Why English Majors (and their editors) Should Take an Economics Class

My dear daugher may well major in English too!

To avoid writing silly articles, as appeared in the Sunday New York Times under the title “Triumph of the English Major.” Gerald Howard, a book editor in New York City writes of an early experience:

I had the idea that we should reissue two early novels by the fine writer Alice Adams…
So there I was in our C.F.O.’s office with a P. & L. that just eked out a 7 percent return. He looked at that piece of paper dubiously….Then, with that wry and sad expression with which financial people have regarded liberal arts people since at least the invention of movable type and perhaps even written language, he signed off on my shortfallen P. & L. and said to me, “You know, we could make more money by just putting this advance into a certificate of deposit.”
I knew he was right…C.D.’s were paying 10 percent per annum or more….
However, as I went back to my office I experienced an instance of what the French call “stair wit.” I thought, wait a minute, I am putting that $7,500 to work. It’s an investment. The chain of activity I am putting in motion will give work to printers and shippers. It will provide bookstores (there were still bookstores) with tangible goods to sell at a profit. The revenue from those sales will help to pay my salary, my colleagues’ salaries, even our C.F.O.’s salary. Alice Adams will have some thousands of dollars in her pocket — maybe to invest in a C.D. All this and a few thousand people fewer than I put down on the P. & L. (I’d lied, of course) will have bought and enjoyed two excellent novels that deserved to be in print.
Whereas if we’d just put that money in the hands of a bank, they would just … well, I was pretty hazy on what a bank would actually do with that money, but my general sense was that it would sit there in a vault microbially propagating itself and what good would that do anybody? Economically I was putting my shoulder — or Penguin’s shoulder — to the wheel! I came away with the conviction that I wasn’t useless anymore.

This makes a good quiz question for an undergraduate micro class. Make it an essay question, for the English majors. “What’s wrong with this story?”

There is a reason for that “wry and sad” expression. The French may call it “stair wit.” Or perhaps that was “bêtises d’escalier?” Maybe “fall down the stairs wit?”
Because of course money in the hands of a bank does not “microbially propagate” itself in a way that does no good to anybody. Perhaps I can appeal to literary sensibility with a few song lyrics, explaining what will happen to young Michael Banks’ tuppence invested wisely in the bank:

You see, Michael, you’ll be part of
Railways through Africa
Dams across the Nile
Fleets of ocean greyhounds
Majestic, self-amortizing canals
Plantations of ripening tea

(Ok, the song goes on to “think of the foreclosures..” but we don’t want to get in that here.)
The $7,500 dollars Mr. Howard invested in a book would have been lent out by the bank to someone else, who would have invested it in a better project. Someone might have started a restaurant, or even a bookstore. Every single dollar of goods, every single job created by his investment, would have been created by the alternative, and more.
He just didn’t see the (say) new immigrant, turned down on a loan application for $7,500 to start that lifetime dream restaurant. Or turned down on a mortgage application, thus denying a whole construction crew a summer’s employment. And the lumberyard its sales and so on. The invisible hand is, alas, invisible.
That is a great strength of the market. It works, even when the people involved don’t understand it. Alas, democracy requires voters with some clue.
Oh. And who is this boss who signs off on obviously cooked 7% return projects when CDs were yielding 10? No wonder print media is going down the toilet. And who are the editors who signed off on this piece? I don’t write for the Times (I try on occasion, but they always reject me). But at the Wall Street Journal, they tear apart my prose and push every little detail of fact and logic. Do the NYT editors not know that banks do not microbially propagate money?
Mr Howard concludes

…future epochs will remember us as a coarse and philistine people who squandered our bottomlessly rich cultural inheritance for short-term and meaningless financial advantage.

And that is why you should major in English.

I think it more likely that future epochs, if there are any after we screw this one up, will remember us as a pampered people who squandered our bottomlessly rich scientific and financial heritage by willful ignorance of how it works.
Majoring in English is a fine thing to do. We need more good writers.  But take an economics class, so when you write about the world, your elegant prose does not reflect complete ignorance about how that world works. You don’t need to suffer equations. Reading Smith, Hayek, and Friedman will do.
Bah Humbug!

Why English Majors (and their editors) Should Take an Economics Class
John H. Cochrane
Mon, 23 Dec 2013 21:21:00 GMT


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