Ha-Joon Chang - Economics - The User's Guide

If there is no one right answer in economics, then we cannot leave it to the experts alone. This means that every responsible citizen needs to learn some economics. By this I don’t mean picking up a thick textbook and absorbing one particular economic point of view. What is needed is to learn economics in such a way that one becomes aware of different types of economic arguments and develops the critical faculty to judge which argument makes most sense in a given economic circumstance and in light of which moral values and political goals (note that I am not saying ‘which argument is correct’). This requires a book that discusses economics in a way that has not been tried, which I believe this book does.

How is this book different from other introductory books to economics?

One difference is that I take my readers seriously. And I mean it. This book will not be a digested version of some complicated eternal truth. I introduce my readers to many different ways of analysing the economy in the belief that they are perfectly capable of judging between different approaches. I do not eschew discussing the most fundamental methodological issues in economics, such as whether it can be a science or what role moral values do (and should) play in economics. Whenever possible, I try to reveal the assumptions underlying different economic theories so that readers can make their own judgements about their realism and plausibility. I also tell my readers how numbers in economics are defined and put together, urging them not to take them as something as objective as, say, the weight of an elephant or the temperature of a pot of water. [3] But then scientists will tell you that even those numbers are not totally objective, if you asked them. In short, I try to explain to my reader how to think, rather than what to think.

Engaging the reader at the deepest level of analysis, however, does not mean that the book is going to be difficult. There is nothing in this book that the reader cannot understand, as far as he or she has had a secondary education. All I ask of my readers is the curiosity to find out what is really going on and the patience to read through a few paragraphs at the same time.

Another critical difference with other economics books is that my book contains a lot of information on the real world. And when I say ‘world’, I mean it. This book provides information on many different countries. This is not to say that all countries get equal attention. But, unlike most other books in economics, the information will not be confined to one or two countries or to one type of country (say, rich countries or poor countries). Much of the information provided will be numbers: how large the world economy is, how much of it is produced by the US or Brazil, what proportions of their outputs China or the Democratic Republic of Congo invest, how long people work in Greece or Germany. But this will be complemented by qualitative information on institutional arrangements, historical backgrounds, typical policy and the like. The hope is that at the end of this book the reader can say that he or she has some feel about the way in which the economy actually works in the real world.

‘And now for something completely different . . .’ [4] As they used to say on Monty Python’s Flying Circus .

I realize that not all readers are ready to spend a lot of time on this book, at least to begin with. Therefore, I suggest several different ways of reading this book, depending on how much time you think you can afford.

If you have ten minutes : Read the chapter titles and the first page of each chapter. If I am lucky, at the end of those ten minutes, you may suddenly find that you have a couple of hours to spare.

If you have a couple of hours : Read Chapters 1 and 2 and then the Epilogue. Flick through the rest.

If you have half a day : Read only the headlines – section titles and the summaries in italics that occur every few paragraphs. If you are a fast reader, you may also cram in the introductory section and the concluding remarks in each chapter.

If you have the time and the patience to read through : Please do. That will be the most effective way. And you will make me very happy. But even then you can skip bits that don’t interest you much and read only the headlines in those bits.

A reader who is not familiar with the subject might reckon that it is the study of the economy. After all, chemistry is the study of chemicals, biology is the study of living things, and sociology is the study of society, so economics must be the study of the economy.

But according to some of the most popular economics books of our time, economics is much more than that. According to them, economics is about the Ultimate Question – of ‘Life, the Universe and Everything’ – as in The Hitchhiker’s Guide to the Galaxy , the cult comedy science fiction by Douglas Adams, which was made into a movie in 2005, with Martin ‘The Hobbit’ Freeman in the leading role.

According to Tim Harford, the Financial Times journalist and the author of the successful book The Undercover Economist , economics is about Life – he has named his second book The Logic of Life .

No economist has yet claimed that economics can explain the Universe. The Universe remains, for now, the turf of physicists, whom most economists have for centuries been looking up to as their role models, in their desire to make their subject a true science. [5] This is known as a case of physics envy. But some economists have come close – they have claimed that economics is about ‘the world’. For example, the subtitle of the second volume in Robert Frank’s popular Economic Naturalist series is How Economics Helps You Make Sense of Your World .

Then there is the Everything bit. The subtitle of Logic of Life is Uncovering the New Economics of Everything . According to its subtitle, Freakonomics by Steven Levitt and Stephen Dubner – probably the best-known economics book of our time – is an exploration of the Hidden Side of Everything . Robert Frank agrees, even though he is far more modest in his claim. In the subtitle of his first Economic Naturalist book, he only said Why Economics Explains Almost Everything (emphasis added).

So, there we go. Economics is (almost) about Life, the Universe and Everything. [6] Incidentally, this should make economists’ jobs really easy, because we already know the answer to that Ultimate Question: it is 42. But let’s leave that subject aside for the moment.

When you think about it, this is some claim coming from a subject that has spectacularly failed in what most non-economists think is its main job – that is, explaining the economy.

In the run-up to the 2008 financial crisis, the majority of the economics profession was preaching to the world that markets are rarely wrong and that modern economics has found ways to iron out those few wrinkles that markets may have; Robert Lucas, the 1995 winner of the Nobel Prize in Economics, [7] The Nobel Prize in Economics is not a real Nobel prize. Unlike the original Nobel Prizes (Physics, Chemistry, Physiology, Medicine, Literature and Peace), established by the Swedish industrialist Alfred Nobel at the end of the nineteenth century, the economics prize was established by the Swedish central bank (Sveriges Riksbank) in 1968 and is thus officially called the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. had declared in 2003 that the ‘problem of depression prevention has been solved’. [8] . R. Lucas, ‘Macroeconomic priorities’, American Economic Review , vol. 93, no. 1 (2003). This was his presidential address to the American Economic Association So most economists were caught completely by surprise by the 2008 global financial crisis. [9] But then this would not have surprised the late John Kenneth Galbraith (1908–2006), who once deadpanned that ‘the only function of economic forecasting is to make astrology respectable’. Not only that, they have not been able to come up with decent solutions to the ongoing aftermaths of that crisis.