Are Economists Cheap? Or Just Rational?
Today’s weekend Wall Street Journal carries a hilarious story about how cheap some economists are. Three stories from the piece and then my thoughts.
Children of economists recall how tightfisted their parents were. Lauren Weber, author of a recent book titled, “In Cheap We Trust,” says her economist father kept the thermostat so low that her mother threatened at one point to take the family to a motel. “My father gave in because it would have been more expensive,” she says.
Ms. Stevenson and Justin Wolfers, also of the Wharton School, gave a friend $150 to hire movers instead of helping him themselves. Harvard University economist John Laibson pays to have a driver pick up his sister from the airport rather than driving himself.
Stanford University economist Robert Hall, incoming president of the American Economic Association, values his time so highly that his wife, economist Susan Woodward, occasionally puts her foot down. “Bob doesn’t see why we can’t just hire people to trim the Christmas tree,” she says. “I tell him that’s not what it’s supposed to be about.”
The one I identified with most was the moving story above. It makes total sense to me to calculate what a friend would have to pay to move and what fraction of that I could save him by helping, and then give that amount. Moreover, one scratched otherwise-nice piece of furniture can eat up all the gains that I would have provided by physically helping him and I’m more likely to scratch it than an expert mover. On the other hand, I think differently when it’s my daughter. As I wrote last year, my wife and I helped her move because we got to be part of an important stage in her life. I missed a friend’s 60th-birthday party because of it, but I still think it was the right move.
I thought my Hoover colleague, Bob Hall, though, went too far. Susan thought so too.
So, yes, I think some of my economist colleagues are cheap, but often there’s a core of rationality, as in the moving example above.
When I teach economics, I often give my students examples that help them see the range of options open to them and help them identify their goals. After a few weeks, they are starting to think that I’m Mr. Cheapskate and so, to explain that they missed the point and that I’m trying to get them to compare costs and benefits clearly, I tell them the following true story:
I was traveling home from Winnipeg in 1997, after winding up my father’s modest estate. I brought back a record turntable packed well and carried on board to avoid breakage. I was connecting through O’Hare and had a long walk with a heavy box under my arm and a wheeled carry-on bag. My arm was getting sore because it was a long walk and I envisioned it being so sore if I went the whole distance that way that I would have pains for a few days. When I popped up the escalator, I still had a long way to go and I saw a man with an airport EZ cart. It was empty and it looked as if he was waiting for his flight and was done with it. I pulled a $20 bill out of my wallet and said, “Excuse me, sir. I’ll give you $20 for that cart.” I was fully prepared to pay and would have gained a lot of consumer surplus from that transaction. Instead, he said, “Go ahead. It’s yours. I don’t need you to pay me.” I thanked him profusely and went on to save my arm.
That’s not the usual story told by a cheapskate.
My co-author, Charley Hooper, and I write about many such things, applying economics to decision-making in Making Great Decisions in Business and Life.
And what did I get for my frugality? The financial wherewithal, on one full-time income, to send my daughter to a private school from 5th grade on and to send her to an expensive private college. Tradeoffs, tradeoffs, always tradeoffs.
So, are economists cheap or just rational? Answer: depends on the economist.