Book Reviews: An Economics Triptych: Three Current Books Relevant to Current Economic Discussions

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Reviews by Jerry Petr

"Keynes Hayek: The Clash that Defined Modern Economics"
Author: Nicholas Wapshott
Publisher: Norton

"Grand Pursuit: The Story of Economic Genius"
Author: Sylvia Nasar
Publisher: Simon & Schuster

"23 Things They Don't Tell You About Capitalism"
Author: Ha-Joon Chang
Publisher: Bloomsbury Press

 The Clash that Defined Modern Economics" by Nicholas Wapshott“Keynes Hayek: The Clash that Defined Modern Economics” by Nicholas Wapshott

When first encountering Keynes Hayek, by British journalist Nicholas Wapshott, one may feel a bit reluctant about the idea of stepping back into economic disputes now almost 75 years old. However, it is easy to get caught up in the contemporary relevance of Wapshott’s book—and then go sailing into the other two books mentioned in this review. Readers engaged by election-year political economics might enjoy sticking their noses into any of these three (or downloading them to their electronic readers.)

In Keynes Hayek, Wapshott does a nice job of sketching out the outlines of a major mid-20th-century economic debate that continues to underpin contemporary political and economic controversies. Keynes, of course, refers to British economist John Maynard Keynes, whose insights published in his 1936 volume, The General Theory of Employment Interest and Money, have been the intellectual support for interventionist economic policy since the Depression. His emphasis on maintaining aggregate demand at a full employment level has been consistently used to support activist fiscal policy (increasing government spending or reducing taxes) if needed to “grow the economy.” For Keynes, and subsequent Keynesians, federal budget deficits can be an appropriate way to stimulate the economy into higher levels of employment and more rapid economic growth.

Hayek refers to Friedrich Hayek, a leader of the free-market-oriented “Austrian School” of economics and a principal counterweight to Keynes in late 20th-century economic controversy. While John Kenneth Galbraith, Paul Krugman and President Obama’s current economic team would be aligned with the interventionist Keynes, Milton Friedman, the Wall Street Journal editorial board and the Republican congressional leadership would clearly be much more receptive to the free market, limited government core of Hayek’s position. Hayek and his disciples would argue that a free market, left to its own devices, will eventually find its way to a high-employment equilibrium, and that government manipulation of the economy only creates inefficiencies and delays the resolution of economic crises. And, better known than his economic theories, Hayek’s most famous book, The Road to Serfdom (1944), presented his case that, well-meaning though it might be, expanded government intervention in the economy also led a society toward greater authoritarianism and reduced liberty. Surely we can hear those arguments echoing in our social discourse today.

Wapshott, who served as a senior editor of the London Times but now makes his home in New York, does spend more time than many would prefer on some of the economic intricacies of the Keynes Hayek opposing points of view, but he counters that for the general reader by nicely tying the ramifications of the economic arguments into U.S. and British political history. He escorts us back through the presidencies of JFK, LBJ and, yes, Richard Nixon, for review of how the Keynesian perspective played out; and we revisit the governmental careers and policies of Margaret Thatcher and Ronald Reagan to, again, understand how economic “scribblers” of an earlier era, such as Friedrich Hayek, continue to influence policy choices. And, in some cases, such as the presidency of Dwight Eisenhower, we can see both Keynes and Hayek at play. The interstate highway system, for example, marvelously illustrates a Keynesian infrastructure project (which President Obama would love to be able to emulate); but Eisenhower was also sounding a very Hayekian note in his farewell address when he cautioned against the growing influence of the “military-industrial complex.”

There are a lot of sharp elbows thrown in this well-written account of early 20th-century economic combat. Hayek reacts to Keynes’s theorizing by asserting, “I must confess that I am absolutely unable to attach any useful meaning to his concept.” Keynes dismisses Hayek’s work Prices and Production with the insulting, “The book, as it stands, seems to me to be one of the most frightful muddles I have ever read…” This sounds like contemporary Washington political debate. And yet these two intellectual combatants did maintain a respectful relationship. After publication of The Road to Serfdom, Keynes wrote to Hayek, “In my opinion it is a grand book … morally and philosophically I find myself in agreement with virtually the whole of it.” And, on Keynes’s death, Hayek wrote to Keynes’s widow, Lydia, that Keynes was “the one truly great man I ever knew, and for whom I had unbounded admiration.”

This is a good book for the “policy wonk” interested in the intellectual underpinnings of contemporary debates. It is, for the most part, a lively book with vivid portrayals of the energy and passion with which strong minds and large egos can wage mental skirmishes. One need not absorb all the theoretical niceties of either Keynes or Hayek to enjoy the book; and it is fun to be reminded of “factoids,” such as Keynes being named “Time” magazine’s “Man of the Year” in 1965 (20 years after his death) or that in President Kennedy’s 1964 tax cuts, the top marginal income tax rate was reduced from 91 percent to 65 percent. My, oh, my; in the current presidential campaign, we’ve been debating Herman Cain’s 9-9-9 plan.

 The Story of Economic Genius" by Sylvia Nasar“Grand Pursuit: The Story of Economic Genius” by Sylvia Nasar

The second book of this trio is an ideas-driven economic history of the past three centuries, placing a number of economic conflicts and personalities within the historical context of their times. In this book Sylvia Nasar, among other things, continues the Hayek-Keynes discussion from a different perspective.

Readers may remember Sylvia Nasar as the author of A Brilliant Mind, a 1998 best-selling biography of Nobel Prize-winning economist John Nash (who also was troubled by mental illness and was portrayed by Russell Crowe in the 2001 Oscar-winning movie of the same name). So Nasar, a former economics correspondent for the New York Times and currently a professor in the Columbia Graduate School of Journalism, has immersed herself in economic topics for a number of years. I assumed that this volume would be something of an update of Robert Heilbroner’s masterpiece of economic ideas, “The Worldly Philosophers,” published now almost 60 years ago. But Nasar quickly set me straight by noting that she was writing not a history of economic thought but, rather, the story of an idea. And the idea she has in mind is the “grand pursuit” (hence the title) to make mankind the master of its circumstances. That is, humanity’s, and economists’, struggle to move beyond acceptance of lives of misery and stagnation toward expectation of progress in material circumstances, and some degree of control over that trajectory of economic change. Obviously, that “pursuit” has not been totally successful.

Two factors may make this book appealing to noneconomists. First, like Wapshott, Nasar is not an economist; nor does she write like one. Second, she weaves the story of her grand pursuit into a social and cultural fabric so that economic ideas and economic change are seen in a broader historical context. For example, the reader spends more time in the company of Jane Austen and Charles Dickens in the early pages of this book than in the company of Adam Smith.

It’s a lengthy book (460 pages, plus preface, notes and bibliography), too complex to lay out all of its story lines in a brief review. The book is organized into three major sections: Hope, Fear and Confidence. “Hope” carries the tale of the book from the time of Smith, Dickens and Austen into the early days of the 20th century; and, along with the expected players such as Karl Marx and Alfred Marshall, pays great attention to not-so-well-known economic thinkers and actors like Beatrice Webb, a significant figure in the British Fabian Society and in the formation of the London School of Economics.

Of course, as expected, the middle section, titled “Fear,” basically focuses on the period from 1914 through 1945; two World Wars and the Great Depression. Rereading that dark history is a reminder how fortunate are those of us young enough not to have fallen into that catastrophic economic chasm. Not surprisingly, the fearful economic times stimulated many creative economic thinkers who struggled to find both explanations and solutions. Major players in Nasar’s story include “the usual suspects” (Keynes and Hayek, for example) but also Joseph Schumpeter, Joan Robinson and Irving Fisher. Schumpeter became known for his ideas of “creative destruction” in which spurts of entrepreneurial innovation led to dramatic, though turbulent, economic growth. Robinson, who many feel was unfairly slighted by being denied the Nobel prize, did path-breaking work on industrial combination and “imperfectly competitive” markets; although Nasar devotes inordinate space to her love affairs and dalliance with communism. And Fisher, overshadowed by Keynes in the 1930s, was an influential monetary economist (some call him the greatest economist the U.S. has ever produced) whose work on the macroeconomic consequences of fluctuations in credit and debt have influenced contemporary policy makers like Federal Reserve Chairman Ben Bernanke.

Finally, in “Act III, Confidence,” Nasar brings her story up to the present, sort of. This is by far the thinnest and least satisfying section of the book. In these 80 pages, Nasar reprises a bit of Keynes’s post-war work on international economic arrangements at Bretton Woods, discusses the rise of Paul Samuelson as the “great synthesizer” of contemporary economics, follows Joan Robinson through flirtations with both Moscow and Peking and gives us a brief introduction to Indian-born Nobelist Amartya Sen, whose work on poverty and social welfare gave a human face to economics in the late 20th century. These pages are not the place to look for an explanation of current economic theory, but we certainly can say that many contemporary economic problems can be clarified with the lenses provided by some of the early thinkers who take their place in Nasar’s “pursuit.”

"23 Things They Don't Tell You About Capitalism" by Ha-Joon Chang23 Things They Don’t Tell You about Capitalism by Ha-Joon Chang

Surprisingly, the most “enjoyable” or “fun” book of the three is the book written by the economist, Cambridge University professor Ha-Joon Chang. “23 Things They Don’t Tell You about Capitalism” is a small book that provides a bit of a sweet dessert after those rather heavy entrees. Chang is an irreverent young economist, already highly honored and extensively published, who offers 23 answers to the question, “How did the massive economic collapse take nearly the entire world by surprise?”

One may get a bit of the flavor of this clever and insightful book by sampling a few of the “23 things” as well as Chang’s principles for “reconstruction of the world economy.” Perhaps that will particularly whet the appetites of those interested in contemporary political economic debates.

In this “lighthearted book with a serious purpose” (to quote the publisher), Professor Chang tantalizes his readers into thinking twice about some ideas that all too many of us just take for granted. Here, for example, are four of his “23 things”:

“The washing machine has changed the world more than the Internet has.”

“Making rich people richer doesn’t make the rest of us richer.”

“There is no such thing as a free market.”

And… “Good economic policy does not require good economists.”

Of course there must be 19 more that the reader can discover for himself/herself.

And then, in a conclusion titled “How to Rebuild the World Economy,” Chang provides eight principles that he believes will lead toward a more productive and equitable economic system. That must be an objective that the “Occupy Wall Street” folks would appreciate.

Consider three of the eight principles:

1. “Capitalism is the worst economic system except for all the others.” (with a nod to Winston Churchill.)

2. “We should build our new economic system on the recognition that human rationality is severely limited.”

3. “Government needs to become bigger and more active.”

Of course Chang provocatively elaborates on all of these ideas, and no reader is likely to agree with everything in this book. But all readers will be challenged to think about how our political economy really works. As Chang says, “The eight principles all directly go against the received economic wisdom of the last three decades. This will have made some readers uncomfortable.” But, he notes, “It is time to get uncomfortable.”

Overall, then, this trio of books provides context to the clash of ideas on the front pages of our newspapers, and establishes the foundational underpinning to alternative policy perspectives. And, concluding with Chang’s dessert, they offer a bit of fun and fresh air to often stuffy economic discourse.

 

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