Book review: The Price of Everything, by Eduardo Porter

Cost-benefit analysis, while a useful tool in business and government, is overstretched when applied to human behaviour, finds Alastair Dryburgh.

by Alastair Dryburgh
Last Updated: 04 Jan 2011
In a recent radio interview, John Micklethwait, editor of The Economist, pointed out an interesting trend. At the same time as the widely remarked and widely deplored 'dumbing down', there was a simultaneous but opposite trend. This was the rise of the book of ideas, exemplified by the success of authors such as Malcolm Gladwell, Nassim Nicholas Taleb, and Levitt and Dubner of Freakonomics. This book is very much within that tradition, aspiring to a point of view, often adapted from some altogether different intellectual field, which will transform our perception of the familiar.

It's worth reflecting on what makes the book of ideas appealing. First, it has to deliver an intellectual jolt - at the very least, it should shock us into a realisation that there is much, much more to a subject than we realised. Preferably, it should convince us that our previous beliefs were in fact completely wrong.

Second, it helps if the book of ideas takes us into unfamiliar worlds. This is part of the charm of Freakonomics, with its cast of street gangs, sumo wrestlers, drug dealers and prostitutes.

Third, an entertaining and engaging guide is a big plus. This is part of Taleb's success. Imagine having dinner with him. You might find him fascinating, or irritating beyond endurance, but it would be a memorable evening.

Finally, you want something you can use, some clever idea or trick which gives you the inside track against the poor schmucks who haven't read or didn't get the book, so you can profit from others' irrationality or superficiality. Again, Taleb scores here. His contrarian approach to the markets has made him rich and given him the platform to sneer at many of his fellow market participants.

So how does this book by New York Times editorial board member Porter measure up? It's worth noting that the bar for the book of ideas is rising all the time. There's only so much social science, economics, neurology or quantum mechanics that can be ported across to new fields. Even Gladwell's latest, Outliers, gives the impression of a good magazine article puffed up into a rather thin (in both senses) book. I'm sorry to say that the present volume falls well short too.

The basic thesis, that 'behind every decision we make, individual or collective, lies a price', often seems to mean no more than that 'most of the decisions we take, even in apparently non-economic areas, are based on some calculus of costs and benefits'. I learn that more money tends to make people happier and that people living in houses with mud floors become happier and healthier if those floors are concreted over.

Sorry, but this doesn't get my pulse racing. It's probably true, but it doesn't surprise me. I would be more interested in those cases where we don't apply that calculus - middle income voters in the US supporting tax breaks that only benefit the very rich, for example.

The book covers a wide range of subjects, from happiness to women to culture to faith. The concept of price seems badly stretched and in some of these areas there is visible strain and it's hard to feel that price is the most useful way of understanding phenomena. The book also ranges widely over the world - the middle class Indian marriage market, the slums of Mexico - but it's all rather colourless. You search in vain for characters like Allie, the happy prostitute (Freakonomics), or Fat Tony and Dr John (Taleb).

At times, I have a problem with the level of intellectual rigour employed. The book refers to the rapidly widening gap between the pay of CEOs and the rest, and moves on to a discussion of the economics of superstars. Top actors, musicians and athletes have seen huge growth in relative earnings because developments in the media have expanded their potential audiences by orders of magnitude. This just doesn't work as an explanation of the CEO pay explosion; the size of the organisations they run has not expanded in anything like the same proportion as audiences for performers.

The author quotes Freud as saying that 'people strive after happiness, they want to become happy and remain so'. This is certainly one of the least interesting things that Freud said, and misses the point that psychoanalysts operate largely in the areas where we seem compelled to behave in ways that lead us away from happiness.

Overall, there is a sense of missed opportunity in this book. There's nothing very surprising and there is nothing that one could use. Given the current status and reputation of economics, it would have been more interesting to focus on the exceptions. Never mind those areas where we apply an economic logic when we might be expected not to; what about the areas where we don't apply economic logic when you'd think we would? Where are the implications for public policy - what do we do about bankers' bonuses? Or the opportunities for personal profit - how does understanding this stuff put me ahead of the herd?

The Price of Everything: The cost of birth, the price of death, and the value of everything in between.
Eduardo Porter

William Heinemann £11.99

Alastair Dryburgh is chief contrarian at Akenhurst Consultants and a contributor to MT's Brainfood.

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