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More About This Title Trillion Dollar Economists: How Economists and Their Ideas have Transformed Business
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Trillion Dollar Economists explores the prize-winning ideas that have shaped business decisions, business models, and government policies, expanding the popular idea of the economist's role from one of forecaster to one of innovator. Written by the former Director of Economic Research at Bloomberg Government, the Kauffman Foundation and the Brookings Institution, this book describes the ways in which economists have helped shape the world – in some cases, dramatically enough to be recognized with a Nobel Prize or Clark Medal. Detailed discussion of how economists think about the world and the pace of future innovation leads to an examination of the role, importance, and limits of the market, and economists' contributions to business and policy in the past, present, and future.
Few economists actually forecast the economy's performance. Instead, the bulk of the profession is concerned with how markets work, and how they can be made more efficient and productive to generate the things people want to buy for a better life. Full of interviews with leading economists and industry leaders, Trillion Dollar Economists showcases the innovations that have built modern business and policy. Readers will:
- Review the basics of economics and the innovation of economists, including market failures and the macro-micro distinction
- Discover the true power of economic ideas when used directly in business, as exemplified by Priceline and Google
- Learn how economists contributed to policy platforms in transportation, energy, telecommunication, and more
- Explore the future of economics in business applications, and the policy ideas, challenges, and implications
Economists have helped firms launch new businesses, established new ways of making money, and shaped government policy to create new opportunities and a new landscape on which businesses compete. Trillion Dollar Economists provides a comprehensive exploration of these contributions, and a detailed look at innovation to come.
English
ROBERT LITAN has spent four decades publishing over 25 books and more than 200 articles about the U.S. economy and has directed economic research at some of the nation’s leading research organizations in both the for-profit and non-profit sectors: the Brookings Institution, the Kauffman Foundation, and Bloomberg Government. He is currently a non-resident senior fellow at the Brookings Institution, Of Counsel to the law firm of Korein Tillery (St. Louis and Chicago), and Chief Economist of Main Street Genome, a new company providing analytics to small companies. He is also a regular contributor to Wall Street Journal’s“Think Tank” blog.
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Preface xi
Chapter 1 Introduction: Economists as Innovators 1
Organization of the Book 5
My Personal Interest (and Bias) 8
Chapter 2 An Easy Introduction to Economics 13
Rationality 13
Markets 19
Market Failures 22
The Macro–Micro Distinction 27
Economic Growth in the Short and Long Run 31
The Equity–Efficiency Tradeoff 32
Innovation and Growth: The Role of Economists 35
The Bottom Line 39
Part I: The Power of Economic Ideas:Direct Use in Business 43
Chapter 3 The Price Is Right 47
The Bloomberg Way of Pricing 49
Auctions 52
Different Prices for Different Folks 69
The Bottom Line 73
Chapter 4 Minimizing Costs 77
Optimization 78
Learning by Doing 87
The Bottom Line 91
Chapter 5 Beyond Moneyball 93
A Brief Guide to Regression Analysis 94
The Business of Forecasting 96
The Business of Economic Consulting 101
Data Analytics and Big Data 104
Econometrics and Sports: Moneyball 106
Regulatory Moneyball 110
The Bottom Line 112
Chapter 6 Experiments in Economics and Business 115
Economics in the Lab: Vernon Smith and Experimental Economics 117
Lab Experiments in Business: Focus Groups 120
Economic Experiments in the Field: Randomized Controlled Trials 121
Business Experimentation in the Field 122
Innovation and Entrepreneurship:
Experimentation as the Foundation of Growth 125
The Bottom Line 133
Chapter 7 Matchmaker, Matchmaker 137
A Gentle Introduction to Market Design and Matching Theory 138
Matchmaking in the Labor Market 146
Matchmaking and Online Dating 149
The Bottom Line 151
Chapter 8 Economists and Mostly Good Financial Engineering 155
Not Putting Your Eggs in One Basket: The Rise of Index Investing 156
Efficient Markets and Their Implications 159
Behavioral Finance 164
Valuing Options: Upsides and Downsides 167
The Bottom Line 173
Part II: Economist-Inspired Policy Platforms for Private Business 177
Chapter 9 Planes, Trains, and . . . Trucks 185
Origins of Transportation Regulation 186
Airline Deregulation 189
Trucking Deregulation 197
Railroad Deregulation 202
Deregulation’s Impact:
The Transportation Industry 203
Deregulation as a Business Platform 207
The Bottom Line 210
Chapter 10 Economists and the Oil and Gas Revolution 213
The Origins and Decline of Price Regulation of Fossil Fuels 214
The Oil and Gas Supply Revolution 221
The Energy Revolution as a
Platform Technology 224
The Bottom Line 227
Chapter 11 Economists and the Telecommunications Revolution 229
Economists in a Quick History of Communications 230
When Natural Monopolies End: The Run-Up to the AT&T Antitrust Case 234
Competition in Telecommunications: The Benefits of AT&T’s Breakup 242
Economists and Price Cap Regulation 248
Economists and Spectrum Allocation 251
The Bottom Line 256
Chapter 12 Economists, Financial Policy, and Mostly Good Finance 261
Economists and Competition in Brokerage Commissions 262
Economists as Detectives: Accelerating Automated Trading 264
Economists and the Financial Crisis 270
How Did the Crisis Happen? A Quick and Easy Guide 271
Subprime Lending 276
Excessive Leverage: An Introduction 277
The Pre-crisis Demise of SEIR 281
The Glass–Steagall Debate 287
The Bottom Line 294
Part III: Looking Ahead 299
Chapter 13 Economic Ideas in Waiting: Business Applications 301
Prediction Markets 302
Potentially Good Financial Innovations 306
Congestion Pricing 312
The Bottom Line 317
Chapter 14 Economic Ideas and Challenges on the Policy Shelf: Business Implications 321
Federal Budget Deficits as Drivers of Policy Change 322
Premium Support for Medicare and Medicaid 326
Taxing Consumption 334
Taxing Carbon 343
The Bottom Line 350
Chapter 15 The Future of Economics: What It Means for Business and Economists 353
The Revolution in Economics 354
How Economics Will Continue to Affect Business 356
Implications for Economists 357
Concluding Thoughts 359
Appendix: Prizes in Economics 361
About the Author 365
Index 367
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“In his new book Trillion Dollar Economists, Robert Litan of the Brookings Institution argues that the economics profession has ‘created trillions of dollars of income and wealth for the United States and the rest of the world.’ That sounds like a nice contribution for a relatively small profession, especially if we do some simple arithmetic…The fun thing about Litan’s book is that he details many clever little ideas about how to run businesses or to manage the economy better. They lie in the realm of optimal pricing and marketing mechanisms, regulation of monopolies, natural-resource management, public-goods provision, and finance.”
—Robert J. Shiller, 2013 Nobel laureate and Yale Professor of Economics
