Things that are cheaper than WhatsApp

I love this gag blog and I think it should be shown in every economics classroom next week. (“Gag blog” is an unpleasant phrase).

The magic and mystery of resource allocation are on full display here. Even if we take Google’s enormous cash endowment for granted (I still don’t understand how they make any money at all), is it really true that WhatsApp is the best use of Google’s $15 billion? It’s probably not the best use of society’s $15 billion. I think this would be a great starting point for a complexity modeling project, but I would be surprised to find that cash (read: value; read: resources) recirculating to the benefit of mankind the way it would if it were, say, directly invested in a permanent clean water supply for the entire Central African Republic. Or even in a new, high-efficiency power grid for the U.S.A. Or in keeping community hospitals from closing in the outer boroughs of New York. Or in many of the things on that blog.

The great failure of undergraduate economics education, to me, is that this issue is generally left unaddressed. Or worse, students are told that things like this can’t really happen, and if they do it’s because of “policy interventions” or some analogous cop-out. Resource allocation is the most fundamental line of inquiry in economics. In my opinion it is the distinguishing topic from mere demographics, finance, and sociology (although some sociologists do great economics in places economics seems to have failed). It is also, from what I can tell, still quite poorly understood. How do individual organizations come to command so much raw value? Cumulative advantage models are tempting but fundamentally unsatisfying. How much of that value will manifest as human well-being? How much of it will be recirculated into the economy? Where will it end up? Economics, from what I can tell, has a few ad-hoc approaches, some of them taught at the Principles level, that could apply to these questions, but it has nothing nothing approaching a unified theory. General Equilibrium doesn’t come close and I haven’t heard of an alternative.

It’s fine to not have an explanation. What’s not fine is to leave things we can’t explain off the syllabus. To be fair, resource allocation does get talked about. For example, Principles students at Rochester are taught why tap water is cheap and diamonds are expensive. But that’s not nearly enough. Intro chemistry and physics courses are laden with demos. Demonstrate how to make fire out of water and some crystals, then explain what just happened. Lie down on a bed of nails and explain why you aren’t hurt. Yes, a buoyant Professor Rizzo gave out a bunch of money on the first day of Eco 108, in a fun activity that got everybody interested and one guy $20 richer. But it’s the exception that proves the rule. And frankly, his lesson was somewhat less exciting and a lot more subtle than “look how freaking cool this topic is!”

I want to make sure that, if I ever become a doctorate-wielding economist, I don’t lose sight of economics for its own sake.  I do care deeply about poverty and opportunity disparities and such, but there is so much more to social science than societal ills. If anything, widespread prosperity is one of the most amazing phenomena I have ever encountered in my young life. I could hardly call myself a scientist if I weren’t drawn to study it.


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