Licence to be Bad | Jonathan Aldred

Summary of: Licence to be Bad: How Economics Corrupted Us
By: Jonathan Aldred

Introduction

Prepare to dive into the fascinating world of ‘Licence to be Bad: How Economics Corrupted Us’ by Jonathan Aldred. This book summary takes you on a journey through the controversial history and impact of free-market economic thinking. From the rise of the Chicago School and its dominance over our way of thinking, to the pitfalls and consequences of selfish views on game theory, collective decision-making, and free-rider thinking, you’ll gain insights into how these ideas have shaped our societies, governmental policies, and even our daily lives. Along the way, we’ll explore surprising examples where economics has failed us and uncover the detrimental impact that economic thinking has on contemporary issues like climate change.

Dominance of Free-Market Views.

In the aftermath of WWII, John Maynard Keynes advocated for increased public spending to revive Europe’s economies while Friedrich Hayek, leading a small, opposing group, believed otherwise. This group organized on Mont Pèlerin and rose to dominance, forming the Chicago School of economics, and promoting free-market ideology. This way of thinking blames financial regulators for mishaps instead of the banks and encourages free-rider thinking. These theories have been dominating the economic landscape since Reaganomics and Thatcherism. However, these ideologies are not the objective truth, and this summary seeks to explain why they don’t make any sense.

The Selfish Nature of Game Theory

Game theory, a way of predicting human behavior based on rational decision-making, promotes a selfish view of the world. Fellow American John Nash emphasized the role of self-interest, assuming that people always acted selfishly. However, assuming that others are selfish can lead to more selfish behavior. The Prisoner’s Dilemma is a famous example of game theory, where it is optimal for both parties to confess, even though collaboration would optimize the outcome. While there is evidence of collaboration in areas such as carbon emissions and international peace treaties, the existence of game theory still encourages a selfish view of the world.

The Flawed Interpretation of the Coase Theorem

In this passage, we explore how the Coase Theorem, an economic principle introduced by Ronald Coase, has been misinterpreted by modern economists to prioritize dealmaking and minimize transaction costs. This has led to some controversial ideas, including the failed Illinois scheme to bribe employers and the suggestion of a free market in babies. We examine Coase’s original intention and explain why a proper understanding of his theorem is essential to prevent misguided economic policies.

The passage introduces the Illinois scheme, an experiment based on the Coase Theorem, which offered incentives to unemployed people who kept a job. However, the results were not positive, and the experiment was seen as morally ambiguous. The author then explains the Coase Theorem, which suggests that transaction costs can influence decision-making and economic efficiency. However, the Chicago school of economists misunderstood the theorem and supported the idea of minimizing transaction costs to encourage dealmaking. This flawed interpretation has led to strange economic policies, such as the proposal of a free market in babies.

The author emphasizes that Coase never intended to prioritize dealmaking over transaction costs. Instead, his theorem highlights the importance of considering all costs, including transaction costs, when making economic decisions. The passage also highlights how the Coase Theorem has affected carbon markets, leading to short-termism and downplaying the actual damage caused by pollution.

In conclusion, this passage illuminates the need for a proper understanding of the Coase Theorem. It warns against the consequences of misinterpreting economic theories and prioritizing dealmaking over transaction costs. A balanced approach that considers all costs, including transaction costs, is necessary to make sound economic decisions.

Democracy and Economics

In this book, two different economic theories are explored and scrutinized. The first, Arrow’s Impossibility Theorem, argues that democracy is impossible under certain strict conditions. The second theory, Public Choice Theory, puts everyone involved in political action under a selfish spotlight. While both theories contain contradictions and assumptions that don’t always apply to the real world, they have influenced views about democracy and government regulation to the present day.

This book presents two critical economic theories that have had profound effects on how people think about democracy and government. Arrow’s Impossibility Theorem shows that under certain conditions, collective decision-making cannot produce a consistent result that satisfies everyone. However, Arrow’s theory makes assumptions that don’t always apply to the real world. Public choice theory argues that everyone involved in politics, including civil servants and voters, is motivated by self-interest. This theory claims that politicians are elected mainly for the desire to get elected rather than to do good and voters are poorly informed and self-interested. Overall these views have had a significant influence on contemporary opinions about the government. However, public choice theory contains many contradictions and has a self-fulfilling effect. It argues that voters are easy to fool while Ronald Reagan’s success in reducing public spending is clear proof that voters are sometimes willing to put short-term interests to a side. Despite the criticisms of these theories, they continue to shape the current view of democracy and government regulation.

The Danger of Free-Rider Thinking

The book delves into the danger of free-rider thinking and highlights that it may seem tempting but can have devastating consequences. It also emphasizes the need for individual responsibility and collective efforts to achieve a common goal. The author gives examples such as tax evasion and climate change to demonstrate how free-rider thinking affects the world we inhabit. The book argues that when many individuals contribute collectively, that can make a difference, and the mass of people can reach a tipping point, inspiring broader action. In essence, the book urges us to cooperate and take responsibility to avoid the negative impact of free-rider thinking.

Want to read the full book summary?

Leave a Reply

Your email address will not be published. Required fields are marked *

Fill out this field
Fill out this field
Please enter a valid email address.
You need to agree with the terms to proceed