Book Review: The Price of Everything

You’ve likely heard of the pop economics genre, but did you know that there is econ-fiction too?  Perhaps econ-fiction is a merely a branch of pop economics, but either way, it makes for a great way to teach basic economics to inquiring young (and old) minds alike.  And as far as I’m concerned, Russ Roberts (a professor at George Mason University) writes some of the most powerful didactic fiction about economics around.

His book, The Price of Everything, is a parable that engages readers and nudges them to think deeply about the economic concepts that we encounter in our everyday lives.  The two main characters in the story are Ramon Fernandez, a budding tennis prodigy who is studying at Stanford, and an economics professor named Ruth Lieber.  At one point in the story, Professor Lieber poses the following question: “Don’t you think it’s strange that in America, the country where the greatest economic revolution in history has taken place, the average citizen has no idea why we’re richer?”  I would add that it’s not only strange, it’s very strange.  Attempting to answer this question in intelligible and non-dull terms was (I suspect) Roberts’ impetus for writing this book.

At the beginning of the story, we learn that an earthquake has just rocked the Bay Area.  In the wake of the disaster, Ramon and his girlfriend are on a quest to purchase some flashlights.  Ever the champion for social justice, Ramon becomes outraged to find out that Big Box (a fictional mega-store) is selling flashlights at double the price of a Home Depot, which is fresh out of flashlights.  While waiting in line to purchase the pricey flashlights at Big Box,  Ramon becomes distraught when he sees a poor woman waiting in line who realizes that she can’t afford baby food and diapers because of the store’s post-disaster price hike.  She only has $20, but needs $35 worth of food and diapers.  Ramon asks: “How could she have known that Big Box would gouge her with doubled prices?”  We then learn that Ramon collects money from other store patrons and is soon using a megaphone in front of the store to rile people up about this perceived injustice.

Not long after this debacle at Big Box, we learn there is a planned protest against Big Box on the Stanford campus.  This is where Ramon meets Ruth Lieber, a university provost and economics professor.  They chat about the protest and slowly end up developing a relationship that unfolds throughout the rest of the book.  The economic lessons contained within the book largely play out through their many conversations.

In one such lesson, Ruth explains to Ramon how free-market price signals allow an economy to operate more efficiently than centrally planned ones.  She goes on to elucidate (in a Hayekian vein) about the knowledge problem in economics, which Friedrich Hayek himself put this way: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

At one point in the parable, Professor Lieber is in the middle of a discussion with Ramon and we get the sense that she’s feeling a bit rattled by a questioning Ramon.  She collects herself and then shares some profound wisdom about economics by saying the following:  “Oscar Wilde said that a cynic is someone who understands the price of everything and the value of nothing.  Clever people like to say the same thing about economists, as if we were soulless calculators in green eyeshades, obsessed with prices and money.  We’re mercenaries, it is said, weighing costs and benefits down to the last penny.  But economics is not about prices and money.  Economics is about how to get the most out of life.”

If there is only one thing to learn from this book (or about economics in general), I believe it is this last point.  The beauty of Roberts’ writing (and his podcasting) is that his ideas get in your bones. Accordingly, I highly recommend this book to anyone interested in learning about the dismal science, I mean economics.

[click the following for amazon.co.uk and amazon.ca copies of the book]

 

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