Economism: Bad Economics and the Rise of Inequality

As far as it goes, this book is excellent. It explains how a simplified (or simple-minded) version of the standard Econ 101 course, centred on the supply and demand diagram has come to be used to justify misconceived policies. There is, however, one flaw in the argument. The author assumes that the only problem is that economics is explained in this oversimplified way and that there is no problem with economics either as an academic discipline or a profession. This assumption is wrong. Mainstream economics has lost its way. It is no longer interested in understanding and describing the real world yet it is used as the basis of economic policy. The problem identified in this book is a serious one but it is only half the story. People cannot have a useful view of how the economy works unless there an economics that is interested in studying human behaviour.

James Kwak emerged on the scene when it was time for Simon Johnson to expand on his seminal article in the Atlantic (the one about how our governments are “captured” by finance and about how he recognized the pattern of “capture” from his previous experience at the IMF) and turn it into a book.Kwak was the co-author of the resulting opus, “13 Bankers.”I enjoyed that book a lot less than the much punchier original article, but the premise behind “Economism” appealed to me enough that I thought I’d give it a try. The bar it had to clear, the previous effort by an academic economist to “debunk” economics, was the rather dreary “23 Things they don’t tell you about Capitalism” by Ha-Joon Chang. It is a bar it clears with ease: it’s a good book, basically. It’s not a great book, though.My spell-checker has the funky squiggly line under the word “Economism” that indicates it’s not yet a real word. Time will tell, but my view is the line will stay there. The reason I doubt the term will ever hit the mainstream is that the main argument the author makes (namely that in distilling the principles of economics into over-simplified maxims, Economics 101 has done more harm than good) leaves me unconvinced: I don’t for one second buy the argument that people who bandy about “Economics 101” as an argument in a debate or a campaign are victims of a simplistic education. Given that their ranks include my former teacher Greg Mankiw, for example, they more often than not consciously choose to misunderstand Economics.In short, poor understanding of Economics is not the enemy. People who are guilty of what James Kwak calls “Economism” are merely being disingenuous. The problem is not “Economism,” basically: it’s politics! And there’s a lot of lying in politics.Regardless, I recommend reading the book, because it’s a lot of fun. Once you’ve given up on the main premise, you will no longer care that many of the topics the author refers to (for example the Health Care debate, the regulation of financial products, the relative tax rates of labor and investment) never appear in introductory Economics classes and therefore fail to clear the first hurdle of the argument that is presented here. You will instead enjoy the fantastically clear exposition of the David Ricardo argument for free trade, the equally clear explanation of the cases where it falls down (with no Balassa-Samuelson mumbo jumbo thrown in), you will be reminded of those DWL triangles you may have forgotten about, and you will benefit from a crystal-clear and deep discussion of the debate around the minimum wage, one of only two issues here, alongside trade, where the premise of the book holds water, in my view.The angle of the author is quite “liberal,” in the American sense of the word, but I promise, this does not get into the way of discussing the Economics. It’s totally first-class, crisp and level-headed.That’s if you somehow manage to get the first one-third of the book over and done with, though. In what is a rather big weakness of this tome, pages 1-63 of the book amount to a history of right-wing funded economic think tanks in America. Seriously, nobody cares. Perhaps it could all have fitted into a long appendix to an otherwise rather interesting 127-page book. It takes somebody who’s stuck in the Tube, like I was, to read through the origins of the American Enterprise Institute, the Cato Institute etc. etc. Why why why?And if you’re going to write a book about all that’s wrong with the mis-application of Economics today, and especially so if you’re going to do the work to explain what consumer surplus and economic rent is, why don’t you dedicate a chapter to the biggest threat we’re facing today, market power? Yes, yes, I know, this is not a case of people getting Economics 101 backwards, but, frankly, most of the book isn’t either. So get it in there, maybe in the next edition.So I enjoyed reading “Economism.” But the term won’t stick, the first 63 pages should have been summarized in 15, max, and the choice of topics is, let us say, eclectic. It’s 3.49 stars, from where I’m sitting. Perhaps a bit harsh.