Sex , Drugs & Economics , by Diane Coyle

Book Review


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Sex , Drugs & Economics by Diane Coyle
Hardcover - 290 pages
First Edition, October 2002
Published by Texere Publishing Limited
ISBN 1-58799-147-0 / ISBN 1587991470

Wait until the prudes are out of the house, and lock the door after them. Make sure the window shades are closed, because we're going to discuss economics. That sensitive subject which mentions commodities, supply and demand, and other controversial ideas.

"Sex sells." That is the first sentence of chapter 1 in Sex , Drugs & Economics by economist Diane Coyle (Ph.D. Harvard). Get the feeling right away that this introduction to economic theory is going to be unusual, to say the least?

Sex , Drugs & Economics by Diane Coyle

A good scentific investigation should start with a question to be answered, so Dr. Coyle begins on the first page: since the hourly pay in prostitution is so high, why don't more people choose this profession? To arrive at an answer, she must first introduce us to several vocabulary words found in college economics textbooks, including product differentiation, the inelastic supply of labor and monopolistic competitive markets.

Similarly, in chapter 2, Illegal Drugs : It's the Economy, Man, the author explains the difference between the market's demand side and supply side, competition among suppliers, cost-benefit analysis, externalities, and price elasticity of demand.

These two subjects, the alternative sex and drug businesses, are also considered in order to investigate the effects of government regulation of a market, since a semi-effective legal ban is a form of regulation.

Chapter 3 considers how kids and teenagers "don't act like economists." Immature behavior can be understood in terms of risk, the degree of rational choice, the goal of maximizing expected utility, and the factors of time-inconsistent preferences and diminishing marginal sensitivity.

The fourth chapter is Sports -- Better Than Sex. Professional sports, has an industrial structure modified by winner take all and superstar effects. The economists' Coase theorem is applicable. The superstar effect is also very important in the music industry, the subject of chapter 5. Music, film and software have their own peculiarities regarding market concentration, marginal cost, economies of scale and monopoly power. Read more about the movie industry in chapter 12.

Skipping ahead to chapter 11, war and the military are examples of an industrial sector provided by government ostensibly for the public good. The author shows how game theory can be a method "to look inside your enemies' minds and predict what they will do." [82] Economic theory also imposes several what-ifs. Dr. Coyle writes, "If a country does opt to make rather than import weapons, the next question is whether it should allow the export of arms to third world country to try and recoup some of the costs, because it is, afer all, more efficient and profitable to manufacture the weapons on a very large scale." [82]

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I learned much from chapter 13, which is about networks. As the word is used by economists, networks are any industries in which the products are practically useless when localized, but increase rapidly in usefulness as the whole society adopts them, such as the telephone, railroads, and the internet. "Network goods differ from conventional goods and services such as doughnuts or haircuts," Coyle writes. "Traditional goods are substitutes." The more money we spend on one, the less money we have left to spend on another. However, "The more people are linked to the network, the more useful it is, and the more people want it. This is the network externality." [97]

Once we understand the concept of networks, we have a better background to understand what has happened, and what is likely to happen, to dot.com businesses, covered in chapter 14. Such businesses have demand-side economies of scale, and this relates uniquely to the amount of sunk costs and the fact that internet companies have very low entry barriers.

Many dot.com companies also sell experience goods, which means that "you need to read a fair amount of a book, see most of a video, or try running a program, before you know whether it's any good." [107] Coyle explains how network characteristics led to the unusual and risky approach chosen by Amazon.com to accept very low profits, or none at all, for many consecutive years, in order to most rapidly expand the range of products and the size of the customer base. [105] (Reviewer's disclosure: crimsonbird.com is an Amazon.com associate site.)

Not until part 5 (chapter 21) does Coyle discuss macroeconomics, the study of the economy as a whole, and the economic system's social implications. Macro often requires a bunch of shakey predictions about the future. "The conclusions of economics often run against common sense and received wisdom," she writes, "especially the conventional wisdom in other social sciences and the humanities." [197]

In reference to macroeconomics, Coyle firsts asks us to consider: "Does it make any sense to try to capture the intricacies of human behavior in equations?" [198] But don't worry -- the author doesn't use any equations or graphs in the book.

While talking about macro, Coyle inspects the concept of "do-it-yourself economics" introduced by economist David Henderson, who has collected a list of common intuitive ideas which he considers to be misconceptions.

A seven page appendix on Ten Rules of Economic Thinking [221] show how such generalities as "everything has a cost" and "there is no easy profit" apply to all facets of human life, extending beyond what we usually call economics.

A very useful feature is that the glossary in the back of the book [228] is prosaic rather than a mere list of definitions. The technical terms which were used earlier in the book are explained again, with still more examples from popular culture and the events we have seen in the daily news.

There's an old joke -- what do you get if you cross a Mafia gangster with an economist? Answer: An offer you can't understand. Economics has a reputation for being abstruse. If you want to arrive at an understanding of the subject, you might as well have fun at the same time.

Sex, Drugs and Economics takes a lot of fun examples and uses them to explain this potentially difficult subject. Every reader will find the book as enjoyable as it is educational.

Book review by Mike Lepore for crimsonbird.com

25 chapters and several appendices. 15-page 2-column index. No illustrations.

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Sex , Drugs & Economics
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Book Description from the Publisher

What in the world does the arcane science of economics have to do with the "real" world? Everything, according to Diane Coyle, a Harvard-trained economist and award-winning financial columnist.

In this entertaining introduction to economics, Coyle shows how "the dismal science" can shed light on virtually anything -- sports, drugs, music, movies, and, yes, even sex. Writing in a lively and engaging style, she illustrates the relevance of economics to real-world issues in a refreshing, thought-provoking manner.

Eschewing abstruse mathematics, Coyle explains how you can use simple economic principles to analyze the complex and often confusing issues in today's headlines. Economic thinking has profound relevance to contemporary politics, social trends, and public policy debates -- not just traditional macroeconomic concerns like GDP, inflation, or employment. In short, she shows you how to think like an economist. In her view, economists are consummate skeptics, constantly asking questions and seeking empirical evidence to support or refute theories.

In this broader sense, economics becomes a tool for understanding human nature -- a quest for enlightenment that rises above mere facts and figures to address the most vexing issues of our time. Without a firm grasp of economic fundamentals, Coyle argues, it's impossible to think clearly about trade and globalization, hunger and population growth, the environment and energy conservation, and a host of other urgent problems. Whatever side of these problems you find yourself on, Sex , Drugs & Economics will provide valuable insights into their root causes, inevitable trade-offs, and potential solutions. Ultimately, Coyle concludes, an understanding of economics is essential to an informed and active citizenry -- and, indeed, to democracy itself.

About the Author

Diane Coyle writes and speaks on business, technology, and the global economy. She is a regular columnist for The Independent, a presenter of BBC Radio's Analysis program and directs Enlightenment Economics, a consulting firm. She is also a Visiting Research Fellow at the London School of Economics Centre for Economic Performance. Diane was the Economics Editor of The Independent for eight years, and in 2000 she won the prestigious Wincott Award for Senior Financial journalists After getting her Ph.D. from Harvard, she spent a year working at the U.K. Treasury. Diane is also the author of Paradoxes of Prosperity , The Weightless World , and Governing the World Economy . She lives in London.

Reviews

"Diane Coyle has done the best job yet of showing how economic thinking can be applied to life ...."

-- Paul Krugman, Professor of Economics
and International Trade, Princeton University

"This is a highly engaging and remarkably literate survey of economics .... Dr. Coyle has a rare talent ..."

-- Andrew W. Lo, Harris & Harris Group Professor, MIT Sloan School of Management,
and Director, MIT Laboratory for Financial Engineering

"A fun read, it will give both the novice and the technician a great deal of food for thought."

-- Dr. Sherry Cooper, Executive Vice-President and Global Economic Strategist,
Bank of Montreal Group of Companies

"Diane Coyle delivers a most enjoyable tour and an effortless education in economics by exploring everyday subjects."

-- Peter Sutherland, Chairman, BP

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This is an Amazon.com link for
Sex , Drugs & Economics
by Diane Coyle
ISBN 1-58799-147-0 / ISBN 1587991470