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A Great Graduation Gift for the Econ Major in Your Life

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Friday, 30 April 2010 11:28
Taking Economics Seriously

Today the MIT Press is publishing CEPR co-director Dean Baker's latest book, Taking Economics Seriously. It's a cloth/hardcover compact (4 1/2" by 7" and 136 pages) book that offers an alternative Econ 101. A great little graduation gift, especially for econ geeks, but it's accessible enough for anyone.

But don't believe me. Here's what Simon Johnson (former IMF chief economist and co-founder of The Baseline Scenario) and Elizabeth Warren (Harvard Law Professor and Chair of the Congressional Oversight Panel) say about it:
Baker's analysis is always insightful and his proposals entirely reasonable. Read this book only if you are worried about where the United States is heading.
- Simon Johnson
A terrific book. Dean Baker deconstructs the myth that big corporations have any interest in free markets and deregulation. And he is right: industry interests support government intervention all the time -- when it helps them. They have thrown the free market under the bus to maximize profits, and Taking Economics Seriously explains how.
- Elizabeth Warren.
And while you're at it, pick one up for yourself! Unless, of course, you're not worried about where the U.S. is heading.
Comments (3)Add Comment
Thanks Dean.
written by Paul Escobar, April 30, 2010 5:07

Looks very promising. And I appreciate the target audience.

P.S. Those are some killer blurbs, especially Warren who should be President one day.
Insightful review from the Enlightened E conomist
written by Nicole Woo, May 04, 2010 10:48
Taking Economics Seriously

by DianeC on Tue 04 May 2010 10:16 BST |

Taking Economics Seriously by Dean Baker, started life as an essay in the excellent Boston Review and has been turned into a model of the kind of small book which has recently emerged as a new publishing phenomenon, an updated version of the provocative pamphlet. It's tightly-argued, thought-provoking and the perfect length for a plane or train journey.

Baker challenges us to take the principles of economics seriously and apply them to important markets. There's no intrinsic problem with economic theory, he argues - a rather contrarian line these post-crash days, but I heartily agree. The problem is that when economic principles clash with entrenched and powerful corporate interests, monopoly power has always won. He argues that in some markets and industries which are now heavily regulated in favour of corporate power (specifically finance, software and recording companies protected by patent and copyright law, and pharmaceuticals) the market needs boosting rather than taming.

His central point is that all markets are regulated, and what distinguishes political attitudes to regulation is whose interests the rules favour: "Calls for deregulation have been cover for rules tilted starkly towards corporate interests."

...I enjoyed the chapters on these big beasts, but the real eye opener is Baker's chapter on the pharmaceuticals industry. I've always been aware of the regulatory barriers to entry in pharmaceuticals, given the stringency with which new drugs and interventions are tested. But one thinks of this as inevitable. However, Baker points out the extensive regulatory protection the industry gets (and some of this is US-specific - the rest of us are well aware of the inadequacy and inefficiency of the American healthcare system).

Above all, he makes the point that the industrial structure rules out marginal cost pricing. Drug development costs are high but marginal production costs are low. Prices charged for on-patent drugs are much higher than marginal cost to recover the upfront investment. This makes some policy and personal decisions agonizing. Is it worth paying hundreds or thousands or even hundreds of thousands of dollars or pounds for a new anti-cancer drug which might extend the patient's life somewhat, when it will either ruin the family finances or blow the hospital's budget for the treatment of other patients? But these dilemmas would be greatly mitigated with a different regulatory and financial structure. After all, in all countries, including the US through Medicare and Medicaid, the government is paying the bill. So why don't we have systems that allow price to be set equal to marginal cost? Already governments fund a great deal of the basic medical research on which pharma companies piggy-back. Rather than granting patents for specific drugs as the way to incentivize new medicines, why not fund drugs before they are developed? The same logic applies to expensive new equipment and tests. Either way, society pays the costs, mediated through the government health system or a highly regulated insurance system. Better to pay in a way that allows price to equal marginal cost. Only the huge pharma giants would suffer.

Does this strike you as a crazy idea? Prove your intellectual curiosity by reading this book? Does it strike you, as it did me, as an illuminating idea pointing to the possibility of an important regulatory and policy reform at a time when there will be enormous pressure on health budgets? Then read it too. For me economics has always been defined as the subject which embodies in the context of social organization David Hume's application of reasoned scepticism to evidence. Dean Baker's book is wholly in that Enlightenment spirit.
Rethinking economics: Taking Economics Seriously
written by Nicole Woo, June 14, 2010 6:11
From newsreview.com in Sacramento:

Book Reviews

Rethinking economics
Taking Economics Seriously
Dean Baker

By Seth Sandronsky
This article was published on 06.10.10.

In Taking Economics Seriously, Dean Baker shows what is at stake when government policy ignores economic principles, instead structuring markets to benefit wealthy interests. To this end, he unpacks the government-granted monopolies to drug developers and medical-equipment makers, which mainstream reporting rarely covers. This policy harms consumers by hiking drug prices up to 100,000 percent over the “marginal cost of production—the cost of producing one more unit of the good.” Baker brings marginal-cost pricing, an economic principle of efficiency in trade, from the shadows to center stage of the debate. Speaking of debates, he counsels against falling for the false one about government regulation vs. the market. The former’s presence with the latter defines the economy. Who benefits is what matters. On that note, Baker’s five reforms for the financial industry would force it to serve instead of prey on consumers and investors.

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