2B RED: More interesting econ books🍋

Informative and accessible to a wide swathe of the economics profession

The previous edition of 2B RED suggested some books that might help the uninitiated, the sceptics (and possibly even a few card-carrying members of the profession) to appreciate what economics is really on about. In this edition I offer a further selection of interesting books — some older, some very new. They cover the range from the lighter, highly readable end to some a little more "meaty." But the criteria for selection remains — that they be interesting, informative and accessible to a wide swathe of the economics profession.

A life undercover

Let's start with one that is strongly recommend. Yes, 2B RED remains a fan of Tim Harford, an economic storyteller, par excellence. His ability to explain and illustrate economics with superb clarity is unsurpassed. The Undercover Economist (Abacus, 2010) has always been on my list; to that, we must now add The Undercover Economist Strikes Back (Little Brown, 2013).

Fiordland crested penguin / tawaki, Cording Islands, Preservation Inlet, Fiordland National Park. Dave Heatley

The book's opening chapter is a lengthy synopsis of the life and work of New Zealander Bill Phillips. (Is there a student of economics on the planet who has not heard of the Phillips Curve? But do they all know he was a Kiwi?) The chapter reads like a potted version of Alan Bollard’s A Few Hares to Chase: The Life and Times of Bill Phillips (Oxford University Press, 2016) which 2BRED unreservedly recommends to those who want a more complete coverage of the fascinating Phillips saga. But I digress.

The point of the opening chapter on Phillips, and in particular the attention to the MONIAC machine that he (Phillips) developed, is to set the scene: specifically, to portray modern economies as large complex systems, while at the same time introducing the possibility that some interventions might be possible to improve the performance of the economy and reach some desirable outcomes. This then becomes the unifying thread running through the book.

Harford adopts a quite unusual style of presentation. The book is written as a "user's manual" on how to run an economy. So the author creates this "other person" who is given the responsibility to run the economy. The person has no background in economics and constantly ask questions (often rhetorical) to which the author patiently responds and explains. It is a novel style, but one I quite enjoyed.

An example relates to the question of recessions (output gaps) and what to do about them.

Harford: "We (also) need to figure out how the economy works and what to do about it"

The (imaginary) appointed manager of the economy: "OK so I should be trying to stop recessions. Tell me then. Why do they happen?"

Harford: "If only there were a simple answer. Sometimes we can easily pinpoint … a sudden collapse in the price of its major exports. At other times an economy just sickens and takes to its bed for no obvious reason. Frustratingly for economists, this happens all the time."

It is a clever literary gimmick, but one that holds the readers' attention as the book traverses a full range of issues from unemployment, the environment, inflation, growth and inequality. In many instances, the questions posed by the appointed "manager" deliberately mirror those that are frequently posed by non-economists who are sceptical of the premises and framework of mainstream economics.

Licence to be jaundiced

There is a seemingly endless stream of books that do exactly that: challenge the role of economics. I recently read (or, more accurately, doggedly persisted with) Jonathan Aldred’s Licence to be Bad: How Economics Corrupted Us (Penguin, 2019); billed on the cover as "A fascinating assault on modern economic orthodoxy" (Sunday Telegraph). The central thesis, at best very weakly established, is that the world has "gone to hell in a handbasket" as a result of the corruption of our morals and values, the blame for which lies squarely at the feet of economics — well standard, mainstream economics. Wild claims and assertions abound, backed by little or no evidence as the author paints a jaundiced view of economics. As one reviewer noted: "A line is simply drawn from the ideas of particular well-known and influential economists to a series of dreadful outcomes". Whether it be politicians (Margaret Thatcher) or economists (Arrow, Coase, Nash, Friedman, Becker) — all stand guilty of corrupting us and leading to inferior outcomes for all (but a few corporate grandees).

Pricing to maximise social welfare

On a very different note, in Frank Ramsey: A Sheer Excess of Powers (Oxford University Press, 2022) Cheryl Misak has written a biography of one the most remarkable, yet largely unsung intellectual individuals of the early 20th century. Ramsey was born in England 1903 (a younger brother Michael became the Archbishop of Canterbury). He attended Winchester College (an elite public i.e. private school) before going to Trinity College at Cambridge to study mathematics. He was a student of J.M. Keynes. He graduated with first class honours in mathematics at the age of 19.

Misak paints an insightful and sympathetic picture of the life of this ambling bear of a young man (1.94m and 100+kg) who was simply brilliant. He was interested in a wide range of topics, and read and published in mathematics, probability, philosophy, logic, combinatorics and epistemology. Each of these fields has lasting contributions in the form of theories, proofs and methodology due to Ramsey. At the age of 21 he was appointed as a Fellow of Kings College, and at 23 was made the Director of Studies in Mathematics. On a number of occasions, he challenged his mentors, Keynes and Pigou (to be proved correct). He taught himself enough German in the space of eight days to be able to write a paper in that language. He had a somewhat chaotic personal life and travelled to Vienna in 1924 for treatment for depression. He died in 1930 at the age of 27 of liver failure, possibly due to leptospirosis contacted while swimming in the river Cam.

In the field of economics, he made lasting contributions in probability analysis, in the theory of taxation and in optimal savings. The latter resulted in endogenising saving in a Solow growth model, which underpins much of the dynamic macroeconomic models in use today.

At the micro level, the Ramsey pricing rule for monopoly providers of assigning higher prices where the demand is most inelastic was a way to maximise social welfare.

An antidote to economics bashing

No better example of "appealing to the evidence" can be found than in Abhijit Banerjee and Esther Duflo’s Good Economics for Hard Times (Public Affairs, 2021). The authors are arguably amongst the top ranked economists of the next generation and are already Nobel prize winners (2019). Their claim to fame is the evidence, as simple as that; generated in most cases by the gold standard of randomised control trials. And this book provides the basis for that claim. In many areas (health, medicine, access to credit, education and adoption of new technologies) they carefully crafted experiments to address well defined hypotheses. As The Guardian observed, "an excellent antidote to the most dangerous forms of economics bashing". Flawless economic logic, written in accessible prose, make this a must on your reading list.

By, and about, Milton Friedman

While in graduate school and preparing for the dreaded written "prelims" (a hurdle to even become a PhD candidate) I carried around (and read and reread) a much earlier version of Milton Friedman’s Price Theory (Routledge, 2007). Apart from a strong desire to pass the two four hour papers, I suspect my incentives were sharpened by the fact that every member of my committee was a graduate of Chicago, some as recent as a couple of years earlier, and students of Friedman. On the eve of my departure for the USA, a prominent Australian economist, one Prof. Fred Gruen, remarked upon learning to where I was headed: "you realise in going to North Carolina that you are actually going to a branch office of the Chicago department of economics". To which I responded: "If I can get a Chicago education without having to live on the South Side of Chicago, I may just have made the right choice".

The fact that the earliest versions of Price Theory were a compilation of notes taken by students in Friedman's Chicago course by that name, is testament to the quality of his teaching. Of course his contributions were much wider than his teaching. The full breadth of his work is comprehensively traced by Jennifer Burns in Milton Friedman: The Last Conservative (Farrar, Straus and Giroux, 2023). The author had access to all Friedman's papers at Stanford University, and the result is a carefully documented and well research biography. But in fact it goes well beyond role of a biography. It places his life and work in the economic and political context of the twentieth century, so providing a lucid history of economic thought.

While Friedman is often viewed as a "hard right," "unbending neoliberal/conservative," promoting a world of individual liberty free of intervention by the state, Burns counters those views by painting a more nuanced picture. While economics was the central discipline, Friedman, like Knight and others at Chicago, recognised the role for other social sciences in deepening our understanding of how the world actually works. And his time working in Washington for the Federal Government gave him first hand insights into the functioning of the bureaucracy.

Naked economics for civil servants

Lastly, for another "good read" one could do well with Charles Wheelan’s Naked Economics: Undressing the Dismal Science (W.W. Norton, 2019). As summarised by one reviewer: "The book covers an extensive range of topics fundamental to understanding economics, such as incentives, market dynamics, the role of government, productivity, globalization, behavioural economics, and income inequality. Each chapter focuses on a specific aspect of economics, breaking down sophisticated ideas into digestible and engaging segments". Naked Economics is always on my list of recommended books when I am teaching introductory courses to civil servants with little or no background in economics.

By Grant Scobie

Otago Retreat, Preservation Inlet, Fiordland National Park. Dave Heatley