The Underrated Economists Today's summer economics read is "What Would the Great Economists Do?" by Linda Yueh, who is a great economist herself.
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The Underrated Economists

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CARDIFF GARCIA, HOST:

Hey, everyone. It's Cardiff and Stacey. And all this week on THE INDICATOR, we are talking about economics and business beach reads.

STACEY VANEK SMITH, HOST:

Yes, we are. I mean, who says you can't take economics to the beach?

GARCIA: Yeah, exactly. These are books that are readable and fun and will teach you something.

VANEK SMITH: Today we are talking to Linda Yueh, economist and author of "What Would The Great Economists Do?" And in the book, Linda profiles 12 economists and looks at how their ideas could be used to solve today's problems.

GARCIA: Now a lot of the economists she profiles - people like John Maynard Keynes, Adam Smith, Karl Marx - these are household names. Their ideas are well-known. But some of the economists she profiles are a little bit more obscure. So on today's show, we asked Linda to pick two economists she profiled whose work has been underrated by history.

LINDA YUEH: So I picked Joan Robinson. She is probably the most influential female economist of the 20th century, but many people probably haven't heard of her. And the other one is Irving Fisher.

GARCIA: So two underrated economists, but who is the most underrated?

VANEK SMITH: Sounds like a recipe for dueling indicators.

GARCIA: Dueling indicators. Heads, you take Joan Robinson; tails, you take Irving Fisher. OK?

VANEK SMITH: OK.

GARCIA: Here it comes.

(SOUNDBITE OF COIN TAPPING)

GARCIA: Heads.

VANEK SMITH: I got Joan.

GARCIA: You got Joan.

VANEK SMITH: Oh, I'm excited.

GARCIA: I get Irving. It's on.

VANEK SMITH: It's on.

(SOUNDBITE OF MUSIC)

VANEK SMITH: OK, Cardiff. Ladies first. I'm just going to go ahead and say that because I can.

GARCIA: Turn it loose. Go for it.

VANEK SMITH: Joan Robinson. And I feel like ladies first is appropriate because economics just - it has a lady problem. Female economists are in perilously short supply. About 80 percent of economists are men. Joan was born in 1903 in England - Surrey. And she hung out with a bunch of other great luminaries of her time, including John Maynard Keynes.

YUEH: She was one of the five people entrusted to review John Maynard Keynes' "General Theory."

VANEK SMITH: Wow. That was his big book.

YUEH: Yeah. That's the seminal book that launched the Keynesian Revolution, while we talk about governments borrowing to spend.

VANEK SMITH: Five people were in Keynes' inner circle. One was a woman. So 80 percent of Keynes' inner circle was also male.

GARCIA: Sadly consistent.

VANEK SMITH: But Joan Robinson was the one. And what's so great about Joan's work is that it is especially relevant to this economic mystery that we're dealing with in the U.S. right now - the great wage puzzle.

So unemployment in this country is really low right now. Businesses are competing for workers. And this is good news for workers - right? - because competition means that companies have to sweeten the pot to lure the best people. So logically, businesses would start offering to pay people more money. Wages should be going up.

And that has not been happening nearly as quickly as it seems like it should be. The job market's, like, on steroids and Red Bull, and wages are just napping. So what is going on? You know who can tell us, Cardiff?

GARCIA: Joan Robinson?

VANEK SMITH: Joan Robinson.

YUEH: So in the 1930s, Joan Robinson pioneered the idea of imperfect competition, especially in labor market.

VANEK SMITH: Imperfect competition - it's the idea that companies - employers - have this leg up. So even though in this situation, it seems like the worker should have all this muscle, the worker just doesn't.

YUEH: She was the first one to come up with this idea of monopsony. So you've probably heard of monopoly...

VANEK SMITH: Yes.

YUEH: ...Which is when a firm has market power. They can set prices which are too high for what the good should be selling at. Monopsony refers to when employers have market power. So that means they can set wages lower than what a worker should be paid.

VANEK SMITH: Joan says this can happen for a bunch of reasons. One is location, like a one-company town. And there's another factor, which Linda says the best example that she can think of is this moment that she experienced years ago.

YUEH: I was at a lecture by President Bill Clinton, and he was talking about the number of jobs that were created in the U.S. economy. And a woman raised her hand in the audience and said, Mr. President, I have three of those jobs, and I still can't make ends meet.

VANEK SMITH: This woman was employed. She had three jobs. On the jobs report, she's got a job, and that might make the job market look really strong. But a lot of those jobs are not full-time jobs with benefits. The job market hasn't actually gotten that competitive yet. The unemployment numbers look deceptively good.

YUEH: And workers don't have the ability to negotiate for better conditions. So Joan Robinson describes that as disguised or hidden unemployment.

VANEK SMITH: Joan Robinson explaining the 2018 wage mystery in the 1930s. I can't imagine how you could possibly top this, Cardiff Garcia.

GARCIA: OK, not bad. OK, not bad.

VANEK SMITH: Oh. Oh.

GARCIA: I admit it. I admit it.

VANEK SMITH: Wow.

GARCIA: Joan Robinson - very impressive economist. Here's the case for Irving Fisher. And I've got to start by saying that there's a reason that he is so unsung, and it's because of what happened in his personal life, which actually is a little bit sad.

So in the first few decades of the 1900s, he made a bunch of money in three different ways. First, he married into a rich family. Second, he invented, like, an early version of the Rolodex, which he made a lot of money on.

VANEK SMITH: Really? Like the circle-y (ph) one that you turn?

GARCIA: Yup.

VANEK SMITH: Wow.

GARCIA: And then he also invested a ton of money in the stock market back in the roaring 1920s. Here's Linda.

YUEH: But the reason he isn't included in books like this (laughter) is because he sort of made a couple of predictions that didn't pan out.

GARCIA: Yeah, one big one in particular.

YUEH: A huge one. So in 1929, he said the stock market was in a permanently high plateau.

GARCIA: Permanently high plateau. Wow. Yeah, the stock market fell off a cliff then, and he never really got back on his feet. And you might be wondering, why would he recklessly speculate so much in the stock market? He already had a lot of money.

YUEH: One of his issues was that his wife comes from a very well-to-do New England family. Her wealth was the reason why they had servants, he had many secretaries. So he, I think, wanted to show he could really make money.

GARCIA: So what you're saying, essentially, is that masculine insecurity is the cause of the great collapse in his fortunes, as it has been the cause of so many collapses in so many fortunes?

YUEH: I couldn't possibly comment.

(LAUGHTER)

GARCIA: But Irving Fisher's contributions to economics were genuinely groundbreaking, and one in particular - it's called the debt deflation theory. And here's basically what it is.

Think of an economy where things are going well. There's lots of jobs. People are getting raises. Well, then people will also feel pretty comfortable borrowing and spending money, like getting a mortgage to buy a house or getting a car loan to buy a car.

But what if you think that the economy is about to slow down, or you think that house prices can't go up anymore? Well, people are not going to keep buying houses and cars. Instead, what they're going to do is save their money and pay off their debt. That is called deleveraging.

YUEH: Fisher's observation was that when you have deleveraging, then that means they're not spending. If they're not spending, then you don't have more demand for the goods and services out there. So there's less demand, so you have deflation, which is when prices fall.

GARCIA: In other words, because people are not spending money, the price of everything starts to fall. But because the price of everything is falling, people are not spending money because you're not going to buy a house or a car if you think you can get it cheaper next year. So it's this horrible spiral. And it's really bad for the economy because if nobody's spending money, then the economy slows down, and people start getting laid off.

Well, one of the economists who understood Fisher's work and even built on it was Ben Bernanke, who was chair of the Federal Reserve during the big recession 10 years ago. And Bernanke was determined to stimulate the economy enough to avoid the debt deflation spiral that Fisher had warned about all those decades ago. And Bernanke did.

VANEK SMITH: So listen. Cardiff and I cannot possibly call this because...

GARCIA: Biased.

VANEK SMITH: ...Because we're a little bit biased. But if you think that I won the debate, send an email to indicator@npr.org. If you think Cardiff won the debate, send an email to chronicallywrong@npr.org.

GARCIA: Hey.

VANEK SMITH: I'm just kidding - indicator@npr.org for both.

(SOUNDBITE OF MUSIC)

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