Economics Today & Tomorrow

Economics Today & Tomorrow
by Roger LeRoy Miller
(New York: Glencoe, 1995), third edition, 626 pp.

Rating: C

General Comments: This is an attractive, hardcover book with an abundance of photographs. The writing is good, but unfortunately the book doesn’t do very much to develop the economic way of thinking in its 626 pages. In part, this is because Miller devotes a large amount of space to photos and other visual effects. More important, however, is his decision to spend a great deal of time on "how to" questions. Many chapters are concerned with subjects like these: how to shop for clothing, how to buy or rent housing, how to plan a trip, how to start a business, and so on. This turns the book into an amalgamation of "personal economics" and economic theory, in which the latter plays second fiddle. The book doesn’t do nearly enough to help the student develop the "mental toolkit" of the economist.

Criterion 1: Costs and Prices—How Production is Determined.

After a broad definition of economics, Miller states that "economists gather data from the real world and then use the data to explain events or test theories" (p. 18). Many economists have argued, however, that economics is not a science of numbers, but is based on the logic of purposeful human action. Miller does set forth the value-free nature of economics when he writes, "Economics will not tell you whether the result will be good or bad" (p. 20).

The book’s discussion of scarcity, resources, and cost is very good. The key concept of opportunity cost is brought out very well. So is private property, competition, and the profit motive. The book’s superficiality manifests itself early, however. An example is the treatment of the "too big to fail" phenomenon (p. 39). The student learns that the federal government bailed out Chrysler, Lockheed, and other large firms with loan guarantees. True, but here some economic analysis was in order, getting the student to think about the effects of such bailouts. What were the intended and the unintended consequences? Unfortunately, the author does not lead the reader into that analysis.

The book contains a good profile of Adam Smith and through several "Focus on Free Enterprise" sections, suggests to students the essence of the "invisible hand" concept—that you succeed only by providing goods and services consumers will pay for.

Criterion 2: Competition and Monopoly

Miller explains the differences between perfect competition and monopolistic competition without the erroneous notion that the former is ideal and the latter wasteful. Also, he notes that there is "little proof that oligopolies are harmful" (p. 240). The treatment, however, is a bit sketchy and fails to analyze whether or not oligopolies are efficient.

Missing from the book’s discussion of monopoly is any analysis of how hard it is to create and perpetuate a monopoly in a free market. Some businesses, as Miller might have noted, have turned to the government to stifle competition because they could not succeed otherwise. Moreover, the section on mergers and antitrust is threadbare, failing to lead the student into analysis of the costs and benefits. Miller’s treatment of the economics of regulation and deregulation is also superficial.

Criterion 3: Comparative Economic Systems

The differences between capitalism and command and control economic systems is correctly explained, but without much depth. Miller correctly observes that "all economies are planned in one way or another" (p. 485), but does not explore the inherent drawbacks of central planning—the problems of quality, indifference to consumer preferences, and especially the impossibility of rational allocation of resources in the absence of a price system. It is certainly true that "capitalist countries are economically healthier," but the student does not get a good grasp of the reasons why this is so. The student learns how to think like an economist by exploring such issues.

There is a good, although brief, discussion of the transition from command and control systems in China and the Soviet Union toward the free market, emphasizing that personal incentives change dramatically once property is in private hands and profit-making is legal.

The book’s section on economic growth is much less satisfactory. Miller describes foreign aid at some length (amounts given by various nations, the channels through which it flows, and the different kinds of aid programs), but he does not analyze the economic effects of foreign aid. This leaves the impression that foreign aid relieves suffering and promotes economic growth. Miller gives no indication that the effects of foreign aid are different from its intentions. Learning to think from the stated intentions of a policy to its actual effects is one of the most important economic lessons, but the book fails to deliver here.

Furthermore, the author leaves the student with the false impression that international trade only springs up if we first give governments in developing nations some purchasing power through foreign aid.

Criterion 4: The Distribution of Income and Poverty

Miller devotes very little space to income distribution and poverty. Instead of a chapter concentrating on these matters, the student only finds sprinkled throughout the book statements that suggest the market’s distribution of income is inequitable. Missing is any sustained investigation of the economics of poverty, including the role of government in impeding people from making economic progress on their own.

The treatment of income redistribution programs is superficial. Miller simply tells students that the task of ensuring that everyone is provided with "a certain minimum level of income" is "accomplished primarily through income redistribution, using tax receipts to help citizens in need" (p. 417). Here is another instance where the book needs economic analysis. Students should be encouraged to think about the effects of anti-poverty programs and alternatives to them, but Miller does not do so.

Criterion 5: The Role of Government

Miller begins with the "public goods" problem and the treatment is very thin. He gives no clear definition of public goods; he only says in a vague way that they are "goods or services that government sometimes supplies to its citizens" (p. 416). That "definition" may lead students to the erroneous view that whatever the government provides is a public good. The student needs to understand why it is hard for private enterprise to provide an optimal level of true public goods, but that is missing.

Similarly, in Miller’s discussion of "merit goods," he asserts that goods can have "social value," and that "government" determines which goods do. This reinforces the mistaken idea that value is objective and collective. Miller would have done the student more good if, instead of saying that classical music concerts, ballets, and so forth are "merit goods," he had analyzed the effects of government subsidies and the process that brings them into existence.

The book needs improvement on the subject of externalities. The student is merely told that government regulation is needed to protect citizens against pollution. The economic problems that give rise to the problem of pollution and the consequences of pollution (or other negative externalities) are not analyzed. In a "Point-Counterpoint" box (pp. 76-77), Miller presents some arguments for and against pollution taxes, but this takes the form of "some say this, but others say that"—which does little to teach economic thinking.

Students are also told that redistribution of income and economic stabilization are both functions of government. But, inquiring students will want to know, what are the consequences of government action?

Criterion 6: Public Choice

One of the major weaknesses of this book is the absence of public choice thinking. There is just a fleeting reference to "the political system’s overwhelming predisposition toward ‘government failure,’" but this is never developed. Students need to be presented with a cogent exposition of the difficulties with public decision making—the incentives of politicians and bureaucrats, the rational ignorance of voters, the power of interest groups, and so on.

Rather than helping the student learn to think critically about public decision-making, the book reinforces civics class platitudes with statements like this: "Through their elected representatives, Americans have chosen to see that almost everyone is provided with a certain minimum level of income" (p. 417). Public choice analysis calls into question the idea that democracy works in this idealized fashion. Government action is rarely occasioned by the desires of "the people" in general, and a good public choice section would explain why.

Criterion 7: The Role of Entrepreneurs

The book is very good on the subject of entrepreneurs. Students learn that entrepreneurship is a key ingredient in economic progress, that it entails considerable risks, and that it is motivated by the desire for profit. Most of the material is gleaned from the several "Readings in Economics" and "Focus on Free Enterprise" sections that appear throughout the book. These sections do a lot to demonstrate that business success is something to be applauded, not scorned. The book would even be stronger if Miller had shown that entrepreneurs can easily be stifled by hostile taxes and regulations.

Criterion 8: Taxation

In the author’s slender section on taxation, he asks if people should be taxed according to their ability to pay. He then describes the different kinds of taxes, and finally makes the point that taxes can encourage or discourage activities. None of this really helps to develop the student’s understanding of the economics of taxation—its costs, the incidence problem, or its tendency to misallocate resources. Miller says that "Taxes are also used to direct resources toward investments that are desirable but costly" (p. 430), without leading the student to ponder why, if the use is desirable, it is necessary to subsidize it through the tax system.

Criterion 9: The Business Cycle

Miller’s discussion of the business cycle is incomplete. He notes correctly that economists are divided into two camps in their "approaches toward controlling unemployment and inflation" (p. 443). The point that he needed to explore first was how the two camps differ in their assessment of the origins of economic fluctuations: 1) those who maintain that cycles are an inherent part of the market ; and 2) those who maintain that instability is induced by poor government policy. That important debate is only hinted at in the discussion of Monetarism, which is the only non-Keynesian theory examined.

In discussing Keynesian theory, Miller never dissents from the idea that government spending can "strengthen" the economy. Miller writes that, after the end of World War II, "The economy was strong enough by then to continue operating without the extra government aid" (p. 446). Much criticism has been leveled at the contention that government spending can aid the economy, but unfortunately the student hears none of it. There is also a gaffe on p. 446, where he says, "Keynesian economists believe that as a result (of the 1964 tax cut), unemployment fell. . . ." This makes it sound as if only Keynesian economists have figured out that cutting taxes can have economic benefits.

In the short chapter on Monetarism, Miller correctly shows that the money supply fell significantly between 1929 and 1933, and he explains that Monetarists regard this as the precipitating event of the Great Depression. He also includes some of the difficulties in trying to make Keynesian "fine tuning" of aggregate demand work, but the student is never led to question the fundamental premise that government is needed to manage aggregate demand.

Criterion 10: Wages, Unions and Unemployment

Miller informs the student that "Supply and demand are factors in the labor market," (p. 307) but he needs to clearly link wages to productivity. Furthermore, he mentions in passing that minimum-wage laws "affect wages," without giving any economic analysis of their effects. Only the exceptional student would think to apply the discussion on price floors and ceilings (more than 100 pages earlier) to see that the minimum wage also affects the number of jobs available to low-skilled workers. Working through the economic effects of the minimum wage would help the student to understand economic analysis better, but the book fails to do so.

The chapter on unions is, typically, much more descriptive than analytical. While two full pages are devoted to a timeline of American unionism, the student reads nothing on the extent to which unions can raise compensation to above-market levels, and if they do so, what economic impact this has on consumers, investors, and other workers. The book also reinforces the common assumption that because sick leave, paid vacations, and health care benefits followed the advent of unionism, they came about because of unionism. Unions certainly have been able to change the composition of the total compensation package paid to workers, but many economists deny that they have or can increase compensation in total. Miller ignores the role of competition in the labor market to attract and keep good workers.

He briefly discusses unemployment (pp. 438-39), but says nothing on the programs and policies to deal with it.

Criterion 11: Trade and Tariffs

The author’s explanation of the reasons for and benefits of trade is very sound. The vital point that exports pay for imports is made clearly and the analysis of the law of comparative advantage is excellent. Also, the book helps the student to understand that "international trade" is nothing different: "You should consider international trade as an economic activity just like any other. It is subject to the same economic principles. For you and everyone else in the United States, the purpose of international trade is to obtain imports, not to export" (p. 465).

Unfortunately, in the following chapter, Miller briefly describes foreign exchange markets and conveys the false idea that it matters whether we have a "favorable" or an "unfavorable" balance of trade. The misleading terminology that is used makes it seem to students that some action must be taken to stop "unfavorable" trade balances. If a textbook uses those terms, it ought to correct the erroneous conclusions that are apt to follow.

The economic effects of import restrictions are mentioned briefly, but there is no in-depth treatment of their impact. Furthermore, the main arguments in favor of protectionism are presented, but not scrutinized. The book leaves it up to the student to decide whether there is any validity to the "infant industry" argument, among others. Unfortunately, the book does not give the student enough competence in economic analysis to do that.

Criterion 12: Money and Banking

The functions of money are explained well. The connection between the supply of money and its value is also explained. However, the student never sees the market nature of money or the damage that can be done by turning control of the monetary system over to government. The only mention of the gold standard is in a time line (p. 371) and it is criticized for causing periodic money shortages and economic panics. This is a dubious attack. Many economists and historians have argued that the panics in the 19th Century were caused by poor banking laws, occasional issues of government paper money, and government mandated purchases of silver.

The organization and functions of the Federal Reserve System are capably discussed. The book also gives the student a brief look at banks and other financial institutions, but does not explain their importance in the economy. Nor is there anything on the effects of regulating financial institutions, or on the causes and effects of the S&L crisis.