Economists Say the Damnedest Things

I heard Paul Romer present yesterday at NYU. He gave a very interesting talk on his plans for charter cities. But he began his talk claiming something very strange.

"First of all," he said, "think about shaking hands. Shaking hands, I think we can all agree, is an obviously inefficient norm. It's a major way to transmit disease." (I quote from memory!)

Well, there certainly is that downsize to shaking hands. But it also provides social bonding, human contact,  acts as a signaling device ("he had a good, firm handshake"), and probably more of which I am not thinking.

So how does Romer know that these benefits do not outweigh the costs? Well, when pressed on the issue, by Joe Salerno and David Harper, his answer seemed to be, "Well, I would prefer a world without handshaking!" along with an assumption that others would as well.

But even if his assumption were true, it would not guarantee his point: people might mistakenly think they preferred a world without handshaking; for instance, if news stories had made them intensely aware of the germ transmission aspect of the custom, but no one had alerted them to the positive social benefits.

I really don't see how one can declare a norm like shaking hand to be inefficient except as an educated guess. In any case, it is certainly not obviously inefficient, at least to me.


  1. Just to be clear, what exactly do you mean by "prefer" in the fifth paragraph? It seems to me that at T0, the misinformed people don't just think they prefer it, they clearly do prefer a germ-free, no-handshake-society since they envision it to be superior to the present state of affairs. Later on at T1 they may come to regret it when they discover a bleak and antisocial future, but that doesn't negate their preferences at T0, does it?

    Or am I just being a pedantic wannabe-economist?

  2. This is a problem with both economists and engineers: a tendency to imagine their personal preferences as objectively logical. Hayek called the engineers on it, but not, to my recollection, his own tribe.

    Bryan Caplan's "What do we owe a stranger" blog post from January (?) is a recent, perfect example. (The Caplan post is real Callahan-bait, BTW, leading me to conclude you never saw it, or else you'd've blogged it already.)

  3. Watoosh, I see what you are saying. It all depends on how you want to regard preferences. I think it is just fine to say:

    "Before I moved to Manhattan, I thought I would prefer it to Brooklyn. But I found out I was wrong!"

    One could also say, "At the time, I preferred MOVING to Manhattan, but now I regret that choice."

    So, in your way of talking, we would speak of people preferring to move (switch?) to a world without shaking hands in it, and later regretting that choice. You are looking at preference among choices, while I'm talking in terms of preferences amongst possible worlds.

    As long as we understand what we mean, I think it is fine to talk either way.

  4. "they clearly do prefer a germ-free, no-handshake-society"

    No -- what they prefer is CHOOSING this over the world we have, because they THINK they will prefer living in it: they will only find out later if that is so!

  5. Jim, you've inspired me to right up the "Gene trap" story: posted soon.

    Watoosh: After Neil Young recorded his very MOR album, _Harvest_, he wrote, "Tired of the middle of the road, I thought I'd try the gutter for a while," in describing his next several albums, such as _Tonight's the Night_.

    I think a good way to describe this is: Young preferred *trying out* the gutter to staying in the middle of the road; but once he tried it, he found he didn't really like it at all.


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