When US president Donald Trump announced a pause in his tariff plan, he said “people were jumping a little bit out of line – they were getting yippy”. This “yippy” behaviour referred to the volatility in the markets for US government debt.
This is a reminder of the famous observation of James Carville, the great campaign strategist of president Bill Clinton. He said that if he was reincarnated, he “would like to come back as the bond market. You can intimidate everybody”.
These books examine this power; the influence that economics have on our societies. They seek to further understand the behaviour of economies and how it can be altered for the benefit of citizens.
Cahal Moran writes, “The emergence of capitalism and the market economy is a historically unique and curious phenomenon, and managing it is not at all easy.” With this, his work, Why We’re Getting Poorer, begins to describe the many economic challenges confronted by citizens.
They include the costs of inflation, the lack of affordable homes and the consequences of extreme inequality. To his credit, the author does not just diagnose difficulties, he proposes solutions. He aims to be, as the subtitle notes, a “realist”.
His proposals mostly advocate a stronger and bigger State and a scepticism of the claims of free markets. An important quality of this book is that Moran does not suggest that his solutions are perfect or lacking in trade-offs.
He warns that “notions of abolishing the system make good rallying calls, but they need to be translated into concrete proposals for a better future”. In an era of certain and loud claims, this is welcome.
The accessible tone of this work will allow any reader to evaluate both his analysis of the problems and his solutions.
An important theme is to refute the suggestion that the economy is autonomous, that it is independent of choices made by societies. The first and last chapters passionately, and correctly, make this argument.
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Moran reminds the reader that “most settled civilisations did not believe there was a separate economic sphere”. He calls for a revival of a “demos” that is more considerate of how economies are shaped by political decisions.
This approach is then used to examine a variety of challenges.
The chapter on housing considers very familiar problems and relates them to underlying issues of the value of land and its use in the construction of homes. Moran argues for rent controls but acknowledges the debate regarding the impact of this policy on the supply of rental accommodation.
The strongest section of this book is an evaluation of the origins of money and the role of central banks in our economies. This is explained through a simple book-keeping exercise that leads to an analysis of the relationship between central banks and governments.
Claims that central banks should print more money to assist governments are considered. The author acknowledges that this could cause prices to rise.
There is an anger in Why We’re Getting Poorer. The anger about injustices is real. In the last line of the acknowledgment, the author thanks his enemies for the energy that keeps him going!
Many readers of this review have lived through two crises in the global economy – the financial crisis and the pandemic. At the time of writing, it is unclear whether we are in the early stages of a historic transition in the global economy or a disorderly moment of fracture
Anger, however, does not prevent the acknowledgment of nuance in policy choices. This may frustrate some activists but it will reward more readers.
Making Sense of Chaos by J Doyne Farmer also aims to explain how modern economies work. Moran does so as a social scientist, Farmer as a physicist.
He explains complexity economics, a framework for studying economic behaviour that draws upon the progress of modern physics and biology.
A good example of this approach is the comparison made between forecasting the weather and predicting the performance of economies. He compares the progress made in predicting our weather systems with the difficulties in modelling economic behaviour.
These and other examples allow the contrasting of different approaches to understanding economies.
Standard economic theory assumes that every individual aims solely to maximise their satisfaction and has perfect access to all available information about every single decision.
In this world, every decision is made perfectly rationally.
Complexity economics contends that economic decision makers have access to limited information and that decisions are imperfectly made. Individuals are “boundedly rational” with “a limited ability to reason”.
Standard economics assumes that transactions occur only when the supply of a good or service is equal to the demand for it. Complexity theory is more generous in recognising the inherent messiness of economic life.
This new approach models how the decisions of a group of individuals can cascade to influence the behaviour of the group. A nonlinear system is one where “the whole is different from the sum of its parts”.
That recognition is critical because this “is the norm in the real world and economics is no exception”.
Early chapters clearly explain these different approaches. They are lucid and authoritative. Hints of a personal memoir are lightly sprinkled throughout, describing an academic and business career devoted to exploring new concepts.
As economies change we must work harder to understand them, without which we have little hope of influencing them for the benefit of societies
A chapter summarising the key principles of more traditional economics is an eloquent and extremely clear summary of a huge canon of thinking.
Other sections of this book are less accessible. The chapters explaining different financial market theories will be of less use to the general reader, and more to students or professionals. The chapter on the economics of climate change are difficult, but worth the effort.
This book concludes by reminding the reader of how research drives progress in physics. Farmer notes, “Progress in fundamental physics over the last 50 years illustrates how science succeeds when we have the right data to test theories, and how it is stymied when this is lacking.”
The sizzle of the early part of this book lessens as the author explains the potential of more effective research that will develop better economic policies.
The practicality of these proposals is a little mundane after the thrill of diagnosing a different approach to the study of economies. However, if this work only slightly reduces the possibility of a financial crisis, it is overwhelmingly worth doing.
The goal of complexity economics is ambitious and necessary, the development of theories to “guide us toward greater prosperity, make our planet healthier and help humanity thrive”.
Making Sense of Chaos demonstrates the promise of economics. As economies change we must work harder to understand them, without which we have little hope of influencing them for the benefit of societies.
This book explains ideas that were outside the boundaries of mainstream economics for too long. It is a compelling, though not an easy or even, read.
Emma Holten also grasps the power of economics in Deficit, describing it as “the mother tongue of politics. It is the language of power”.
This language is used to exclude the value of caring. It is not priced by the market and not included in the calculation of income, for individuals or for countries. In this world, if something is not priced then it has no value.
That is why the core belief of feminist economics is that “caring is the work that makes all other work possible”.
Holten powerfully identifies the limitations of economic theory. She argues that economists fail to adequately recognise needs that are intrinsic to our humanity: “being looked after when ill, receiving respect, love and recognition, performing child rearing or education”.
This work argues that economics became too preoccupied with self-interest and freedom. It misses the importance of interdependence, of how we care for each other within families and communities.
That dimension is explored in chapters on work within the home and on the evaluation of performance in the workplace. The author is correct to conclude that these issues have not received the attention that they merit from economic science.
There has, however, been progress. Most democracies now support caring through their social insurance systems.
The difficulties in the measurement of national income, and the exclusion of the vital intangibles, beloved by societies, are now well acknowledged by many economists. This, for example, is recognised in publications and analysis that accompany the annual Irish Budget.
Improvements have been made, but it is unwise to assume that they are permanent. That is why the arguments in this book have such value.
The strongest chapters describe the impact of the valuation of care on our politics and public service. The author concludes, “A consumer cannot evaluate the utility of care in the moment of purchase.” Care is rarely purchased. If it has a monetary value, it is one that is determined by the State, not the care recipient.
The rising size of health and social care budgets do demonstrate the value that societies place upon care. However, this book reminds the reader of the power of the marketplace in determining value within a society.
A paradox of care is described; care “makes all other work possible” but it is not recognised by economists like other forms of work.
Most economists now accept the need to improve the foundations of their work. That work is well under way but, as with any branch of social science, it will never be complete.
Likewise, the growth of the state in most democracies is a reminder that the shortcomings of free markets are well appreciated.
This is not acknowledged in Deficit, but there is a wisdom that is well summarised in the final sentence of this book: “We create so much value for each other. It’s difficult to measure, but it isn’t difficult to feel.”
Many readers of this review have lived through two crises in the global economy – the financial crisis and the pandemic. At the time of writing, it is unclear whether we are in the early stages of a historic transition in the global economy or a disorderly moment of fracture.
We must therefore be ambitious in deepening our understanding of modern economies and of the political choices shaping them. These books share that quest. They all deserve consideration in the urgent and loud debates about how we shape our economies.
Paschal Donohoe is the Minister for Finance and president of the Eurogroup
