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Book review: Economic principles given flesh, blood and a mortgage

Relationships, like business, are about tradeoffs and resource scarcity.

If you’ve taken an Econ 101 course in the past decade or so, there’s a good chance that somewhere on your bookshelf is a dog-earred copy of Gregory Mankiw’s Principles of Economics. The Harvard professor’s textbook has become a classic, thanks to its simplicity and clarity — two qualities appreciated by gawky undergrads facing first-year distractions. After all, the dismal science never looks more dismal than when there’s a choice between staying in to study Keynes or going out to flirt with strangers at a party.

But before heading to that kegger and meeting the One, before the romance and the first apartment and the wedding and the kids, one hopes that those undergrads get through at least the first chapter in Mankiw’s book. Though he’s talking about economic actors, not romantic partners, the first of his famous 10 principles offers a warning to those who opt to share their lives with someone: “People face trade-offs.”

Paula Szuchman and Jenny Anderson have made plenty of trade-offs in their marriages. Having done time on the business and economics beats at The Wall Street Journal and The New York Times, respectively, they’ve also spent years wrestling with concepts like asymmetrical information and inter-temporal choice. Spousonomics: Using Economics to Master Love, Marriage and Dirty Dishes (Random House) is their first book-length collaboration, an attempt to apply Adam Smith principles to Dr. Phil problems. A romantic partnership, especially when kids are involved, relies on the shepherding of scarce resources: time, money, energy. Where better to turn for guidelines?

Economics, write the authors, “doesn’t talk down to you or attempt to psychoanalyze. It doesn’t care who won the last fight or whose turn it is to control the remote. Instead, it offers dispassionate, logical solutions to what can often seem like thorny, illogical, and highly emotional domestic disputes.” How to keep the flame burning; how to give each other space; “how to compromise when it’s all his fault.”

To be clear, this is principally a book of relationship advice, not a text from which to learn the finer points of Pareto efficiency. Each chapter applies an economic concept to marriage, and explores it through a few real-life case studies. While Szuchman and Anderson spoke with dozens of economists, theory here is subsidiary to practical application. But along with the relationship experts and married couples the authors interviewed, the economists themselves are often a source of valuable insight into making romance work.

One chapter deals with the division of labour within a partnership. The first case study presents a couple that has taken an egalitarian approach to dividing up the household chores, only to find themselves miserable. Their 50-50 split in washing the dishes, walking the dog, and doing the laundry ignores the fact that he finds dog-walking a misery, while it relaxes her, and that he prefers to do the laundry himself, to his own exacting standards.

So they learn the value of specialization. And though she can both tidy the house and do the dishes more quickly than he can, they’re able to achieve a more efficient division of labour overall by applying the notion of comparative advantage to their chore list. Rather than sharing responsibility for each task, they focus on those at which they are relatively good. Their collective gains from this household innovation are two additional hours of leisure time per week. Sure, he spends more time on chores than she does, so in one sense it isn’t fair — but it’s more satisfying to both than the old system.

Elsewhere, Szuchman and Anderson apply the concept of supply and demand to people’s sex lives, and frame the bad habits and apathy into which relationships can slide in terms of moral hazard. The same way that a bank deemed too big to fail might take greater risks — having the knowledge that its most severe mistakes will be underwritten by somebody else — so, too, can signing your name on a marriage licence offer a sort of insurance policy that changes your behaviour. “If I’m not married, I will make damn sure I work out every day so I can attract an equally fit husband,” the authors write. “If I’m married, I might be tempted to stop going to the gym and grow a new ass. What’s my husband going to do? Divorce me?”

Among the case studies examined through the lens of moral hazard is one featuring a freeloading husband obliviously exploiting his wife’s energy and tolerance, never helping around the house or spending quality time with her and the kids. Another assesses a couple who coasted on chemistry until their lack of ground rules created tensions once the demands of child-rearing came into play. A third couple suffers from “perverse incentives,” where a husband’s failure-is-not-an-option approach to his marriage made him blind to his mistakes. The solutions offered are in exactly the vein of those a government might propose to reduce moral hazard for banks: turn spouses into “investors,” create a new “regulatory framework” for the marriage, and find the right incentives to motivate desirable behaviour.

“What’s the hardest part about being married?” the authors asked couples in a survey commissioned for the book. Almost universally, the answers involved compromise: learning to live with another person in the house, not always getting your way, negotiating different goals. It’s Mankiw’s first principle given flesh, blood, and a 30-year fixed-term mortgage. Spousonomics, a deft and practical book, offers strategies for managing the trade-offs that comprise every relationship. “We don’t think being strategic is bad,” write Szuchman and Anderson. “It might sound cold and calculating, but it’s reality — and you might as well own it.”

So perhaps the secret to a happy marriage really is just exploiting the cold calculus of the market. Crunch the numbers, eliminate inefficiencies, and walk off into the sunset together, hand in invisible hand.

Executive summaries

Brilliant, Crazy, Cocky: How the Top 1% of Entrepreneurs Profit from Global Chaos (Wiley)
Sarah Lacy

A senior editor at TechCrunch.com, Lacy is stalking a new generation of entrepreneurs emerging out of the developing world — hybrids of old-world mom-and-pop traders and modern types with Silicon Valley ideals in their DNA. They’re “the dreamers, visionaries, megalomaniacs, and arrogant sons-of-bitches” whose businesses “change lives and do more to lift thousands out of poverty than most government programs or nongovernmental organizations.”

Israel and Brazil are familiar to some, but Indonesia and Rwanda provide more exotic case-studies-cum-travelogues. The latter, a country being rebuilt from utter social and economic devastation, is becoming an unlikely commercial hub, thanks to an ambitious government. It’s investing in high-tech infrastructure and long-term initiatives such as paying for Rwandan students to study overseas and changing the language of instruction in schools from French to English. Lacy meets one young Indian whose experiments with growing silk in Rwanda have gifted the country a whole new natural resource, and who’s now aggressively trying to buy out his Ugandan investors. He’s the kind of up-and-comer in whom Lacy thinks the West needs to invest — or risk getting “shoved out of the way.”

Money-Makers: The Wicked Lives and Surprising Adventures of Three Notorious Counterfeiters (Penguin Press)
Ben Tarnoff

If the mystique of the self-made man remains strongest in the U.S.A., so, too, is there a special place in American mythology for those who take a literal approach to making fortunes. Tarnoff, a former Lapham’s Quarterly staffer, has plenty of colour with which to work in recounting the stories of three 18th- and 19th-century counterfeiters: Owen Sullivan, David Lewis, and Samuel Curtis Upham.

More than an engrossing collection of historical true-crime stories, though, the book functions as an unlikely financial history of the young United States, as it grew “from a patchwork of largely self-governing colonies to a loosely assembled union of states and, finally, to a single nation under firm federal control.” The scant regulation early in the country’s life, and the wide variety of paper currencies in circulation via private banks and other state-chartered companies like insurance vendors and railroads, meant a free-for-all for any enterprising soul with a flair for forgery. The golden age of counterfeiting came to an end in 1865, when the Secret Service was created to crack down on phony bills. The agency’s success over the next three decades brought a long-needed degree of maturity to American finance.

Dead Ringers: How Outsourcing Is Changing the Way Indians Understand Themselves (Princeton University)
Shehzad Nadeem

The extensive outsourcing of IT and back-office business processes to the subcontinent isn’t just having a dramatic effect on the Indian economy. The effect on Indians’ aspirations and self-perceptions is also evident in “the names and neutered accents, the workplace cultures and structures, the identities and lifestyles,” argues this City University of New York sociology prof.

Workers have the “mother tongue influences” washed from their speech. To sensitize them to American sensibilities, companies make new hires watch hours of U.S. cinema and TV: American Pie, Independence Day, and especially Friends, which offers “insight into American culture through the jokes they crack,” according to one veteran Indian accent trainer. But while the raw economic benefits are clear — 74% of Indian households earn less than US$2,000 per year, while the average outsourcing worker makes double that figure — Nadeem questions the deeper impact of the “emotional labour” that service work involves. Some workers — “Britney Gupta” and her ilk — relish the freedom to create an identity in an industry still seen as glamorous. For Nadeem, however, the managerial gaze in the Indian outsourcing industry is fundamentally infantilizing.