Economics in two lessons: why markets work so well, and why they can fail so badly
Description
A masterful introduction to the key ideas behind the successes—and failures—of free-market economicsSince 1946, Henry Hazlitt’s bestselling Economics in One Lesson has popularized the belief that economics can be boiled down to one simple lesson: market prices represent the true cost of everything. But one-lesson economics tells only half the story. It can explain why markets often work so well, but it can’t explain why they often fail so badly—or what we should do when they stumble. As Nobel Prize–winning economist Paul Samuelson quipped, “When someone preaches ‘Economics in one lesson,’ I advise: Go back for the second lesson.” In Economics in Two Lessons, John Quiggin teaches both lessons, offering a masterful introduction to the key ideas behind the successes—and failures—of free markets.Economics in Two Lessons explains why market prices often fail to reflect the full cost of our choices to society as a whole. For example, every time we drive a car, fly in a plane, or flick a light switch, we contribute to global warming. But, in the absence of a price on carbon emissions, the costs of our actions are borne by everyone else. In such cases, government action is needed to achieve better outcomes.Two-lesson economics means giving up the dogmatism of laissez-faire as well as the reflexive assumption that any economic problem can be solved by government action, since the right answer often involves a mixture of market forces and government policy. But the payoff is huge: understanding how markets actually work—and what to do when they don’t.Brilliantly accessible, Economics in Two Lessons unlocks the essential issues at the heart of any economic question.
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9780691186108
9780691154947
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Published Reviews
Choice Review
The title alludes to Hazlitt's Economics in One Lesson, a popular libertarian tract first published in 1946. Hazlitt's lesson is that tampering with free markets has dire consequences. Quiggin's lesson one presents a more muted celebration of free markets. Ideally, markets create prices that reflect the opportunity costs of economic decisions. More often than not, however, the ideal is never realized. That becomes the basis of Quiggin's lesson two: market prices fail to include all of society's opportunity costs. Quiggin's two lessons are a non-technical rendering of introductory economic theory: under ideal conditions markets are efficient but market failures are commonplace. For Quiggin lesson two merits the most attention. Two-thirds of the book is devoted to market failure. Quiggin cites the usual microeconomic failure sources, including monopolies, externalities, provision of public goods, and information problems. More novel is the inclusion of macroeconomic failures such as recessions, unemployment, and the perverse consequences of property rights allocation on income distribution. Since the rules of capitalism are socially determined, pollution, depressions, and other market failures aren't natural calamities. Appropriately, the final third of the book offers policies to mitigate the market's many failures. Summing Up: Highly recommended. Upper-division undergraduates through faculty. --Roger S. Hewett, emeritus, Drake University