The impact of economics The worldly wonks How economic ideas have changed American society Oct 4th 2014 Trillion Dollar Economists: How Economists and Their Ideas have Transformed Business. By Robert Litan. Wiley; 385 pages; $40 and £26.99. Buy from Amazon, Amazon.co.uk IN 1953 Robert Heilbroner, an American economist, published “The Worldly Philosophers”, an inspirational account of what economists do. Dismal scientists like Adam Smith and Karl Marx, said Heilbroner, mixed mathematical genius with complex ethical reasoning to craft policies to better the lives of the average Joe. Robert Litan, of the Brookings Institution, would never use the word “philosopher” to describe an economist. Instead in his new book he wants to show that economists, often unnoticed or scorned by the public, are actually the plumbers of modern society. Mr Litan focuses on America but his argument applies more broadly. He takes the reader through countless topics—climate change, intelligent dating websites and ever cheaper telecommunications, among others—to show how everyone has benefited, or could benefit, from economics. In so doing he gives an easy introduction to some key economic ideas. An introductory economics book works best when the author is clear about who should read it. Ha-Joon Chang, a Cambridge economist, targets his recent book, “Economics: The User’s Guide”, at those sceptical of economics. (He argues that 95% of the field is common sense.) Mr Litan seems less sure where his book stands. It claims to be about “how economists…have transformed business” and is thus aimed at businesspeople. But it covers a huge number of issues, most of which would appeal to anyone with an interest in economics. As a result Mr Litan sometimes spreads himself a little thin. His assertion that there have been “through the years a number of critiques of markets” is a huge understatement, and he appears tactless when the first downside of high inequality that he cites is that the rich feel “physically vulnerable”. For those who worry that economists are obsessed with efficiency, to the exclusion of everything else, this is grist to the mill. But Mr Litan shines too. His introduction to regression analysis, a crucial statistical tool of many economists, is excellent. The discussion of the role of experiments in economics is equally good. Mr Litan profiles Vernon Smith, who won the Nobel prize in 2002. In the 1950s Mr Smith, who tests theories of auctions and supply and demand on students under laboratory conditions, was marginalised by the mainstream. But by the 2000s researchers regularly used experiments, such as randomised control trials (RCTs); Esther Duflo of MIT and Roland Fryer of Harvard are famed for their use of them. The author is also good on recent economic history, which will be useful for younger readers in particular. Discussing airline deregulation in the 1970s, he shows how economic concepts, such as economies of scale and public-choice theory, apply to real problems. He sprinkles the discussion with key moments in economic thought, such as that in 1962 when Richard Caves, a Harvard professor, published a paper that used economic logic to show that price-regulation of airlines was unnecessary. Throughout, Mr Litan maintains a cheery style, much needed in a hefty book that discusses credit-default swaps and infrastructure. This is one of those rare economics books that you could read in bed. To be recognised as someone who truly knows their economics, it is not enough simply to master abstract theories. Econo-nerds like talking about theory, but they love gossiping about other economists. Mr Litan, helpfully, peppers the text with profiles of key figures, emphasising their backgrounds and quirks (though he could have left out the chummy tributes he pays to many of those mentioned). Mr Litan’s book is perfect for those who are puzzled about why economics is still so in vogue, despite the field’s anni horribiles following the financial crisis. He demonstrates how every aspect of modern society has been touched by economic thought. Those with no training in economics will benefit from a work that not only introduces abstract economic theories but also shows where they came from. Even the geeks could learn a thing or two from it. #comrade Faisal Suleiman
Posted on: Wed, 08 Oct 2014 09:20:42 +0000
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