after his greatest triumph. The third told a fellow student that she was asking the wrong question when trying to understand the violence on New York’s streets. The fourth was a prodigy who, against all good sense, kept a car in Manhattan and knew the foolishness of doing so. The fifth exhibited a tiny, but deeply moving, act of humanity that brings a tear to my eye when I think about it four decades later.
[Note: This essay originally had four anecdotes. On 2/2/24, I added a fifth—”Death and Life in Great American Cities.”]
INVASION OF THE MIND SNATCHERS
In the 1956 film, Invasion of the Body Snatchers, extraterrestrial seed pods replicate individuals and replace them with identical-looking, emotionless automatons. My first week at Columbia, Phillip Cagan, the serious-faced, reedy-voiced director of graduate studies seemed to promise to do something similar to us newcomers. Standing before us at our first gathering as a class, he rubbed the back of his own head, as was his habit while speaking, and told us something along the lines of:
“This is a department of economics. After you finish here, you’ll think economics, eat economics, drink economics, walk economics, talk economics, sleep economics, and dream economics. You’ll filter every thought you have through economics.”
Some of us sat in silent fear of this pledge to rewire our brains for some as-yet-unknown process. It sounded like the early stages of recruitment into a cult.
In the 44 years since, I’ll have to say that Cagan’s promise was absolutely on the mark, but the results turned out to be humanizing, rather than dehumanizing. Economic methodology, in turned out, demanded a level of respect for humanity that is often missing in other social sciences. In studying how people make choices, for example, economists don’t presume that, “People drive too fast because (unlike me) they’re too stupid to understand the dangers.” Economists, instead, must ask, “Why do intelligent people drive too fast, given that they know and understand the dangers of doing so?” It turns out that assuming that people are smart is more challenging than assuming they’re stupid. But assuming they’re smart yields far greater insights.
When I taught the economics of health and healthcare to four dozen classes of healthcare professionals (1999-2017), most arrived at my class assuming we would focus on managing the finances of a medical practice or forecasting the future of hospital profitability. Instead, they got was what a couple of students referred to as “ethics with equations.” We talked about choices, choices, choices. Is saving a life today more valuable than saving two lives ten years from now? How do we decide which of three patients should get a transplantable kidney? How is a one-story house a substitute for a hip replacement? Should blood banks be allowed to pay money for blood donations? Why did Virginia choose to sexually sterilize thousands of healthy people from 1927 to 1980?
The economic way of thinking guided me in marriage and childrearing, with highly favorable results. The knowledge that choices are infinite and negotiation is always possible made ours a very peaceable home.
Phil Cagan was right. Since 1980, I have thought economics, eaten economics, drunk economics, walked economics, talked economics, slept economics, and dreamt economics. My thoughts filter endlessly through economics. And it has worked out pretty well, frankly.
FOR WHOM THE TOLL KNELLS
William Vickrey was pretty much retired by the time I arrived at Columbia, but he was a constant presence at department seminars. A perpetually sunny character, he seemed old and a bit haggard. (He was younger then than I am now!) He was overweight and had a habit of falling asleep and snoring loudly during seminars. Then he would suddenly give one loud snort, open his eyes, and eloquently discuss intricate points that the speaker had made while Vickrey was asleep. When a dolphin sleeps, only half its brain sleeps at a time, so the other half can continue swimming. I figured that Vickrey’s brain was similarly configured. (I noted in an earlier article, “The Pigeons of Rothschild,” that another professor, Robert Mundell, had a similar habit.)
We students regularly debated which of our professors would be the first to win the Nobel Prize. Two of our guesses were Robert Mundell and Edmund Phelps, both of whom did eventually win (in 1999 and 2006, respectively). A third, Jagdish Bhagwati, received a Nobel—but only on an episode of The Simpsons (2010). But to our shock, the department’s first Nobel went to Bill Vickrey. He was a practical visionary who saw problems in the world and set out to find solutions. He wanted to make certain kinds of auctions more efficient, and the result is now known as a “Vickrey Auction.” His greatest fame, though, came in his quest to reduce the miseries of traffic congestion and queuing. He proposed dynamic pricing, whereby tolls rise during peak demand hours and drop during off-hours. He was evangelical about the idea, which eventually caught on. Other dynamic pricing systems, such as Uber’s surge pricing, owe a debt of gratitude to Vickrey’s vision.
When Vickrey became the first of our professors to receive the Nobel, I was shocked and overjoyed. The Economics Department at Columbia held a big party honoring his achievement. And then, three days later, he was found dead of a heart attack in his car on one of the expressways north of New York City. My closest friend from the department—another alumnus who thinks, eats, drinks, walks, talks, sleeps, and dreams economics—wrote me shortly after the news hit the wires. Paraphrasing, his email read, “I mean no disrespect to Professor V, but I couldn’t help wondering whether he suffered his heart attack while stalled in traffic behind a slow-moving toll booth.”
Recalling Professor Vickrey’s warm sense of humor, I suspect he would have enjoyed my friend’s query.
DEATH AND LIFE IN GREAT AMERICAN CITIES
At Columbia, I studied the economics of antitrust under Professor Donald Dewey—an amiable, loquacious storyteller with a fine analytical mind that often led in unusual directions. On one occasion, Dewey chatted with me and one other grad student about crime—which sometimes included murder—in the vicinity of the university.
I believe we were discussing Morningside Park—a magnificent 30-acre cliffside expanse designed in the 19th century by the great Frederick Law Olmsted and Calvert Vaux. For five years, I lived 500 feet from the park, not once setting foot within its bounds because of stern warnings by police and others. In the course of our discussion, the other student shook her head and asked Dewey:
“In the 1940s or 50s, you could sleep all night on a bench in the middle of Central Park without worrying about anyone bothering you. Now, it’s constant fear wherever we go. What went wrong with New York City?”
Without missing a beat, Dewey answered:
“You’re asking the wrong question. For most of New York City’s history, the streets were extremely dangerous. Back in colonial times, the murder rate was horrific, and this situation continued until the early 20th century. Then, for some reason, from maybe the 1920s till the late 1960s, the city became remarkably safe. What we’re experiencing now is simply a return to what New York had always known over the centuries. Rather than asking what went wrong since then, you should be asking what went right during that brief exception to the city’s long, violent history.”
DO AS I TEACH, NOT AS I ACT
One of our first-year professors was a young guy, just slightly older than his students. He was a suave European, and many thought he was the most promising mind in a department that included a dazzling array of geniuses, including the three who received Nobel Prizes from the Nobel Foundation and the fourth who received the prize on The Simpsons.
The young professor, whom I won’t name, used to go out to dinner with us students quite often. One night, over Thai food, he mentioned his car, leading to a conversation that went something like this:
ME: Car? You have a car?
HIM: Yeah.
ME: Why on earth do you have a car? For me the greatest thing about living in New York is not having a car.
HIM: I dunno. Some days, I just wake up and want to go on the road, maybe to shop at the mall in New Jersey. So, I just get in my car and go.
ME: What do you mean you just get in your car and go? Where do you park it?
HIM: In a garage a few miles north of campus. The northern tip of Manhattan.
ME: So you spend an hour catching a subway and wending your way to this car, just to go shopping in New Jersey? And then you spend an hour getting back home after you park it?
HIM: Yeah.
ME: How much does your parking space cost a month?
HIM: $250 a month. [NOTE: $250 back then is equivalent to almost $900 today. My wife and I paid around $1,000/month ($3,600 today) for our elegant, 1,400-square foot apartment in a fashionable Columbia building with a doorman.]
ME: How often has the battery been stolen?
HIM: Three times.
ME: You’ve had accidents that banged the car up, I assume?
HIM: Yeah.
ME: Windows smashed sometimes?
HIM: A couple of times.
ME: How often do you actually use this car?
HIM: Maybe once a month.
ME: So why don’t you just get rid of the car and rent one from Avis when you want to go to New Jersey?
HIM: Because Avis is $50 a day, and, at that rate, a shopping trip to New Jersey would never seem worthwhile. So I would never do it.
ME: So let me get this straight. You spend $250 a month for a parking space, plus hundreds more a month for replacement batteries, windows, fender repairs, sky-high insurance, and maintenance—and you spend two hours getting to and from your car—all so you can avoid a $50 rental car fee? In other words, you’re spending maybe $6,000 a year to avoid $600 in rental fees.
HIM: OK. Yeah. I know it’s stupid. I’m an economist, so I know it’s irrational. But I also know that if I had to pay $50 for a rental car, I would never go shopping in New Jersey.
ME: Here’s an idea. Why don’t you give an envelope containing $600 to a friend of yours and say, “Whenever I rent a car, I’ll ask you to reimburse me from this envelope. One year from today, take any cash I didn’t use and buy something for yourself. Just don’t give it back to me under any circumstances.” This way, you’ve spent the money. The marginal cost of a trip to New Jersey is now zero—since you’ve already paid for the rental car in advance. The $600 is a sunk cost that you never have to think about again. This arrangement will even encourage you to take a trip to New Jersey or up to New England, since you won’t want to waste the money you handed over to your friend.
That, by the way, is how I invented Zipcar over dinner. But the real life lesson here is that there’s a sharp distinction between what economists know and the way economists actually behave.
THE GENTLEST ECONOMIST
C. Lowell Harriss was an old-school gentleman with manners from a bygone era. Professorial garb ranged from suits to blue jeans, but Professor Harriss was generally outfitted in bankerly three-piece pin-stripe suits. In my mind, he dressed like the dapper Chance (Peter Sellers) in Being There. The professor’s manner was a bit formal and always gracious.
During my years at Columbia, now more than four decades in the past, an anguished-looking, heavyset woman, seemingly homeless, generally sat on the pavement outside of our classroom building. She mumbled to herself and scribbled in little notebooks. Her possessions were gathered in two or three great knit bags. At the end of the workday, she would struggle off with those bags and disappear off to who-knows-where.
One day, several years into my studies, I sat drinking coffee in the Economics Department, in the lounge that was surrounded by professors’ offices. The door to the hallway opened and, to my shock, in walked the homeless-looking woman, giant knit bags in tow. She walked past me to the end of the department, where she put her bags down and knocked on Professor Harriss’s office. The door opened, and Professor Harriss greated her with a little nod and a big smile and welcomed her into his office, shutting the door after her.
I was stunned. An administrator I knew was standing nearby and I asked, “Can you please explain that scene to me?” She said, “Don’t you know about her?” I said, “Apparently not.” She then explained (and I paraphrase):
“Years ago, she was his star student. He was advising her on her dissertation. Then, she had some sort of breakdown, and the result was what you see every day when you pass her on the sidewalk. Now and then, she comes up here to talk with him about her ‘dissertation’—which is what you see her scribbling in those little notepads. Gentleman that he his, Professor Harriss always makes time to see her and to listen attentively to whatever she is saying.”
After a while, the door opened, and Professor Harriss escorted her to the elevator. In its most caricatured form, economics focuses on self-interest and ignores such human sensibilities as altruism and selflessness. That day, I saw an economist defy that stereotype in the starkest way imaginable. Once again, a sharp distinction between what economists know and the way economists actually behave.
I have aspired, not always successfully, to emulate Professor Harriss’s generosity of spirit.
LAGNIAPPE
THE ECONOMIST’S MIND IN ONE SMALL BOOK
During my years of teaching economics, I required virtually every class to read Steven Landsburg’s The Armchair Economist: Economics & Everyday Life. I had them read the book before the first day of class. The reason was that it was and still remains the single best place to learn the answer to the question, “What is economics?” It is written for intellectually curious laypeople and, to my recollection, has no equations or diagrams. Just clearly written, often amusing words. Many economists have written books for laypeople that say, in effect, “I am an economist, with a very special way of looking at the world. Let me tell you what I have learned.” Landsburg’s book, in contrast, says, “I am an economist, with a very special way of looking at the world. Let me show you how I have learned the things that I know. Big difference. Thanks to Landsburg’s little book, my students arrived on Day One with a pretty good idea about where my class might take them.
Evidently some of us think like an economist without studying economics, formally. I was frequently told by my grad students that my budget and policy classes were more like an economics class than political science. I spent a lot of time discussing trade-offs and 2nd and 3rd order effects.
I wish people would listen to Dr Cagan. There is a regrettable modern tendency to dismiss any difference of opinion as due to ignorance or stupidity. And so, people will never understand each other.
I drive through the Bay Area fairly often, and I think Prof. Vickrey's ideas live on in their HOV lanes.
The other two gentlemen are to be admired.
Great article, sir, and some insight into your unusual thought process. (To a non-economist.)