A detailed look at how economists shaped the world, and how the legacy continues Trillion Dollar Economists explores the prize-winning ideas that have shaped business decisions, business models, and government policies, expanding the popular idea of the economist's role from one of forecaster to one of innovator. Written by the former Director of Economic Research at Bloomberg Government, the Kauffman Foundation and the Brookings Institution, this book describes the ways in which economists have helped shape the world - in some cases, dramatically enough to be recognized with a Nobel Prize or Clark Medal. Detailed discussion of how economists think about the world and the pace of future innovation leads to an examination of the role, importance, and limits of the market, and economists' contributions to business and policy in the past, present, and future. Few economists actually forecast the economy's performance. Instead, the bulk of the profession is concerned with how markets work, and how they can be made more efficient and productive to generate the things people want to buy for a better life. Full of interviews with leading economists and industry leaders, Trillion Dollar Economists showcases the innovations that have built modern business and policy. Readers will: Review the basics of economics and the innovation of economists, including market failures and the macro-micro distinction Discover the true power of economic ideas when used directly in business, as exemplified by Priceline and Google Learn how economists contributed to policy platforms in transportation, energy, telecommunication, and more Explore the future of economics in business applications, and the policy ideas, challenges, and implications Economists have helped firms launch new businesses, established new ways of making money, and shaped government policy to create new opportunities and a new landscape on which businesses compete. Trillion Dollar Economists provides a comprehensive exploration of these contributions, and a detailed look at innovation to come.
Preface xi Chapter 1 Introduction: Economists as Innovators 1 Organization of the Book 5 My Personal Interest (and Bias) 8 Chapter 2 An Easy Introduction to Economics 13 Rationality 13 Markets 19 Market Failures 22 The Macro--Micro Distinction 27 Economic Growth in the Short and Long Run 31 The Equity--Efficiency Tradeoff 32 Innovation and Growth: The Role of Economists 35 The Bottom Line 39 Part I: The Power of Economic Ideas: Direct Use in Business 43 Chapter 3 The Price Is Right 47 The Bloomberg Way of Pricing 49 Auctions 52 Different Prices for Different Folks 69 The Bottom Line 73 Chapter 4 Minimizing Costs 77 Optimization 78 Learning by Doing 87 The Bottom Line 91 Chapter 5 Beyond Moneyball 93 A Brief Guide to Regression Analysis 94 The Business of Forecasting 96 The Business of Economic Consulting 101 Data Analytics and Big Data 104 Econometrics and Sports: Moneyball 106 Regulatory Moneyball 110 The Bottom Line 112 Chapter 6 Experiments in Economics and Business 115 Economics in the Lab: Vernon Smith and Experimental Economics 117 Lab Experiments in Business: Focus Groups 120 Economic Experiments in the Field: Randomized Controlled Trials 121 Business Experimentation in the Field 122 Innovation and Entrepreneurship: Experimentation as the Foundation of Growth 125 The Bottom Line 133 Chapter 7 Matchmaker, Matchmaker 137 A Gentle Introduction to Market Design and Matching Theory 138 Matchmaking in the Labor Market 146 Matchmaking and Online Dating 149 The Bottom Line 151 Chapter 8 Economists and Mostly Good Financial Engineering 155 Not Putting Your Eggs in One Basket: The Rise of Index Investing 156 Efficient Markets and Their Implications 159 Behavioral Finance 164 Valuing Options: Upsides and Downsides 167 The Bottom Line 173 Part II: Economist-Inspired Policy Platforms for Private Business 177 Chapter 9 Planes, Trains, and ... Trucks 185 Origins of Transportation Regulation 186 Airline Deregulation 189 Trucking Deregulation 197 Railroad Deregulation 202 Deregulation's Impact: The Transportation Industry 203 Deregulation as a Business Platform 207 The Bottom Line 210 Chapter 10 Economists and the Oil and Gas Revolution 213 The Origins and Decline of Price Regulation of Fossil Fuels 214 The Oil and Gas Supply Revolution 221 The Energy Revolution as a Platform Technology 224 The Bottom Line 227 Chapter 11 Economists and the Telecommunications Revolution 229 Economists in a Quick History of Communications 230 When Natural Monopolies End: The Run-Up to the AT&T Antitrust Case 234 Competition in Telecommunications: The Benefits of AT&T's Breakup 242 Economists and Price Cap Regulation 248 Economists and Spectrum Allocation 251 The Bottom Line 256 Chapter 12 Economists, Financial Policy, and Mostly Good Finance 261 Economists and Competition in Brokerage Commissions 262 Economists as Detectives: Accelerating Automated Trading 264 Economists and the Financial Crisis 270 How Did the Crisis Happen? A Quick and Easy Guide 271 Subprime Lending 276 Excessive Leverage: An Introduction 277 The Pre-crisis Demise of SEIR 281 The Glass--Steagall Debate 287 The Bottom Line 294 Part III: Looking Ahead 299 Chapter 13 Economic Ideas in Waiting: Business Applications 301 Prediction Markets 302 Potentially Good Financial Innovations 306 Congestion Pricing 312 The Bottom Line 317 Chapter 14 Economic Ideas and Challenges on the Policy Shelf: Business Implications 321 Federal Budget Deficits as Drivers of Policy Change 322 Premium Support for Medicare and Medicaid 326 Taxing Consumption 334 Taxing Carbon 343 The Bottom Line 350 Chapter 15 The Future of Economics: What It Means for Business and Economists 353 The Revolution in Economics 354 How Economics Will Continue to Affect Business 356 Implications for Economists 357 Concluding Thoughts 359 Appendix: Prizes in Economics 361 About the Author 365 Index 367
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