Trillion Dollar Economists: How Economists and Their Ideas have Transformed Business

PRAISE FOR TRILLION DOLLAR ECONOMISTS A tour de force showcase of progress attained by the marriage of economics and human imagination. A must read for innovators, entrepreneurs, policymakers, and students of economics hoping to chart a better future. Jay Walker, founder of Priceline and Walker Digital Bob Litans combination of sprightly prose, personal touch, wide range, and enthusiasm for his subjectwhich might well be called what economics has contributed to the economymakes this marvelous book a rare find. Pick it up and youll find yourself drawn into his infatuation with economic analysis. This book educates and entertains at the same timequite a deal. Alan S. Blinder, Professor of Economics at Princeton University and the author of After the Music Stopped Bob Litan is one of the most brilliant and versatile economists of the modern age. His book on the history of economist–innovators will open your eyes to some of the most important people in economics and their contributions to modern society. This is an inside story of breakthroughs from matchmaking to mathematical programming, from financial wizardry to the deregulation movement. Everyone from interested amateur to seasoned professional will learn greatly from this book. William Nordhaus, Sterling Professor of Economics, Yale University

Preface Chapter 1 Introduction: Economists as Innovators Organization of the Book My Personal Interest (and Bias) Chapter 2 An Easy Introduction to Economics Rationality Markets Market Failures The "Macro"/"Micro" Distinction Economic Growth in the Short and Long Runs The Equity–Efficiency Tradeoff Innovation and Growth: The Role of Economists The Bottom Line Part I The Power of Economic Ideas: Direct Use in Business Chapter 3 The Price is Right The “Bloomberg Way” of Pricing Auctions Airline Seats Google and On–Line Ads Other Uses of Auction–Based Pricing Conditional Offer of Purchase (Name Your Price): Priceline Different Prices for Different Folks The Bottom Line Chapter 4 Minimizing Costs Optimization Learning by Doing The Bottom Line Chapter 5 Beyond Moneyball A Brief Guide to Regression Analysis The Business of Forecasting The Business of Economic Consulting Data Analytics and “Big Data” Econometrics and Sports: Money Ball Regulatory Money Ball The Bottom Line Chapter 6 Experiments in Economics and Business Economics in the Lab: Vernon Smith and "Experimental Economics" "Lab" Experiments in Business: Focus Groups Economic Experiments in the Field: Randomized Controlled Trials Business Experimentation in the Field Innovation and Entrepreneurship: Experimentation as the Foundation of Growth The Bottom Line Chapter 7 Matchmaker, Matchmaker A Gentle Introduction to Market Design and Matching Theory Matchmaking in the Labor Market Matchmaking and Online Dating The Bottom Line Chapter 8 Economists and Mostly Good Financial Engineering Not Putting Your Eggs in One Basket: The Rise of Index Investing Efficient Markets and Their Implications Behavioral Finance Valuing Options: Upsides and Downsides The Bottom Line Part II Economist–Inspired Policy Platforms for Private Business Chapter 9 Planes, Trains and … Trucks Origins of Transportation Regulation Airline Deregulation Trucking Deregulation Railroad Deregulation Deregulation’s Impact: The Transportation Industry Deregulation as a Business Platform The Bottom Line Chapter 10 Economists and the Oil and Gas Revolution The Origins and Decline of Price Regulation of Fossil Fuels The Oil and Gas Supply Revolution The Energy Revolution as a Platform Technology The Bottom Line Chapter 11 Economists and the Telecommunications Revolution Economists in a Quick History of Communications When Natural Monopolies End:  The Run–up to the AT&T Antitrust Case Competition in Telecommunications: The Benefits of AT&T′s Breakup Economists and Price Cap Regulation Economists and Spectrum Allocation The Bottom Line Chapter 12 Economists, Financial Policy, and "Mostly Good" Finance Economists and Competition in Brokerage Commissions Economists as Detectives: Accelerating Automated Trading Economists and the Financial Crisis How Did The Crisis Happen? A Quick and Easy Guide Subprime Lending Excessive Leverage: An Introduction The Pre–Crisis Demise of PCA The Glass–Steagall Debate and the Financial Supermarket That Failed (So Far) The Bottom Line Part III  Looking Ahead Chapter 13 Economic Ideas in Waiting: Business Applications Prediction Markets Potentially Good Financial Innovations Congestion Pricing The Bottom Line Chapter 14 Economic Ideas and Challenges on the Policy Shelf: Business Implications Federal Budget Deficits as Drivers of Policy Change Premium Support for Medicare/Medicaid Taxing Consumption Taxing Carbon The Bottom Line Chapter 15 The Future of Economics: What It Means for Business and Economists Themselves The Revolution in Economics How Economics Will Continue to Affect Business Implications for Economists Concluding Thoughts About the Author Index

ROBERT LITAN has spent four decades publishing over 25 books and more than 200 articles about the U.S. economy and has directed economic research at some of the nations leading research organizations in both the for–profit and non–profit sectors: the Brookings Institution, the Kauffman Foundation, and Bloomberg Government. He is currently a non–resident senior fellow at the Brookings Institution, Of Counsel to the law firm of Korein Tillery (St. Louis and Chicago), and Chief Economist of Main Street Genome, a new company providing analytics to small companies. He is also a regular contributor to Wall Street Journals Think Tank blog.