Jul 2, 2012

Book reviews: “The price of everything” and “Zombie Economics”

I recently discovered the basement at Blackwell’s in Oxford and the surprisingly large economics section (ht: von Bel!)… The good thing about hanging out in a bookstore is that you buy stuff you’re not necessarily looking for, hence you broaden your horizon… or not… anyway, I bought two books I hadn’t heard of. The first one is “The price of everything” by Eduardo Porter, a journalist at the NY Times, who also worked at the Wall Street Journal. I’m not sure what to think of this book. The comments on the cover suggest the book is enthralling, enlightening, and full of freakonomicsy nuggets… I wouldn’t go that far. It starts off with a chapter on how humans make decisions following subconscious cost-benefit analyses, as if the journalist had just discovered economics and found it so powerful. He then devotes chapters to the economics of happiness, climate change, intellectual property, always explaining why all these concepts can be valued using a dollar number. He’s quite good at vulgarizing research, but by doing so he oversells the results quite a bit… His concluding chapter covers the financial collapse, warning that prices often fail… Weird for a book which point seem to have been to put a price on everything…
The second book is Zombie economics by John Quiggin, an econ professor in Australia. This book deserves some merit just for the marketing, comparing dangerous conservative ideas, such as trickle-down economics, privatization, of the efficient market hypothesis, to zombies that just won’t die and still walk among us. But it turns out to be a bit boring.  Maybe this is because since 2010, when it was first published, many people have been repeating the same thing about the uselessness of modern macroeconomics. . No DSGE economists had anything to contribute to the policy debate. His quote of Gregory Clark is quite a good summary:
“The debate about the bank bailout, and the stimulus package, has all revolved around issues that are entirely at the level of Econ 1.  What is the multiplier from government spending?  Does government spending crowd out private spending?  How quickly can you increase government spending? If you got a A in college in Econ 1 you are an expert in this debate: fully an equal of Summers and Geithner.  The bailout debate has also been conducted in terms that would be quite familiar to economists in the 1920s and 1930s.  There has essentially been no advance in our knowledge in 80 years.”
Despite the great cover art, the book is not so good at vulgarizing economic concepts such as DSGE models. So while it becomes clear to the reader that DSGE models were useless in helping policymakers act during the crisis, it is not no clear why so many economists like them so much, apart from their elegance. It is nonetheless a good overview of the history of economic thought in the last century. A new chapter offers straight-up Keynesianism and warns of the dangers of austerity during a recession. He then concludes that macro should include more behavioural stuff like loss aversion and that welfare states are the best way to manage economic fluctuations... Sounds quite obvious nowadays, maybe it wasn’t when he was writing the book.