Price Gouging and Praise for Econ 101

Michael Giberson

In response to James Kwak’s post on price gouging and the corrupting effects of Econ 101, blogger R.A.  at The Economist Free Exchange blog writes “In praise of Econ 101“:

I’m sensitive to concerns about the downsides of inequality. And I’ve certainly met my share of Econ 101 robots, who can’t talk beyond the “markets are always right” models one gets in early economics classes. But the thing to note is that the natural human impulse is to recoil from unfairness, and it requires the exercise of intellectual faculties to get that the fair solution may also be an inefficient solution.

That’s why Econ 101 is valuable. One has to learn to question one’s intuition. That doesn’t mean one must always ignore one’s intuition. But it’s nice to have the intellectual framework to evaluate it properly.

Emphasis added.

To be clear: Econ 101 is not the only tool to have in one’s intellectual framework – a healthy mix of psychology, history, physical science, biology, and anthropology would be valuable complements, and a little philosophy and poetry, too.

ADDENDUM: Nathanial Dempsey, stay curious, weighs in on James Kwak’s post. Sample: “In other words, there is no perfect way to allocate scarce resources. Everything has inequality and inefficiency effects. The pricing mechanism in capitalism is just the best system we’ve got until we come up with something better.”

2 thoughts on “Price Gouging and Praise for Econ 101

  1. Along the lines of your additional intellectual tools, I’m curious what you think of this. (These are vague, possibly wrong, statements because my understanding is vague.)

    Hayek describes econ as the study of complex phenomena, the undesigned social orders that occur when individuals follow their personal goals.

    I think I’ve heard Robin Hanson talk about how society and technology have evolved much faster than our genetic dispositions. As a result, what is best for us often feels wrong.

    Those two ideas would probably be Econ 202. But they seem to suggest a way to bridge the “Econ 101 Robot” with the conflicting “natural human impulse”.

  2. Hayek, too, I think in his essay “The Atavism of Social Justice,” writes about how society has changed faster than our genetic dispositions, creating tension between what feels right and what will actually help us achieve what we want. No doubt other thinkers have come up with similar explanations.

    I think one of the uses of behavioral economics is in honing in on some of these tensions, understanding the roles they play in decisionmaking, and then imagining ways that people as they are (“old” genetics and all) can better achieve the things they want.

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