Economics doesn't have to be boring

Michael Munger has a wonderful (and very funny) essay on the power of "the invisible hand", "Everybody Loves Mikey."

We can go to restaurants and get excellent service, and delicious meals. Your mechanic says you need brake work; you pay him $1,200 for the repairs, without physically checking in any way to see if the repairs were actually done. And when you go to Buy Mart to get a VCR, you don't check the contents of the box before you pay the cashier, using a credit card number you trust that cashier not to steal.


All of these actions and choices depend on the cooperation of others, people we don't know, people who might dislike us if they did know us. What keeps them from doing bad things to us? Why don't stores charge us exorbitant prices? Why don't our employers always withhold our health insurance, or cut our salaries in half, or cancel our vacations? Why do we get pay raises, instead of pay cuts? Is it because everyone loves us?

So many people I encounter, smart people, seem to believe that what makes people do good, or prevents them from cheating or acting badly, is personal integrity, good character, and regard for others. I'm not a psychologist, but I wonder if the reason is that they just have trouble with the idea of an intricately interconnected world where all of us are dependent on unknown others. How can we be dependent on others, and not be in their power?

...

The answer—markets create interdependencies without forcing subjugation, or even allowing abuse—was one of the key insights of Adam Smith in The Wealth of Nations. He said: "Observe the accommodation of the most common artificer or day-labourer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation." In advanced market economies, we are all dependent on others in ways we may not even have thought of.

Of course, I would prefer the "Everyone loves Mikey!" explanation.

Read it all...


(H/T to Betsy Newmark)