Naked Economics Read Online Free Page A
Author: Charles Wheelan
appreciate his willingness to share his expertise on the topic.
I owe a debt to my former editors at The Economist. John Micklethwait was generous in allowing me to disappear for a stretch while I finished the first edition of this book and was also willing to read and make comments on the finished product. I owe Ann Wroe credit for her clever subtitle. The fact that both John and Ann find time to edit one of the world’s great publications while also raising families and writing books of their own continues to be an inspiration.
More recently, the Harris School of Public Policy at the University of Chicago and Dartmouth College have both offered me an intellectual “home” where I have the privilege of teaching great students and working on projects like this one. At the Harris School, former Dean Susan Mayer was a particularly enthusiastic supporter of my ongoing quest to make important academic ideas more accessible to the lay public. At Dartmouth, Bruce Sacerdote has been both a terrific intellectual companion and a great water-ski buddy.
I also owe a different kind of debt. The vast majority of ideas I describe in this book are not my own. Rather, I am a translator whose work derives its value from the brilliance of the original, which in this case is centuries of work done by great thinkers. I hope this book reflects my enormous respect for that work.
Last, I would like to acknowledge those who inspired my interest in the subjects that make up this book. I’ve made the case that economics is often poorly taught. That is true. But it’s also true that the discipline can come alive in the hands of the right person, and I was fortunate to work and study with many of them: Gary Becker, Bob Willis, Ken Rogoff, Robert Willig, Christina Paxson, Duncan Snidal, Alan Krueger, Paul Portney, Sam Peltzman, Don Coursey, Paul Volcker. My hope is that this book will help to transmit their knowledge and enthusiasm to many new readers and students.
naked economics
CHAPTER 1
The Power of Markets:
Who feeds Paris?
I n 1989, as the Berlin Wall was toppling, Douglas Ivester, head of Coca-Cola Europe (and later CEO), made a snap decision. He sent his sales force to Berlin and told them to start passing out Coke. Free. In some cases, the Coca-Cola representatives were literally passing bottles of soda through holes in the Wall. He recalls walking around Alexanderplatz in East Berlin at the time of the upheaval, trying to gauge whether there was any recognition of the Coke brand. “Everywhere we went, we asked people what they were drinking, and whether they liked Coca-Cola. But we didn’t even have to say the name! We just shaped our hands like the bottle, and people understood. We decided we would move as much Coca-Cola as we could, as fast as we could—even before we knew how we would get paid.” 1
Coca-Cola quickly set up business in East Germany, giving free coolers to merchants who began to stock the “real thing.” It was a money-losing proposition in the short run; the East German currency was still worthless—scraps of paper to the rest of the world. But it was a brilliant business decision made faster than any government body could ever hope to act. By 1995, per capita consumption of Coca-Cola in the former East Germany had risen to the level in West Germany, which was already a strong market.
In a sense, it was Adam Smith’s invisible hand passing Coca-Cola through the Berlin Wall. Coke representatives weren’t undertaking any great humanitarian gesture as they passed beverages to the newly liberated East Germans. Nor were they making a bold statement about the future of communism. They were looking after business—expanding their global market, boosting profits, and making shareholders happy. And that is the punch line of capitalism: The market aligns incentives in such a way that individuals working for their own best interest—passing out Coca-Cola, spending years in graduate school,
I owe a debt to my former editors at The Economist. John Micklethwait was generous in allowing me to disappear for a stretch while I finished the first edition of this book and was also willing to read and make comments on the finished product. I owe Ann Wroe credit for her clever subtitle. The fact that both John and Ann find time to edit one of the world’s great publications while also raising families and writing books of their own continues to be an inspiration.
More recently, the Harris School of Public Policy at the University of Chicago and Dartmouth College have both offered me an intellectual “home” where I have the privilege of teaching great students and working on projects like this one. At the Harris School, former Dean Susan Mayer was a particularly enthusiastic supporter of my ongoing quest to make important academic ideas more accessible to the lay public. At Dartmouth, Bruce Sacerdote has been both a terrific intellectual companion and a great water-ski buddy.
I also owe a different kind of debt. The vast majority of ideas I describe in this book are not my own. Rather, I am a translator whose work derives its value from the brilliance of the original, which in this case is centuries of work done by great thinkers. I hope this book reflects my enormous respect for that work.
Last, I would like to acknowledge those who inspired my interest in the subjects that make up this book. I’ve made the case that economics is often poorly taught. That is true. But it’s also true that the discipline can come alive in the hands of the right person, and I was fortunate to work and study with many of them: Gary Becker, Bob Willis, Ken Rogoff, Robert Willig, Christina Paxson, Duncan Snidal, Alan Krueger, Paul Portney, Sam Peltzman, Don Coursey, Paul Volcker. My hope is that this book will help to transmit their knowledge and enthusiasm to many new readers and students.
naked economics
CHAPTER 1
The Power of Markets:
Who feeds Paris?
I n 1989, as the Berlin Wall was toppling, Douglas Ivester, head of Coca-Cola Europe (and later CEO), made a snap decision. He sent his sales force to Berlin and told them to start passing out Coke. Free. In some cases, the Coca-Cola representatives were literally passing bottles of soda through holes in the Wall. He recalls walking around Alexanderplatz in East Berlin at the time of the upheaval, trying to gauge whether there was any recognition of the Coke brand. “Everywhere we went, we asked people what they were drinking, and whether they liked Coca-Cola. But we didn’t even have to say the name! We just shaped our hands like the bottle, and people understood. We decided we would move as much Coca-Cola as we could, as fast as we could—even before we knew how we would get paid.” 1
Coca-Cola quickly set up business in East Germany, giving free coolers to merchants who began to stock the “real thing.” It was a money-losing proposition in the short run; the East German currency was still worthless—scraps of paper to the rest of the world. But it was a brilliant business decision made faster than any government body could ever hope to act. By 1995, per capita consumption of Coca-Cola in the former East Germany had risen to the level in West Germany, which was already a strong market.
In a sense, it was Adam Smith’s invisible hand passing Coca-Cola through the Berlin Wall. Coke representatives weren’t undertaking any great humanitarian gesture as they passed beverages to the newly liberated East Germans. Nor were they making a bold statement about the future of communism. They were looking after business—expanding their global market, boosting profits, and making shareholders happy. And that is the punch line of capitalism: The market aligns incentives in such a way that individuals working for their own best interest—passing out Coca-Cola, spending years in graduate school,
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