I was very pleased on Saturday to interview (and catch up an old acquaintance) with John Lott, whose new book Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don't is now available. Be sure to hear the interview on podcast.

I mention this at the outset: I've know Lott for some time as someone like me interested in public choice economics, particularly as it applies to campaign contributions and elections. We share a belief that the political system actually works pretty well, in a Chicago School tradition and both ended publishing in that area. So fair to say that one part of this book on the folly of campaign finance reform is something I was predisposed to like.

There's little question that the book is intended as a counterpoint to Freakonomics, and you'd have to be living in a cave not to know the backstory. But that focus is appropriate in a larger sense: Perhaps the subtitle of the book should be "Why the Free Market Works Better than the Alternatives." As Lott states at the conclusion of the book,

The free market isn't perfect, but that isn't the right standard by which to judge it. The government is hardly perfect either. (p. 194)

The idea of Government Failure is a neglected concept in Levitt and Dubner, in my view. A chapter titled "Government as Nirvana?" drives home the point. But this is not to say Lott thinks government is corrupted. He says in the previous paragraph to the one above:

There will always be some duplicity in the free market. But there is also an ever-present incentive ingrained in the system for individuals and companies to behave honestly. If someone can make a buck by treating his customers better than someone else, eventually someone will try it. Political markets also have their own mechanisms to limit cheating, resulting in the election of politicians who, by and large, accurately represent their constituents. (p. 194)

Not only will you get the government you deserve, you'll get something close to the one you want! This will come to some readers, I suspect, as a bit of a shock. But he uses two full chapters -- one on the incentives created by reputations and what my teacher Tom Borcherding always called "the discipline of continuous dealings" -- my term, not Lott's, and borrowing from Gordon Tullock again. Repeated plays of a prisoners' dilemma game by two people creates much different incentives than if it's a one-shot game. He also looks at the growth of government more generally, and comes to the surprising conclusion that "Granting women suffrage explains at least a third of the expansion in the size of government." (p. 5)

There is a chapter devoted to the guns, crime and punishment debate that centers much of the public discussion of Lott's earlier work. I didn't find much new in there, but it creates a nice summary of the debate as it exists. I liked that chapter less than the others because I had already followed those arguments, and because they get into the weeds much more than the others. There's almost a change of voice there.

Freedomnomics is in the genre of books used to supplement introductions to economics, as well as a stand-alone book to show economic principles to reasonably intelligent individuals (not necessarily having ever had economics in college, or even going to college.) I have continued to use Steven Landsburg The Armchair Economist for this (I haven't finished More Sex Is Safer Sex yet, will when I get a chance) when I've needed a supplement for an intro course, and I think Freedomnomics will do as well for that purpose. I think if you were to use it that way you would need a guide to help, or to cut up the chapters into smaller pieces. But even without that, students of economics inside and outside classrooms will learn some great stories to explain that markets actually work rather well.

Labels: economics, Final Word, Northern Alliance Radio Network