Saturday, 17 December 2016

A few interesting economics books of 2016

2016 was a good year for books in economics. Here are a few that I thought interesting.

To start with a New Zealand connection we have A Few Hares to Chase: The Life and Times of Bill Phillips by Alan Bollard. Phillips was a New Zealander most famous for the "Phillips Curve" which shows an inverse relationship between the level of unemployment and the rate of inflation..

Phillips experienced the rigours of the Great Depression on construction sites, and while still a young man he roamed the outback of Australia working in gold mines and sometimes crocodile hunting. In 1937 he set off to discover militarising Japan, a guerrilla war in Manchuria, Stalin's Soviet Union, and the tensions in Europe. On the outbreak of war, he joined the RAF and was sent to Singapore where he rearmed planes but was eventually incarcerated in a POW camp by the Japanese. In camp he learned languages, invented gadgets for the troops and built a clandestine radio. After the war, he scraped through a sociology degree at the LSE, before convincing a faculty to let him build a hydraulic model of the economy. This beautiful complex machine was a great success and put Bill Phillips on the track of serious economics. In the next few decades he developed new ideas for stabilising economies, was one of the first to use electronic computers, developed the Phillips Curve, showed ways to help an economy to grow, and developed new techniques to model economies.

Another book with a New Zealand connection is Was Communism Doomed?: Human Nature, Psychology and the Communist Economy by Simon Kemp, who is Professor of Psychology at the University of Canterbury.

Simon looks at whether the ideology of communism was doomed to failure due to psychological rather than structural flaws. Does communism fail because there is not enough individual incentive and does it discourage psychological ownership? If so, does it produce learned helplessness and therefore empower evil? Such questions are considered both with respect to how communism actually functioned and how it could have functioned using examples from Eastern Europe and the USSR itself. It reviews both the ideology of communism and its history, as well as the basic but difficult question of how one might decide whether an economic system can be defined as successful or not.

Two of the very best book of this year are to do with economic history. A Culture of Growth: The Origins of the Modern Economy by Joel Mokyr and Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World by Deirdre N. McCloskey are about how the rich got rich.

During the late eighteenth century, innovations in Europe triggered the Industrial Revolution and the sustained economic progress that spread across the globe. The big mystery with the industrial revolution is why it took place at all. Why did this revolution begin in the West and not elsewhere, and why did it continue making the rich countries rich in the process? Joel Mokyr argues that a culture of growth specific to early modern Europe and the European Enlightenment laid the foundations for the scientific advances and pioneering inventions that would instigate explosive technological and economic development. Mokyr argues that culture--the beliefs, values, and preferences in society that are capable of changing behavior--was a deciding factor in societal transformations. He looks at the period 1500-1700 to show that a politically fragmented Europe fostered a competitive "market for ideas" and a willingness to investigate the secrets of nature. At the same time, a transnational community of brilliant thinkers known as the "Republic of Letters" freely circulated and distributed ideas and writings. This political fragmentation and the supportive intellectual environment explain how the Industrial Revolution happened in Europe but not China, despite similar levels of technology and intellectual activity. In Europe, heterodox and creative thinkers could find sanctuary in other countries and spread their thinking across borders. In contrast, China's version of the Enlightenment remained controlled by the ruling elite.

Deirdre McCloskey points out that most humans today are better off than their forebears. In this book, the concluding volume of her trilogy celebrating the oft-derided virtues of the bourgeoisie, McCloskey argues that the poorest of humanity will soon be joining the comparative riches of Japan and Sweden and Botswana. Why? Not because of the accumulated capital but rather because of ideas. “Our riches,” she argues, “were made not by piling brick on brick, bank balance on bank balance, but by piling idea on idea.” Capital was necessary, but so was the presence of oxygen. It was ideas, not matter, that drove “trade-tested betterment.” Nor were institutions the drivers. McCloskey builds a powerful case for the initiating role of ideas—ideas for electric motors and free elections, of course, but more deeply the bizarre and liberal ideas of equal liberty and dignity for ordinary folk. Liberalism arose from theological and political revolutions in northwest Europe, yielding a unique respect for betterment and its practitioners, and upending ancient hierarchies. Commoners were encouraged to have a go, and the bourgeoisie took up the Bourgeois Deal, and we were all enriched.

A somewhat depressing and critical voice which argues that the level of economic growth that we have become to depend on will come to an end is raised in The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War by Robert J. Gordon

Economic growth is often seen as the norm for countries like the United States. Innovations such as electric lighting, indoor plumbing, motor vehicles, air travel, and television transformed households and workplaces. But has that era of unprecedented growth come to an end? The Rise and Fall of American Growth challenges the view that economic growth will continue unabated, and demonstrates that the life-altering scale of innovations between 1870 and 1970 cannot be repeated. Gordon contends that the nation's productivity growth will be further held back by the headwinds of rising inequality, stagnating education, an ageing population, and the rising debt of college students and the federal government, and that we must find new solutions.

Looking not at history but at current economies Per L. Bylund writes on The Seen, the Unseen, and the Unrealized: How Regulations Affect Our Everyday Lives.

This book illuminates the effects of regulations on people’s everyday lives. It traces the effects of regulations on an economy by working through the ripple effects of changes. Regulations, which are restrictions placed on the working of the economy, have consequences, both intended and unintended, direct and indirect. While the direct effects are well understood, the indirect effects are often overlooked because they don’t fit with the common understanding of the economy. More to the point, this book emphasises the real effects of regulation and market change on individual actors, thereby stressing how the economy works to provide an individual with the options that exist in choice situations. The book drafts a new definition of prosperity and well-being which focuses on the individual’s access to valuable alternatives. From this point of view, the real implications of regulation are traced step by step, following the logic of exchange and the effects on individual actors rather than the economy as a whole.

One of the more controversial books of the year is Illiberal Reformers: Race, Eugenics, and American Economics in the Progressive Era by Thomas C. Leonard

In Illiberal Reformers, Leonard reexamines the economic progressives whose ideas and reform agenda underwrote the Progressive Era dismantling of laissez-faire and the creation of the regulatory welfare state, which, they believed, would humanise and rationalise industrial capitalism. But not for all. Academic social scientists such as Richard T. Ely, John R. Commons, and Edward A. Ross, together with their reform allies in social work, charity, journalism, and law, played a pivotal role in establishing minimum-wage and maximum-hours laws, workmen's compensation, antitrust regulation, and other hallmarks of the regulatory welfare state. But even as they offered uplift to some, economic progressives advocated exclusion for others, and did both in the name of progress. Leonard meticulously reconstructs the influence of Darwinism, racial science, and eugenics on scholars and activists of the late nineteenth and early twentieth centuries, revealing a reform community deeply ambivalent about America's poor. Illiberal Reformers shows that the intellectual champions of the regulatory welfare state proposed using it not to help those they portrayed as hereditary inferiors but to exclude them. Leonard discusses his book with Russ Roberts at EconTalk here and with Glenn Loury on the Glenn Show at here.

For me one of the most interesting books of the year is Adaptation, Specialization, and the Theory of the Firm: Foundations of the Resource-Based View by Birger Wernerfelt.

The book sets out to provide a foundation for a new theory of the firm, drawing on Birger Wernerfelt's work on economic theory and the resource-based view of the firm. It addresses a vigorous and long-standing academic debate over what exactly a 'firm' is, both in the field of management and economics. Wernerfelt revisits his classic articles, including an extensively revised 'A Resource-Based View of the Firm' (1984), which have been updated and synthesised to provide precise and accessible concepts and predictions along with a discussion of two his more recent papers 'On the Nature and Scope of the Firm' (1997) and 'The Comparative Advantages of Firms, Markets, and Contracts' (2015). These papers form the foundations of the 'Adaptation Cost' approach to the theory of the firm.

I shall end with what I, obviously, think of as the greatest book of 2016, The Theory of the Firm: An overview of the economic mainstream by Paul Walker

Firms are a ubiquitous feature of the economic landscape, with much of the activity undertaken within an economy taking place within their boundaries. Given the size of the contribution made by firms to economic activity, employment and growth, having a theoretical understanding of the nature and structure of firms is crucial for understanding how an economy functions.The Theory of the Firm firstly offers a brief overview of the past of the theory of the firm/production. Next, the ‘present’ of the theory of the firm is discussed in three sections. The first section considers the post-1970 theory of the firm literature per se, while the second section scrutinises the relationship between the three most prominent of the modern sets of theories: the reference point, property rights and transaction cost approaches. The third section looks at the theory of privatisation. This volume offers an intuitive introduction to the theories of the firm as well as simple formal models of the most important contributions to the literature. It also outlines the historical evolution of the traditional and modern theories of the firm.

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