Capítulo 1
The Economics of Everything: How Markets Shape Our Morality
Have you ever wondered why we've become so comfortable with the idea that "everyone has their price"? Or why politicians increasingly treat voters as selfish consumers rather than engaged citizens? These transformations in our thinking didn't happen by accident. Over the past fifty years, a quiet revolution has taken place in how we understand human behavior and morality. Ideas that began in economics departments and think tanks have seeped into our everyday thinking, fundamentally altering our conception of trust, justice, fairness, and social responsibility.
Jonathan Aldred's "Licence to Be Bad" has been called "the book that predicted the rise of today's ethical blind spots" by The Guardian and "essential reading for anyone concerned about the moral dimensions of public policy" by Nobel laureate Joseph Stiglitz. The book traces how economic theories, once confined to academic journals, have transformed our society's moral compass-often without us even noticing.
Capítulo 2
Battery Chickens and the Free Market Revolution
In 1945, dairy farmer Antony Fisher read Friedrich Hayek's "The Road to Serfdom" and became determined to advance its free-market ideas. When Fisher approached Hayek about entering politics, Hayek offered unexpected advice: don't. Instead, he suggested Fisher work with the Mont Pelerin Society to establish research institutes that would influence "second-hand dealers in ideas"-journalists and intellectuals who shape public debate.
Fisher took this advice to heart. After visiting America's Foundation for Economic Education, he discovered battery-chicken farming-then unknown in Britain. After making millions introducing broiler chickens to the UK, Fisher founded the Institute of Economic Affairs in 1955, the think tank that would later arrange Margaret Thatcher's first meeting with Hayek. By 1981, Fisher had established the Atlas Economic Research Foundation, which has grown into a network of over 500 free-market organizations across 90 countries.
This network represents a remarkable success story in the spread of economic ideas. When Thatcher met Hayek, he was so moved he emotionally remarked, "She's so beautiful." The ideas that began with Fisher's chicken farms would transform global politics, with economists increasingly claiming that selfishness should be "conserved" like a scarce resource rather than exercised like a muscle that strengthens with use.
The influence of economics stems partly from providing a respected language through which the powerful frame their demands. As Keynes concluded, "the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas"-a sentiment Hayek agreed with despite their intellectual differences. Economics now fills the gap left by religion's decline, unconsciously conditioning our worldview through its concepts and values, limiting which political and moral questions can even be asked.
Capítulo 3
The Prisoner's Dilemma: How Game Theory Changed Our View of Trust
In 1948, a cocky nineteen-year-old math prodigy named John Nash boldly arranged a meeting with Albert Einstein to discuss his ideas on gravity. Einstein advised the young man to "study some more physics." This student would go on to develop a Nobel Prize-winning concept that transformed economics, social science, biology, philosophy, and law.
Nash's breakthrough emerged from the secretive RAND Corporation in 1950s Santa Monica, where mathematicians developed nuclear war strategies using game theory-a framework assuming humans as purely selfish and hyper-rational. Game theory's father, John von Neumann, was a mathematical genius so legendary colleagues joked he was a demigod imitating humans. Von Neumann advocated preventive nuclear war against the USSR using game-theoretic logic: "If you say why not bomb them tomorrow, I say why not today?"
What finally propelled game theory beyond RAND's secretive walls was not mathematics but a story-the Prisoner's Dilemma, devised by Nash's supervisor Albert Tucker in 1950. This simple scenario, where two isolated prisoners must decide whether to betray each other, elegantly captured countless real-world conflicts between individual and collective interests. The dilemma's logic suggested rational players must choose non-cooperation, leading to worse outcomes for both-a pattern seen in arms races, price wars, and environmental destruction.
Yet reality contradicted theory: firms often avoid price wars, communities manage common resources sustainably, and nations cooperate on emissions. Game theorists responded with repeated games theory, where cooperation emerges because players anticipate future interactions. This created a twisted notion of trust-I trust you only when it's already in your interest to keep promises. Real trust, however, means believing someone will do right even when they could profit by breaking promises.
By 1959, Nash's mental health had deteriorated dramatically-declining a University of Chicago professorship because he claimed to be becoming "Emperor of Antarctica." With von Neumann dead and Nash incapacitated, game theory appeared to have reached a dead end. Yet remarkably, in 1994, Nash shared the Nobel Prize with John Harsanyi and Reinhard Selten.
Despite fundamental flaws, game theory's seductive promise of a unified social science theory proved irresistible to many academics. The theory's misunderstood implications have entered common thinking: cooperation is for suckers, trust is naive. Yet game theory only justifies selfishness under remarkably narrow conditions-when everyone else is already behaving selfishly. Most critically, game theory's exclusive focus on consequences rather than historical contexts means it operates with a restricted understanding of humanity that prioritizes future over past.
Capítulo 4
The Coase Theorem: When Wealth Trumps Justice
Imagine a job applicant awkwardly offering a potential employer a $500 incentive to hire them. How unnatural does this feel? This scenario introduces Illinois' 1983 "Hiring Incentive Experiment" where unemployed participants could offer prospective employers a $500 bonus. The experiment largely failed-over a third refused to participate, only 4% secured jobs where employers received payment, and many qualifying employers never claimed their money.
The economists who designed this experiment were guided by the Coase Theorem, attributed to British economist Ronald Coase. This theorem assumes everyone is always willing to make deals, with cash payments overriding social conventions, moral rules, or laws. Despite the experiment's poor performance, Coase's ideas revolutionized legal thinking through his 1960 paper "The Problem of Social Cost," which became the most-cited law journal article in history.
Coase's journey to economics was entirely accidental-born in 1910 with a leg weakness, he couldn't study history at university due to missing Latin requirements, and disliked mathematics needed for chemistry, leaving commerce as his only option at the London School of Economics. The pivotal moment in his career came at a dinner party where he faced twenty hostile Chicago economists, including Milton Friedman. Initially voting 20-1 against Coase, after hours of debate, they all converted to his position-arguably the moment when modern privatization was conceived.
A crucial misunderstanding developed between Coase and his Chicago supporters. While they interpreted his farmer example as realistic justification for reducing government intervention, Coase actually intended it as a thought experiment showing the absurd conclusions that follow from the fictional assumption of "zero transaction costs." In reality, transaction costs-obstacles to deal-making like identifying affected parties, negotiation time, and enforcement-are unavoidable and prevent optimal outcomes through private bargaining alone.
The law-and-economics movement gained legitimacy through Richard Posner, who became the most cited legal academic of the 20th century. Applying Coase's ideas to antitrust law, Posner argued that regulations protecting small firms from predatory pricing by dominant companies should consider the financial interests of the bullies too. His "wealth maximization" principle held that if a dominant firm's losses from regulation exceeded smaller firms' gains, the regulation was counterproductive.
The Coase Theorem's influence has expanded far beyond academia into everyday conflicts. When airline passengers fought over reclining seats-incidents that diverted multiple flights in 2014-journalist Josh Barro proposed a Coasean solution: passengers should simply bargain with each other over the "right to recline." Yet this approach ignores crucial realities-many travelers want peaceful flights without haggling, the rich would disproportionately benefit, and the transaction costs of constant negotiation are substantial.
By the 1980s, Coase lamented that his ideas had been catastrophically misinterpreted, but by then careers and ideologies were built upon the misunderstanding. The usual spelling "Coasean" wasn't even Coase's choice-he preferred "Coasian"-a final indignity for a man who lost control over both the meaning and spelling of his own legacy.
Capítulo 5
Public Choice Theory: When Government Became the Enemy
In the early 1950s, the RAND Corporation incubated another intellectual revolution as significant as game theory but completely independent of it-this one sparked by a lowly intern. Ken Arrow, a graduate student interning at RAND in 1948, tackled questions about group preferences and rationality in a report titled "Social Choice and Individual Values." This work, later developed into a book, would help Arrow win the Nobel Prize at just fifty-one-younger than any other winner before or since.
Arrow's central discovery, the Impossibility Theorem, had a shocking implication that could fit on a bumper sticker: DEMOCRACY IS IMPOSSIBLE. Arrow approached voting systems mathematically, defining desirable features any sensible system should have and expressing these in mathematical terms. His breakthrough came when he proved that no voting system-including systems yet unimagined-could both possess these desirable features and produce consistent collective preferences.
Arrow's Impossibility Theorem was widely misunderstood. Though commonly interpreted as proving democracy impossible, Arrow himself called it the "General Possibility Theorem" and intended it to map the terrain of necessary compromises in voting systems. The theorem could be sidestepped by modifying any of Arrow's assumptions, as Amartya Sen later demonstrated. By expressing his personal philosophy in mathematical language, Arrow made his particular view of democracy seem like universal truth.
James McGill Buchanan, born in 1919 in rural Tennessee, developed a deep distrust of government from his Southern upbringing. Within six weeks at the University of Chicago, he became a "zealous advocate" of free markets under Milton Friedman's influence. His public choice theory, described as "politics without romance," assumed everyone in politics-politicians, bureaucrats, and voters-acted solely from selfish motives. This simple idea eventually became the consensus view of government as bloated, incompetent and intrusive-a perspective now so widespread that Americans compare Washington politics unfavorably to head lice and root canals.
Public choice theorists pioneered equating rational behavior with selfishness, with Anthony Downs flatly asserting in his influential 1957 book that rational behavior always means "directed primarily to selfish ends." The theory contradicts itself: if voters are consistently fooled by spending promises, how could they support Reagan and Thatcher's austerity platforms? And it fails to explain why people vote at all when individual votes rarely change outcomes-the "paradox of voter turnout" that continues to trouble theorists.
An alternative explanation for growing public expenditure comes from William Baumol's "cost disease" theory. While mass-produced goods become cheaper relative to average incomes over time, labor-intensive services like healthcare, education and childcare become relatively more expensive. This happens because productivity rises rapidly in manufacturing through automation and innovation, while remaining stagnant in services where human time is integral to the service itself.
Public choice theory has created a self-fulfilling prophecy in politics. By portraying politicians, bureaucrats and voters as purely self-interested, it has corroded public service ethos and professional standards. Anthony Downs's economic theory of democracy, which treats voters like selfish consumers and elections like market competition, has led political parties to rely on marketing rather than substantive debate, making their policies increasingly similar as they compete for the median voter.
Capítulo 6
Free-Riding: When Not Doing Your Bit Became Smart
The concept of "free-riding"-enjoying benefits made possible by others' contributions without contributing yourself-has undergone a remarkable transformation. While the behavior has existed throughout human history, the term's widespread usage outside academia only began in the 1970s, reflecting a fundamental shift in how such behavior is perceived. What was once considered morally questionable has increasingly become viewed as rational and smart.
The intellectual journey of free-riding from moral failing to rational choice has deep roots. In Plato's Republic, Glaucon's tale of Gyges-who uses an invisibility ring to commit theft and murder-argues that everyone would pursue self-interest without penalty, essentially recommending free-riding. Socrates rejected this reasoning. Similarly, Adam Smith noted businesses' tendency to form cartels but didn't celebrate it.
By the 1930s, with capitalism under threat from communism, economists needed new ideas to defend competition. The breakthrough came with the free-riding concept: collaboration fails because each participant realizes they can profit more by quietly ignoring agreements while benefiting from others' restraint. Mancur Olson, a farm boy from North Dakota, expanded this technical economic argument into a broader social theory in his 1965 work "The Logic of Collective Action," arguing that self-sacrifice when one's contribution makes no difference is pointless-not immoral.
Despite the seemingly unassailable logic of free-riding, we remain uneasy about it. We justify our small free-rides with appeals to fairness: "I've been a loyal fan," "the machine still covers its costs," or "everyone else does it." These justifications suggest our discomfort with free-riding behaviors.
The free-riding argument contains a subtle, flawed principle: if something will happen regardless of your participation, it's irrational to contribute. This implies we should only do things where we're indispensable. Yet this contradicts how we actually make decisions. Consider seeing someone drowning when another strong swimmer is nearby-free-rider logic says you should stay with your dog since the person will be rescued anyway, but most of us would help. We understand that we can make a difference even when an activity would proceed without us-our contribution helps cause it to happen.
Climate change exemplifies our free-rider dilemma. Many believe individual actions are meaningless against the enormity of global emissions-the UK contributes only 2% of global emissions, and worldwide 170 tonnes of coal burn every second. This perception of negligible impact, echoed by corporations and governments, becomes the greatest obstacle to climate action. Psychological factors reinforce this thinking: cognitive dissonance leads to self-deception when truth is uncomfortable; immediate sacrifices feel more vivid than distant benefits.
The rise of free-rider thinking represents a subtle but profound shift in how we understand individual impact. When everyone waits until the last moment to contribute, hoping to avoid participation, we create a dangerous game of Chicken where one miscalculation can collapse the entire collective project. Just decades ago, free-riders were considered irrational, not contributors. Socrates and Adam Smith believed small contributions matter, indirect effects count, and people deserve credit for helping make something happen even if it would have happened anyway.
Capítulo 7
Economic Imperialism: Markets in Everything
Our world increasingly applies economic thinking to previously sacred domains. The wealthy now hire disabled guides to skip Disney lines, pay homeless people to stand in Congressional hearing queues, and trade in previously taboo markets like organ sales and prison cell upgrades. While many find these practices distasteful, defenders argue they create efficiency-organ markets save lives, university admission auctions might help ambitious poor students. This transformation represents not just more things for sale, but a fundamental shift in how we conceptualize human activity.
Gary Becker pioneered the expansion of economic thinking beyond traditional boundaries. Beginning with his PhD thesis on discrimination, Becker argued that bigotry costs the bigot financially-defining discrimination solely through its economic impact on the discriminator. He claimed free markets would naturally eliminate discrimination since discriminatory firms would face higher costs and fail. This thinking, once ridiculed, eventually earned him a Nobel Prize and influenced government policies like immigration, where many countries now offer residency to those who purchase sufficient assets.
Despite critics portraying him as championing selfish homo economicus, Becker denied assuming selfishness, claiming instead he "tried to pry economists away from narrow assumptions about self-interest." His approach assumed individuals "maximise welfare as they conceive it, whether they be selfish, altruistic, loyal, spiteful, or masochistic." Yet his theories contained troubling assumptions, like those in his "Treatise on the Family" where he assumed unpaid housework was more specialized than paid employment and that families had altruistic "heads."
Beckerian economics functions as pop psychotherapy, suggesting we're smarter than we realize-making unconscious calculations that drive our behavior. More significantly, Becker provided an intellectual framework attacking moral rules, social norms and government interventions. His approach consistently argues against government policy by claiming that since everyone is rational, they're already making optimal choices. This reasoning dismisses public health concerns by framing early deaths from smoking or obesity not as social problems but as personal preferences.
In his influential 1977 paper with George Stigler, "De Gustibus Non Est Disputandum," Becker extended this "no arguing over tastes" principle beyond food preferences to include "tastes" for discrimination, nationalism, or suicide-effectively silencing moral and political debate by reducing deeply held values to mere preferences. This collapses our moral values, social norms and religious convictions into preferences equivalent to choosing chocolate or strawberry ice cream, ignoring the uniquely human capacity to step back from our immediate desires and reflect on what we truly want.
Tom Schelling defied easy categorization. Though his career suggested a Cold War defense hawk-working for the Marshall Plan, White House, and RAND-he wasn't the typical game theorist. Receiving the 2005 Nobel Prize in Economics "for enhancing our understanding of conflict and cooperation through game-theory analysis," Schelling quipped he "must have been doing game theory without knowing it." Unlike mathematical game theorists, he used minimal math, believing it was "used too much to show off."
Schelling's method for valuing statistical lives is used by governments worldwide but has fundamental flaws. Workers typically lack knowledge about job risks, consider multiple factors beyond wages when choosing employment, and often accept dangerous jobs out of economic necessity rather than genuine choice. Even if reliable numbers could be found, the terminology of "statistical lives" misleadingly obscures that real lives are lost.
The assumption that price measures value has revolutionized our thinking. When extreme inequality exists in market societies, interactions between unequals become horrific for the poor and painful for the rich. Ultimately, the case for restricting markets comes from respecting our common humanity-either eliminate extreme inequalities or ban markets where parties trade on vastly unequal terms.
Capítulo 8
The Price of Everything: When Incentives Replaced Values
In 1911, Frederick Taylor published "The Principles of Scientific Management," introducing management techniques to improve worker efficiency. Initially controversial-causing a strike at Watertown Arsenal and a Congressional investigation that deemed Taylorism dehumanizing-these techniques gradually became mainstream. By the 1960s, behaviorists like Skinner were applying similar reward-punishment systems beyond the workplace. Today, Taylorist techniques are seen as legitimate and apolitical, with Amazon warehouses using sophisticated tracking devices to monitor workers like "robots in human form."
An old joke about Lord Beaverbrook illustrates economists' theory that "everyone has their price." When a rich man asks a woman if she'll spend the night with him for $10,000, she considers it; when he lowers the offer to $100, she asks indignantly what kind of person he thinks she is. He replies, "We have already established that. We are just haggling over the price." This one-dimensional view of motivation assumes money is interchangeable with all other motivations.
In reality, financial incentives often backfire by "crowding out" intrinsic motivation. Studies show introducing payment can reduce desired behaviors-Swiss villagers rejected compensation for a nuclear waste facility, viewing it as a bribe; daycare centers that fined parents for late pickups saw lateness increase. Financial incentives can undermine the moral obligations and intrinsic motivations that drive teachers, doctors, and even firefighters.
Financial incentives can permanently destroy intrinsic motivation, even after they're removed. In a fable, a Jewish tailor cleverly pays hooligans who harass him, gradually reducing payments until they stop coming altogether. Similarly, when the Haifa daycare centers removed their late-pickup fines, parents continued arriving late-their sense of moral obligation had been permanently eroded. Money fundamentally changes how we perceive situations.
The Swiss village of Wolfenschiessen initially rejected a nuclear dump but later accepted when offered $3 million annually for forty years-about $4,687 per family, more than a month's salary. While this suggests everyone has their price, such massive financial incentives are prohibitively expensive as a general solution. More fundamentally, incentives create a contradiction: they claim to preserve freedom while controlling behavior. As philosopher Isaiah Berlin argued, real freedom requires more than superficial choice-it demands autonomy and self-direction.
Behavioral economists and Nudgers often fail to recognize their own cognitive flaws while assuming subterfuge is essential to their approach. Unlike financial incentives where people know they're being incentivized, nudges frequently rely on covert manipulation, making them less subject to democratic scrutiny and more vulnerable to special interests.
Effective incentives must incorporate moral messages and cultural context. In Indian cities, drummers publicly shame tax avoiders by performing outside their offices-a culturally specific approach that succeeds where conventional methods fail. Economics has limited our thinking about incentives by assuming selfishness, focusing narrowly on welfare maximization, and framing incentives as voluntary exchanges that can't harm anyone. This ignores our complex, contradictory desires for both autonomy and paternalistic guidance.
Capítulo 9
The Illusion of Certainty: When Numbers Replace Judgment
In 1960, a false alarm at NORAD nearly triggered nuclear retaliation when computers indicated with "99.9 percent certainty" that Soviet missiles were incoming from Siberia. Only when officials questioned the model and discovered Khrushchev was at the UN did they pause long enough to realize the system had mistaken the moon rising over Norway for a missile attack. This illustrates the dangerous persuasive power of extreme numbers and computer predictions-the same blind faith that contributed to the 2008 financial crash.
In August 2007, Goldman Sachs CFO David Viniar described seeing "25-standard deviation moves" in markets several days in a row-events so statistically improbable they should happen less often than once since the Big Bang, equivalent to winning the UK national lottery jackpot twenty-one consecutive times. Yet rather than abandon these falsified models, Goldman and other banks continued to rely on them.
Probability emerged in Western society during the Enlightenment as humans sought control over fate rather than submission to uncertainty. This confidence was shattered by World War I, when the assassination of Archduke Ferdinand triggered unexpected global chaos. In its aftermath, economists Frank Knight and John Maynard Keynes both distinguished between measurable uncertainty (where probabilities can be calculated from frequencies) and unmeasurable uncertainty (where no such information exists).
The Savage orthodoxy, building on von Neumann's decision theory, encouraged people to believe uncertain futures could be "managed" by inventing probabilities. This blurred the boundary between beliefs and facts, replacing Keynes's "we simply do not know" with comforting probability numbers-a pretense of scientific knowledge. This "actuarial alchemy" flourishes especially in stock markets, where past performance statistics are used to predict future outcomes.
Financial crises and earthquakes follow similar mathematical patterns-not bell curves but "power law" or "fractal" distributions. Unlike human height, which has natural biological constraints, these phenomena have no inherent limits and are "scale-invariant"-their patterns look similar regardless of magnification. In fractal distributions, extreme events remain realistic possibilities, not the "never happen" events at bell curve extremes.
Daniel Ellsberg's early life was marked by tragedy-his mother and sister died in a car crash when he was fifteen after his exhausted father fell asleep at the wheel. Though academically gifted, Ellsberg was no narrow strategist; he was described as an "arrogant, egotistical, flirtatious party animal" whose brilliance impressed even those who found him difficult. His groundbreaking 1961 paper introduced what became known as the Ellsberg Paradox, which cleverly demonstrated that even supporters of orthodox decision theory-when faced with pure uncertainty-refused to invent probabilities as the theory required.
The Stern Review of 2006 made headlines by claiming climate change inaction would cost between 5-20% of global GDP annually. This sparked an industry of economic modeling, leading to a consensus figure of about 5% damage from 4C warming. But these neat numbers mask an incredible array of assumptions and omissions. The lower 5% figure ignores critical risks like Arctic permafrost thawing, methane release, and climate migration conflicts.
Some risks, like climate change and financial crises, feature both pure uncertainty and the possibility of catastrophe-irreversible damage or system collapse. With such risks, traditional economic thinking that maximizes benefits-minus-costs becomes recklessly inadequate. Instead of efficiency, we need redundancy and resilience-like humans having two kidneys rather than one. The precautionary principle offers an alternative approach focused on security and resilience rather than maximization.
Capítulo 10
The Myth of Meritocracy: Why You Don't Deserve What You Get
Inequality has been rising in most wealthy countries since 1980, reversing the trend of 1945-1980 when inequality was successfully reduced. Today's CEO earns 354 times the typical worker's salary compared to just 20 times fifty years ago. While the Reagan/Thatcher free market ideology contributed to this shift, it's not a complete explanation.
Vilfredo Pareto, despite his obscurity to the general public, has profoundly shaped modern thinking about inequality. This enigmatic figure-once a railway engineer who inherited wealth and lived with twelve pedigree cats-developed two influential ideas. First, "Pareto efficiency" transformed politically charged debates about inequality into seemingly objective discussions about efficiency improvements where someone gains and no one loses. Second, Pareto discovered that income and wealth follow a scale-invariant distribution-the same pattern of inequality repeats at every level, even among the super-rich.
While we celebrate entrepreneurs like Bill Gates as meritocratic success stories, closer examination reveals the crucial role of luck and privilege. Gates benefited from family wealth, early computer access at an elite private school, and fortunate business connections through his mother that helped secure the IBM deal that made Microsoft. History is filled with similar "geniuses" whose success depended heavily on circumstance and timing-like Alexander Graham Bell, credited with inventing the telephone only because Antonio Meucci couldn't afford a $10 patent renewal fee.
Arguments favoring inequality appeal directly to ego: you're special, therefore inequality is natural. We downplay luck's role in success because acknowledging it undermines our motivation. Parents teach children that effort guarantees achievement-a necessary lie that enables perseverance. This self-delusion extends to lottery winners who describe elaborate number-picking strategies and investors who attribute successes to judgment but failures to bad luck.
Puzzlingly, belief that people deserve their economic position is strongest in America, where evidence contradicts it most clearly. Americans are twice as likely as Europeans to believe poverty reflects laziness rather than circumstance, yet intergenerational mobility is actually more limited in the US. The parent-child income correlation in America (0.5) matches the correlation between parents' and children's heights-children born to poor parents are as likely to remain poor as tall parents' children are to be tall.
The dramatic rise in inequality is driven by changes at the very top, with a simple, astonishing explanation: the top 1% simply decided to pay themselves more, initially encouraged by economic theory. Economists proposed "optimal contracting" with performance-based bonuses to align CEO interests with shareholders. In 1990, influential economists Jensen and Murphy argued CEO compensation wasn't high enough to attract top talent. Within fifteen years, CEO compensation tripled, before these economists finally recanted.
The assumption that lower taxes motivate people to work more has little empirical support. Many workers can't increase their hours, and some might actually work less when after-tax pay rises since they can maintain living standards with fewer hours. The widespread view that income tax is theft-taking what rightfully belongs to earners-is fundamentally flawed. Ownership rights cannot exist without taxation funding the legal system that enforces them.
Hope exists in growing awareness that being born poor isn't a child's fault, yet dramatically affects life chances. Once we accept the role of luck and our broad inheritance-including knowledge from previous generations and birth in a richer country-we can properly frame taxation. As thinkers from Mill to Paine emphasized, tax isn't taking your money but returning to society the social wealth it bestowed on you.
Capítulo 11
Rebuilding Our Relationship with Economics
Most people have a troubled, confused relationship with economics-easy to ridicule yet increasingly deferred to. This relationship is deeply unequal. Many economists see themselves as scientific observers looking down on ordinary people, sometimes openly regarding them as stupid. MIT economist Jonathan Gruber admitted a healthcare law was deliberately drafted to be unintelligible "given the stupidity of the American voter," while another economist advised that "where common sense and economics conflict, common sense is wrong."
The hottest trend in economics research is the rise of "data geeks" who abandon theory entirely, focusing on "natural experiments" where two real-world circumstances differ in only one crucial aspect. However, these seemingly theory-free conclusions rarely come "for free." Often the randomization isn't truly random, statistical significance tests have been heavily criticized, and many studies fail replicability standards.
Economists present behavioral economics as addressing concerns about unrealistic models, but it's merely a minor tweak. The "people" in behavioral economics still bear no resemblance to real humans-they're just homo economicus with bugs, making predictable mistakes rather than being perfectly rational. Real humans, however, make genuine unpredictable choices.
A more equal relationship between economics and society requires several guiding principles. First, economists are not separate from the economy-unlike Darwin observing beetles, economists' theories change the behavior they study. Economic forecasts move markets, unlike weather forecasts affecting weather. Second, there are few "facts" in economics-despite economists' scientific pretensions, economics is woven through with political and ethical judgments. Third, the economy is not separate from us-we must reject the notion that economic forces are beyond our control.
To rebuild a healthier relationship with economics, economists must communicate better, taking care to explain the reasons behind their conclusions rather than presenting black-box arguments. They should state their political and ethical judgments openly and explicitly, rather than remaining silent about their assumptions or concealing funding sources from vested interests. If economists want to regain public trust, they must be less arrogant, take responsibility for their advice, and admit their mistakes.
Economics education needs fundamental reform. Unlike physics or chemistry, economics isn't an experimental science and shouldn't be taught as containing immutable laws. Undergraduate courses should introduce students to diverse schools of economic thought through historical context, rather than focusing exclusively on orthodoxy. As Joan Robinson noted, "The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists."
