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"Economics: The User's Guide" by Ha-Joon Chang

From Penguin UK:

Synopsis

What is economics?

How does the global economy work? 

What do different economic theories tell us about the world?

In Economics: The User's Guide, bestselling author Ha-Joon Chang explains how the global economy works, and why anyone can understand the dismal science. Unlike many economists who claim there is only one way of 'doing economics', he introduces readers to a wide range of economic theories, from classical to Keynesian, revealing how they all have their strengths, weaknesses and blind spots. By ignoring the received wisdom, and exposing the myriad forces that shape our financial fate, Chang provides the tools that every responsible citizen needs to understand - and address - our current economic woes.

Dr Ha-Joon Chang has been teaching economics at the Faculty of Economics and the Development Studies programme at the University of Cambridge since 1990.

Economics: The User's Guide: A Pelican Introduction from Amazon.co.uk

Economics: The User's Guide: A Pelican Introduction  from Amazon.com

 

From the LSE blog:

Five
minutes with Ha-Joon Chang: “Members of the general public have a duty to
educate themselves in economics”

In a recent
article
, you wrote: “the economy is too important to be left to professional
economists, and that includes me.” Can you elaborate on what you
mean?

I don’t mean to suggest that expertise is unimportant. You can’t run a
sophisticated modern economy on Maoist lines, that says that anyone can do
anything therefore we don’t need experts. No, I don’t believe in that. Experts
are crucial; there are a lot of technical things that only experts can know.
However, if you want to have a meaningful democracy then expertise should be
harnessed by the general will, by the general public.

Unless the general public is informed by basic economic theory and by key
economic facts, they’re going to make wrong decisions. Members of the general
public have a duty to educate themselves in economics to an extent so that they
make enlightened decisions. Then the details can be sorted out by the experts.
We have instead created a system where self-appointed experts basically run the
show and democracies become a kind of rubber stamp because people don’t
understand what’s going on and they don’t want to understand what’s going
on.

People have strong opinions on all sorts of things – gay marriage, Iraq,
abortion, global warming – without having any qualifications to make informed
judgments. I don’t have a degree in international relations, but I have a view
on Afghanistan. How come everyone thinks that economics is too difficult, too
technical? People make strong judgments on the basis of having some basic
knowledge about international politics or some climate science, they are not
making this judgment based on sophisticated expert knowledge, and that’s all I’m
asking when it comes to economic matters as well.

Unfortunately we economists have been very successful in convincing people
that what we do is very difficult and that people won’t understand it even if we
explained it to them. There has also been a lot of political interest in keeping
economics away from democratic debate, keeping it away from the general public
by making people believe that it is very difficult. There is therefore a lack of
a real debate except yes, monetary policy should be run by the Bank of England
or the Federal Reserve Board, or utility regulation can be done by some special
committee. After a while you realise that there’s no substance to democracy
because all of the important decisions have been farmed out to these expert
groups. That’s what needs to change.

Should monetary policy not be completely independent of politics?
Should voters have a role to play?

Not that it has been hugely effective, but at least in the US the Chair of
the Federal Reserve Board has to sit in front of a Congressional Committee and
get grilled once every six months. On the other hand, the European Central Bank
has no accountability whatsoever. They are totally free from democracy. That’s
what needs changing. Perhaps we should elect the members of the board of the
Bank of England’s Monetary Policy Committee. Why not? I’m not necessarily
advocating the election of board members, but there needs to be some kind of
democratic accountability in these expert groups. There needs to be some
balance; you don’t want things to be decided purely on political convenience
without any kind of technical competence or expert opinion.

On the other hand, experts are not pure technocrats. They have their views.
Central bankers may not be overtly political; they may not be a member of some
political party, but they represent a particular worldview. They are usually
people from the financial community and, without meaning to be biased, tend to
look at the world through a specific lens. There needs to be some kind of
counter to that. If you are uncomfortable with having people without any
economics background then at least ask the trade unions or citizen groups or
something to recommend an economist who can sit in there who can represent other
interests. At the moment it is full of people either from the financial industry
or purely from academic backgrounds, so monetary policy gets decided in a very
particular way.

You’re also critical of how mainstream economic thought dominates
academia…

I sometimes liken the economics profession to the Catholic clergy in the
Middle Ages. Unless you knew Latin you couldn’t even read the Bible because the
Pope refused to let the Bible be translated into the local languages. You had to
either learn Latin or take their word for it. Economics has become completely
inaccessible to many people so we need to change this in the way that some of
the religious reforms back then tried to do.

In those days, religious reformers promoted the translation of the Bible into
local languages and the reading of the Bible by common people. They emphasised
the authority of the Bible rather than what the Vatican says is in the Bible.
They, if you like, democratised the religion. Something similar to that is
necessary now once again. This is not to say that we don’t need academic
economists; those people are necessary. But it has to be related to what’s going
on in the real world. Unfortunately a lot of my academic colleagues not only do
not work on the real world, but are not even interested in the real world.

What kind of heterodox or alternative streams of economic thought
would you like to see in the mainstream?

I don’t like the term heterodox because it’s relative. It already assumes
that there is an orthodox position and everything else is heterodox. What is
heterodox can change all the time. In the 1950s Milton Friedman was heterodox.
My position is that we need a pluralist approach where no theory is superior to
any other theory. In my
new book
I explain that there are at least nine major schools of economics,
possibly another half dozen if you include some minor schools or split bigger
schools into sub-schools and so on.

There are many different economic theories and they all have something to
contribute. They have their weaknesses and strengths because they all make
certain assumptions about ethics and politics. They all have different theories
about how economies develop, different visions of what an ideal society looks
like and so on. People should be exposed to as broad a range of theories as
possible in order to have a more sophisticated view of the world. By looking at
many theories you get to see the world in a more complicated way.

I want to teach my readers how to think not what to think.
What conclusion they draw is up to them; I’m simply giving the necessary tools
in terms of different theories and historical background and facts as they stand
today so that they can make a more informed decision. One great example that you
can use here is Singapore. If you read only The Economist or the
Wall Street Journal you will only hear about the country’s free trade
policy and welcoming attitude to foreign investors.

You will never be told that 90 per cent of the land is owned by the
government, 85 per cent of housing is provided by government owned housing
corporation, and a staggering 22 per cent of GDP is produced by state owned
enterprise when the equivalent ratio on average worldwide is around 9 per cent.
Singapore combines the features of extreme capitalism and extreme socialism, so
what is it? There’s no single economic theory that can explain Singapore.
Reality is very complex, therefore I’m encouraging my readers to look at the
different theories and try to apply different theories in different
contexts.

What are the wider implications of a dominant economics worldview
which posits individuals as rational actors, as agents acting in their own
self-interest and systematically weighing costs and benefits? Some people argue
that the logic of the market has, as a result, become embedded
in our daily, personal interactions.

Yes, that’s right. Of course it would be silly to deny that we at least try
to be rational. There are rationalist aspects to what we do. Human beings are at
least partly motivated by selfish interest. But this very narrow view of human
nature has actually created a kind of poor society in the sense of everything
being reduced to monetary value. Now people are asking why we need subjects like
anthropology or history of art or sociology when all we need is making money.
That makes for a very poor society.

You are seeing arguments that we should commercialise the BBC so that they
can make more things that people can watch without realising that the BBC is the
envy of the world for its ability to produce very high quality cultural
programmes. So that kind of worldview has made societies very poor in terms of
cultural diversity and things like that. But more importantly it’s created this
society where being bad, if you like, is considered something good or even being
clever. You are actually a sucker if you don’t cheat.

 

Once you begin to understand the world in this very narrow, impoverished way
then you will create a society which is actually very inefficient. Then you will
have to say well everyone’s out to cheat and promote their own self-interest so
we have to monitor everyone all the time, and then who’s going to monitor the
monitors? We have to hire monitors who can monitor the monitors and so on and so
on. Society becomes very inefficient not to speak of being very unpleasant.


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