Let’s keep things simple

Let’s first acknowledge this. A substantial part of the economic literature is worthless.

No, I am not talking about those long pieces of articles which explore the best solution of whether to keep the family toilet seat “up” or “down” after using it in order to economize one’s effort, from the Game Theory perspective. Though there are thousands of better ways to kill your time, but still it applies some economics to an event which is very much related to our everyday life (Those who are dying to know the answer to this puzzle from this economist, you should keep the seat “as it is” after use.)

My definition of worthlessness encompasses those articles which are simply ineligible. Because either they are simply not related to our life or are full of jargons and mathematical derivations without explaining the real issue. While browsing through the American Economic Review (a standard journal of economic literature) I often encounter titles like “Iteratively Stable Cheap Talk Equilibria”. I wonder how many economists will read the whole of it, leave alone the common man.

But is economics that difficult a subject? Of course not. After all, it is all about the people and their life. It is no Astronomy which is though fascinating, but far from life. So, can’t economics be a little simpler so that we can read and understand it? Of course it can.

An interesting way of identifying good economics from junk is suggested by the US economist Tyler Cowen in his book “Discover your Inner Economist”. He suggests 3 tests:
1) The Postcard Test - It should be possible to take a good economics argument and write it out on the back of a moderate-sized postcard.

2) The Grandma Test - Most economic arguments ought to be intelligible to your grandmother.

3) The Aha Principle - If the basic concepts are presented well, economics should make sense and arouse that “Aha” feeling within you.

These 3 tests are petty strong test indeed, and most of the economic articles I know will fail this test. But then the question arises “Why is economics so difficult to understand though it is about our everyday life?” Well, I am afraid; the answer ironically can be explained by application of standard economic theory, which I try to keep within a postcard size limit.

It is called the snob effect. We know that the supply and demand for a good determines its price. However, sometimes, price of a good one is willing to pay depends not only on the demand and supply for that good (along with income, taste and preference, price of substitutes etc), but also on the demand of that particular good by other people. Thus, when we see an economist is presenting his paper on “Aggregation of granularity model”, as a half economist I nod my head in agreement. Seeing this, the guy sitting next to me perceives the presentation as valuable as I am finding it interesting. Thus the price he is willing to pay (in terms of this level of attention) for the product (here the junk presentation) is higher than what he would be willing to pay while listening to it alone. This phenomenon spreads like wild-fire, and every (stupid) guy suddenly finds the presentation interesting.

You want evidence? There are enough true stories of layman disguised in economist’s clothes presenting to the audiences full of (so-called) renowned economists, and are being heavily praised for their work (rather than being kicked out). In one such incident, a person who knew nothing of economics (absolutely) presented in such a seminar for one whole session, and on fear of been getting caught, ran away in the middle of the second session. However, it was perceived by the audience that the “economist” walked out of stage feeling insulted!