By John Quiggin
Economics in Two Lessons is a masterful introduction to the key ideas behind the successes—and failures—of free-market economics
Since 1946, Henry Hazlitt’s bestselling Economics in One Lesson has popularized the belief that economics can be boiled down to one simple lesson: market prices represent the true cost of everything. But one-lesson economics tells only half the story. It can explain why markets often work so well, but it can’t explain why they often fail so badly—or what we should do when they stumble.
As Nobel Prize–winning economist Paul Samuelson quipped, “When someone preaches ‘Economics in one lesson,’ I advise: Go back for the second lesson.” In Economics in Two Lessons, John Quiggin teaches both lessons, offering a masterful introduction to the key ideas behind the successes—and failures—of free markets.
Economics in Two Lessons explains why market prices often fail to reflect the full cost of our choices to society as a whole. For example, every time we drive a car, fly in a plane, or flick a light switch, we contribute to global warming. But, in the absence of a price on carbon emissions, the costs of our actions are borne by everyone else. In such cases, government action is needed to achieve better outcomes.
Two-lesson economics means giving up the dogmatism of laissez-faire as well as the reflexive assumption that any economic problem can be solved by government action, since the right answer often involves a mixture of market forces and government policy. But the payoff is huge: understanding how markets actually work—and what to do when they don’t.
Brilliantly accessible, Economics in Two Lessons unlocks the essential issues at the heart of any economic question.
Diane Coyle on The Enlightened Economist wrote:
"Quiggin has no quibble about the power of markets, but he wants to sharpen our focus on the flip side of that coin — their limitations. Hence the two lessons. For me, Quiggin’s book might just as aptly be titled Markets Are Great, Except When They’re Not. Quiggin’s way of reconciling the virtues and vices of markets is to observe that 'market prices reflect and determine opportunity costs faced by consumers and producers.' This is Lesson One. Lesson Two is that 'market prices don’t reflect all the opportunity costs we face as a society.' That is, there are externalities that fall outside the price mechanism and drive a wedge between the outcomes markets deliver by themselves and the social outcomes we would like them to deliver. [...] There is little doubt that Quiggin’s Economics in Two Lessons will be an instant classic and feature on university reading lists around the world. It should also be compulsory reading for policymakers and public commentators, who all too often lack a framework for thinking clearly about the costs and benefits of markets. The good news is that Quiggin has one — and he’s happy to share."
David Gordon on The Mises Institute wrote:
"There are plenty of examples and the book is very clear, making it an attractive supplement for undergraduate courses – I guess this is the target market as each chapter has further reading. I like the way Quiggin weaves in the history of economic thought on these issues. It’s a shame he feels the need to knock ‘mainstream’ economics so much; there’s little here for a mainstreamer to disagree with, except swipes like these: 'The term ‘externality’ is one of those bits of jargon that most economists would be at a loss to explain.' What a bizarre claim. I have other quibbles – for instance, I’d disagree that Millian utilitarianism is inherently more egalitarian than post-Pareto welfare economics. On the whole, though, this is a highly readable introduction to the intellectual framework of modern policy economics, with plenty of lively examples [...]. Just remember – this isn’t anti-mainstream economics, it’s what economics is."
"Quiggin’s foray against Hazlitt misses its target, in no small part because of a problem with the key concept in the book, 'opportunity cost,' as he applies it to Hazlitt. He defines the concept in this way: 'The opportunity cost of anything is what you must give up so that you can have it.' (p.3) So far, so good, but now the difficulty in his case against Hazlitt arises. He applies the concept as it is used in neoclassical economics, but Hazlitt was an Austrian and does not use the concept in this way. [...] Quiggin has misunderstood Hazlitt’s argument in Economics in One Lesson. [...] Hazlitt wrote his book for a popular audience, but Quiggin, a skilled and learned professional economist, does not understand it properly because he reads it through the blinders of an assumption about what Hazlitt 'must' be saying. [...] Quiggin says that we should learn a Second Lesson besides the lesson Hazlitt taught, but this second lesson to a large extent consists of casting Hazlitt’s lesson aside. Readers would be well advised to stick to Hazlitt. He does not require emendations that reinstate the interventionist fallacies he challenged."
- Interview with John Quiggin about the book, blog of Princeton University Press, 23 April 2019
- John Quiggin about why he wrote this book, website of the University of Queensland
About John Quiggin
John Quiggin is the President’s Senior Fellow in Economics at the University of Queensland in Brisbane, Australia. His previous book, Zombie Economics: How Dead Ideas Still Walk among Us (Princeton), has been translated into eight languages. He has written for the New York Times and the Economist, among other publications, and is a frequent blogger for Crooked Timber and on his own website: www.johnquiggin.com.
Table of Contents of Economics in Two Lessons
Lesson One, Part I: The Lesson
- Market Prices and Opportunity Costs
- Markets, Opportunity Costs and Equilibrium
- Time, Information and Uncertainty
Lesson One, Part II: Applications
- Lesson One: How Opportunity Cost Works in Markets
- Lesson One and Economic Policy
- The Opportunity Cost of Destruction
Lesson Two, Part I: Social Opportunity Costs
- Property Rights and Income Distribution
- Monopoly and Market Failure
- Market Failure: Externalities and Pollution
- Market Failure: Information, Uncertainty and Financial Markets
Lesson Two, Part II: Public Policy
- Income Distribution: Predistribution
- Income Distribution: Redistribution
- Policy for Full Employment
- Monopoly and the Mixed Economy
- Environmental Policy