Economists vs. The Public

Economics is the dismal science, as Thomas Carlyle infamously said, reprising John Stuart Mill for defending the abolishment of slavery in the British Empire. But if being a “dismal science” includes respecting individual rights and standing up for early ideas of subjective, revealed, preferences – sign me up! Indeed, British economist Diane Coyle wisely pointed out that we should probably wear the charge as a badge of honor.

Non-economists, quite wrongly, attack economics for considering itself the “Queen of the Social Science”, firing up slurs, insults and contours: Economism, economic imperialism, heartless money-grabbers. Instead, I posit, one of our great contributions to mankind lies in clarity and, quoting Joseph Persky “an acute sensitivity to budget constraints and opportunity costs.”

Now, clarity requires one to be specific. To clearly define the terms of use, and refrain from the vague generality of unmeasurable and undefinable concepts so common among the subjects over whom economics is the queen. When economists do their best to be specific, they sometimes use terms that also have a colloquial meaning, seriously confusing the layman while remaining perfectly clear for those of us who “speak the language”. I realize the irony here, and therefore attempt my best to straighten out some of these things, giving the examples of 1) money and 2) investments.

An age-old way to see this mismatch is measuring the beliefs held by the vast majority of economists and the general public (Browsing the Chicago IGM surveys gives some examples of this). Bryan Caplan illustrates this very well in his 2006 book The Myth of the Rational Voter:

Noneconomists and economists appear to systematically disagree on an array of topics. The SAEE [“Survey of Americans and Economists on the Economy”] shows that they do. Economists appear to base their beliefs on logic and evidence. The SAEE rules out the competing theories that economists primarily rationalize their self-interest or political ideology. Economists appear to know more about economics than the public. (p. 83)

Harvard Professor Greg Mankiw lists some well-known positions where the beliefs of economists and laymen diverge significantly (rent control, tariffs, agricultural subsidies and minimum wages). The case I, Mankiw, Caplan and pretty much any economist would make is one of appeal to authority: if people who spent their lives studying something overwelmingly agree on the consequences of a certain position within their area of expertise (tariffs, minimum wage, subsidies etc) and in stark opposition to people who at best read a few newspapers now and again, you may wanna go with the learned folk. Just sayin’.

Caplan even humorously compared the ‘appeal to authority’ of other professions to economists:

In principle, experts could be mistaken instead of the public. But if mathematicians, logicians, or statisticians say the public is wrong, who would dream of “blaming the experts”? Economists get a lot less respect. (p. 53)

Money, Wealth, Income

The average public confusingly uses all of these terms interchangeably. A rich person has ‘money’, and being rich is either a reference to income or to wealth, or sometimes both – sometimes even in the same sentence. Economists, being specialists, should naturally have a more precise and clear meaning attached to these words. For us Income refers to a flow of purchasing power over a certain period (=wage, interest payments), whereas Wealth is a stock of assets or “fixed” purchasing power; my monthly salary is income whereas the ownership of my house is wealth (the confusion here may be attributable to the fact that prices of wealth  shares, house prices etc  can and often do change over short periods of time, and that people who specialize in trading assets can thereby create income for themselves).

‘Money’, which to the average public means either wealth or income, is to the economist simply the metric we use, the medium of exchange, the physical/digital object we pass forth and back in order to clear transactions; representing the unit of account, the thing in which we calculate money (=dollars). That little green-ish piece of paper we instantly think of as ‘money’. To illustrate the difference: As a poor student, I may currently have very little income and even negative wealth, but I still possess money with which I pay my rent and groceries. In the same way, Bill Gates with massive amounts of wealth can lack ‘money’, simply meaning that he would need to stop by the ATM.


A lot like money, the practice of calling everything an ‘investment’ is annoying to most economists: the misuse drives us nuts! We’re commonly told that some durable consumption good was an investment, simply because I use it often; I’ve had major disagreements friends over the investment or consumption status of a) cars, b) houses, c) clothes, and d) every other object under the sun. Much like ‘money’, ‘investment’ to the general public seem to mean anything that gives you some form of benefit or pleasure. Or it may more narrowly mean buying financial assets (stocks, shares, derivatives…). For economists, it means something much more specific. Investopedia brilliantly explains it: The definition has two components; first, it generates an income (or is hoped to appreciate in value); secondly, it is not consumed today but used to create wealth:

An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth.

This definition clearly shows why clothes, yoga mats and cars are not investments; they are clearly consumption goods that, although giving us lots of joy and benefits, generates zero income, won’t appreciate and is gradually worn out (i.e. consumed). Almost as clearly, houses (bought to live in) aren’t investments (newsflash a decade after the financial crisis); they generate no income for the occupants (but lots of costs!) and deteriorates over time as they are consumed. The only confusing element here is the appreciation in value, which is an abnormal feature of the last say four decades: the general trend in history has been that housing prices move with price inflation, i.e. don’t lose value other than through deterioration. In fact, Adam Smith said the very same thing about housing as an investment:

A dwelling-house, as such, contributed nothing to the revenue of its inhabitant; and though it is no doubt extremely useful to him, it is as his cloaths and household furniture are useful to him, which however make a part of his expence, and not his revenue. (AS, Wealth of Nations, II.1.12)

Cars are even worse, depreciating significantly the minute you leave the parking lot of the dealership. Where the Investopedia definition above comes up short is for business investments; when my local bakery purchases a new oven, it passes the first criteria (generates incomes, in terms of bread I can sell), but not the second, since it is generally consumed today. Some other tricky example are cases where political interests attempt to capture the persuasive language of economists for their own purposes: that we need to invest in our future, either meaning non-fossil fuel energy production, health care or some form of publicly-funded education. It is much less clear that these are investments, since they seldom generate an income and are more like extremely durable consumption goods (if they do classify on some kind of societal level, they seem like very bad ones).

In summary, economists think of investments as something yielding monetary returns in one way or another. Either directly like interest paid on bonds or deposits (or dividends on stocks) or like companies transforming inputs into revenue-generating output. It is, however, clear that most things the public refer to as investments (cars, clothes, houses) are very far from the economists’ understanding.

Economists and the general public often don’t see eye-to-eye. But improving the communication between the two should hopefully allow them to – indeed, the clarity with which we do so is our claim to fame in the first place.

Revised version of blog post originally published in Nov 2016 on Life of an Econ Student as a reflection on Establishment-General Public Divide.

Inventions that didn’t change the world

Have you ever learned about an amazing invention–whether it was the Baghdad battery or the ancient Roman steam engine or Chinese firecrackers–and wondered why it didn’t do more to change the world? In this podcast, we examine a selection of curiosities and explore hypotheses for why their inventors didn’t use them to full effect.

We move VERY quickly through a range of fascinating examples and hypotheses, and therefore leave a lot up to discussion. We hope to see your thoughts, feedback, and additions in the comments section!

For any invention that you want to learn more about, see the links below:

Knossos’ toilets

In the 2nd millennium BC, a “palace” (now thought to be a building that served as administrative, trade, and gathering hub) had running-water toilet flushing. Much like the Roman Cloaca Maxima, likely a HUGE public-health benefit, but basically died out. Does this show that military protection/staving off the “Dark Ages” was the only way to maintain amazing inventions?


The Nimrud lens

Whether it was a fire-starter, a magnifying glass, or (for some overeager astronomy enthusaists), the Neo-Assyrian ground-crystal Nimrud lens is an invention thousands of years out of place. While the Egyptians, Greeks, and Romans all used lenses of different sorts, and glass-blowing was certainly popular by the 1st century BC in Roman Egypt, no glass lenses were made until the Middle Ages and the potential scientific and engineering uses of lenses–that can hardly be understated even in their 16th-to-18th-century applications–had to wait another couple millennia. Many devices like the Baghdad battery and Antikythera device are heralded for their possible engineering genius, but this seems like a simple one with readily available applications that disappeared from the historical record.

Hero of Alexandria’s steam engine

In the 1st century AD, Hero was a master of simple machines (that were mostly used for plays) and also invented a force pump, a wind-powered machine, even an early vending machine. However, he is likely most famous for his Aeolipile, a rotating steam engine that used heated water to spin an axle. The best attested use of this is for devotion to the divine and party tricks.

The ancient mechanical reaper

Ancient Gallo-Romans (or just Gauls) invented a novel way of grain harvesting: rather than using sickles or scythes, they used a mechanical reaper, 1700 years before Cyrus McCormick more than tripled the productivity of American farmers. This antiquated device literally but the cart before the oxen and required two men to operate: one man to drive the beasts, and another to knock the ears off the stalk (this reaper was obviously far less sophisticated than McCormick’s). This invention did not survive the Volkswanderung period.

Note: the horse collar (which allowed horses to be used to plow) was invented in 1600-1400 BC in China AND the Levant, but was not applied widely until 1000 AD in Europe.


Madhav, an Indian doctor, compiled hundreds of cures in his Nidana, including an inoculation against smallpox that showed an understanding of disease transmission (he would take year-old smallpox-infected flesh and touch it to a recently made cutaneous wound). However, the next 13 centuries did not see Indian medical understanding of viruses or bacteria, or even copied techniques of this, development.

At least, thank god, their methods of giving nose jobs to those who had had their noses cut off as a punishment survived:

The Chinese:

List of all chinese inventions:


Gunpowder was discovered by Chinese alchemists attempting to discover the elixir of life (irony, no?)

(maybe a good corollary would be Greek fire, which was used effectively in naval warfare by the Byzantines, but which was not improved upon and the recipe of which is still secret:


The Chinese invented the printing press possibly as early as the 6th century. However, unlike the explosion of literacy seen in much of Europe (particularly Protestant Europe–see our last podcast), the Chinese masses never learned to read. In fact, in 1950 fewer than 20% of Chinese citizens were literate. Compare this to Europe, where some societies saw literacy rates of as high as 90% (Sweden, Male population) in some societies within a few centuries of the introduction of the printing press. Why? There may be several reasons–cultural, religious, political–but in our opinion, it would have to be the characters: 100,000 blocks were needed to create a single set.

They also invented pulped paper by the 2nd century BC:

The compass

Invented by 200 BC for divination and used for navigation by the Song dynasty; despite this and the availability of easily colonizable islands within easy sailing distance, the Chinese did not colonize Indonesia, Polynesia, or Oceania, while the Europeans did within the century after they developed the technology and first sailed there.

The rudder

While they did not invent the rudder, they invented the “medial, axial, and vertical” sternpost rudder that would become standard in Europe almost 1,000 years before it was used in Europe (1st century AD vs 11th century).

Natural gas

The Chinese discovered “fire wells” (natural gas near the surface) and erected shrines to worship there.

They even understood their potential for fuel, but never developed beyond primitive burning and bamboo piping despite having advanced mining techniques for it by the 1st century BC.

Chinese miscelleni:

Hydraulic powered fan:

Cuppola furnace for smelting and molding iron:

Coke as a fuel source:

Belt-drive spinning wheel:

The Precolumbian wheel

The pre- and early Mayans had toys that utilized primitive wheels, but did not use them for any labor-saving purpose (even their gods were depicted carrying loads on their backs). This may have been because scaling up met with mechanical difficulties, but the potential utility of wheels in this case with a bit of investment literally sat unrealized for centuries.

The Tucker:

The following book contained some of our hypotheses:


The rest of our hypotheses were amalgamated from our disparate classes in economics and history, but none of them are our own or uncommon in academic circles. Thanks for listening!