Economists everywhere

Adam Smith
I am an economist by training, but only occasionally by trade. When I began my career at OCLC, I assumed that, for the most part, I had left the world of economists behind. But I was surprised to learn that many of the economists whose textbooks and papers I struggled through in graduate school have preceded me into the library world. A partial list includes Hal Varian, William Baumol, William Bowen, and Richard Quandt. Moreover, K. Wayne Smith, president of OCLC when I started working here, has a PhD in economics!

So apparently many of my kind have been here before, which is both gratifying and disappointing – gratifying that so many sharp economic minds have thought about some of the same issues I’m supposed to be thinking about, and disappointing because I’m obviously not a pioneer (sort of like Edmund Hillary reaching the top of Mount Everest and finding a ranger station and gift shop).

Libraries, archives, and museums are keenly interested in the economics that underpin their activities. But too often, I think, this interest focuses narrowly on business models and cost projections. Money is important, to be sure, but it’s worthwhile to remember that economics is not the study of money. It is the study of behavior, and in particular, how people make decisions. In his introductory textbook, Harvard economics professor Greg Mankiw identifies ten principles of economics. The first four are:

1. People face trade-offs.
2. The cost of something is what you give up to get it.
3. Rational people think at the margin.
4. People respond to incentives.

As we explore economic issues relevant to libraries, archives, and museums – the economics of networked services, the economics of mass digitization, the economics of collection management, and so on – these four principles provide a solid frame of reference both for shaping the questions that need to be asked, and for thinking through their implications.

The first principle is about scarcity of resources – when we want to expand effort in one area, we usually need to scale down or eliminate effort in other areas. Think about mass digitization and the future of print collections. The second principle is about opportunity cost – the cost of choosing to undertake one activity includes not just the cost of carrying it out, but also the benefits foregone by not choosing something else. Think about current discussions regarding optimal use of space in libraries. The third principle is about scale – when we make economic decisions, the question is usually not whether the activity will be undertaken, but how much of the activity will be undertaken. Think about the optimal allocation of activities at the local and network levels. And finally, the fourth principle is about incentives – people or organizations engage in economic activities because they perceive a self-interest or motivation to do so. Think about strategies for building sustainable, programmatic digital preservation activities.

Scarcity, opportunity cost, scale, and incentives: when we think about the economics of libraries, archives, and museums, it is these principles that should shape our questions and guide our thinking. They are the bedrock on which all economic theory rests. And they are simple and straightforward – surprising, perhaps, when one considers the difficult and sometimes opaque economics literature these principles have spawned. But then again, maybe it isn’t so surprising: as the publisher Alfred Knopf once said, “An economist is a man who states the obvious in terms of the incomprehensible.”

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