Two good economics books

By Donal Curtin 27/07/2014

Earlier this month, at the NZ Association of Economists conference, I got pointed towards two new books, Diane Coyle’s GDP: A brief but affectionate history, Paul Dalziel and Caroline Saunders’ Wellbeing Economics: Future directions for New Zealand, both of which are aimed at the intelligent layperson as much as the professional or semi-pro economist. Both are worth giving a go.
I’d read some of Diane Coyle’s stuff before: her The Soulful Science: What Economists Really Do and Why It Matters is on the bookshelf behind me, I follow her blog The Enlightened Economist, and I’d read some of her contributions to the big post-GFC debate on what should be in the university economics curriculum. Her GDP is a quick and easy read – and I mean that as a compliment, given the length and turgidity of what a book on GDP might have been. In an easy style she gives us 159 pages on the history of GDP, its uses, abuses, and frailties, and ideas on where it might be taken next and what might be needed to supplement it.

You’ll have your own favourite bits: for me I especially liked her reminder that GDP isn’t a real thing “out there”, which we try to measure with greater and greater precision and ever larger technical handbooks. It’s a conceptual construct, and one that isn’t even identical to the sum total of economic activity (though that’s how we tend to view and use it), partly because there are arbitrary distinctions drawn between what’s in GDP and what isn’t. At a more nitty gritty level, I like her examples of how ropey attempts to compare countries’ GDPs using purchasing power parity (PPP) can be, and I wish I’d read her bit on how to measure the output of the financial sector a year or two ago. I’d have been a lot better placed to discuss ‘FISIM’ (pronounced “fizz ’em”, and standing for ‘financial intermediary services indirectly measured’) when Stats were looking at how it’s compiled in New Zealand.
Don’t be put off by the PPP and FISIM bits I’ve quoted, by the way: this isn’t (thankfully) a book that spends a lot of time deep in the technical entrails of the GDP numbers. For the most part it keeps to the big picture, and you’ll learn a lot about a concept that’s ubiquitous in the business and political media, but not always properly understood or deployed.

Dalziel and Saunders’ Wellbeing Economics is one of the recent Bridget William Books Texts, each being “a short, digital-first piece of high-quality New Zealand writing, produced swiftly and distributed globally online”, mostly on current affairs. They’re making quite a stir – Shamubeel Eaqub’s Growing Apart: Regional Prosperity in New Zealand in particular has hit the publicity hot spot – and Wellbeing Economics is on the button, too.

The authors (both economics professors at Lincoln) list five principles of ‘wellbeing economics’, which they say is “a new framework…emerging internationally for understanding economic policy questions and their solutions. It aims to address issues like unemployment and poverty directly, rather than thinking these problems would be solved automatically with economic growth”. At its most general level, they say, wellbeing economics starts with the principle that “The purpose of economic activity is to promote the wellbeing of persons”, and they go on to look at what the world would be like if that principle – and four others, such as (Principle 3) “Economic policies should expand the substantive freedom of persons to lead the lives they value and have reason to value” – were put into practice.

In many ways this book is a liberal manifesto, and will resonate with what I suspect is the wide but unappreciated swathe of New Zealand opinion that is market-friendly but socially liberal. A lot of us would like a prosperous dynamic economy and a tolerant civilised society, and we’re not well served by the libertarian flog-the-criminal freaks at one end nor by the killjoy anti-market wowsers at the other. I especially liked the book’s recognition of the role markets play in enabling people to deliver what they value, such as a good paying job or a decent education, and as they say (pp71-2), “Whatever caveats we may hold about their operation in particular times and places, the universal adoption of markets to organise production and exchange is itself evidence of this institution’s enduring contribution to human wellbeing”.

In talking about the role of markets, they quote (New Zealander) John McMillan’s superb book on the role of markets, Reinventing the Bazaar: A Natural History of Markets. It’s so good, whoever I lent my copy to made off with it. You may find your copy of Wellbeing Economics doing a runner, too.

0 Responses to “Two good economics books”

  • How do these books deal with Malthus and “Limits to growth”, particularly, “What Economists really do?”

    I am curious because the economics books I see (typically introductory university texts) generally say nothing or state clearly, “Malthus was wrong.” I find this strange given that smiler level environmental science tests generally develop a position that human society has physical limits and gives a brief outline of economic and policy consideration, and introduces different world views; typically cornucopian and mathusian. I expect ecology and human geography texts are also thoughtful in this way too.

    What do (these) economics books say and why don’t economists honestly deal with other worldviews?

    • 1. One not-unreasonable definition of economics is that it’s the science of choice under scarcity. Without scarcity, there’s no economic decision to be made.
      2. For the economics of non-renewable resources, we’ll usually hit onto Hotelling models in second year environmental econ courses: prices rise over time in line with interest rates and changes in the cost-path of extraction, and people substitute over to other goods as particular goods become relatively more scarce. Then we’d hit onto things that can break those models, like insecure property rights and common pool resource problems.
      3. Limits to growth and the whole Erlich agenda was fundamentally wrong. Prices adjust and people then adjust. We can’t spend half our textbooks debunking one particular bit of bunk.

  • Thanks for your thoughtful answer.

    Point 1. I understand this, it is pretty much what defines “Limits to growth”; resources are limited. Every economics text starts with this idea. It is a fundamental reality underpinning ecology and evolutionary theory too.
    Point 2. So if a student chose not to take an environmental econ course he/she would miss these basic concepts. That could well be a problem as managing common pool resources (like the climate and biodiversity) are fundamental to our well-being.
    Point 3. Your answer reads as a litany – an article of faith rather than an evidence based answer. Which, of course it is; faith in markets, the individual and to a degree the scientific method. I would encourage you to question these beliefs.

    Neither “Limits to growth” or much of the Erlich work can be dismissed as easily as you think, although I know that has been the approach from the critics. The fundamental concept of limits is widely used; for example, in calculating carbon and ecological footprints, as well as our understanding of climate change, to name an obvious few. Look at “Limits to growth the 30 year update” or any of the more recent Erlich work or at some ecological economics; maybe you will be surprised. I think you have too much faith in markets, they are a human constructs and they fail.

    It comes down to a world views, my point is that introductory texts should be honest about this. Then we can deal with the evidence. Otherwise it is just indoctrination.