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Recommended econ reading for the new year that are actually readable & contrary to the mainstream December 28, 2011

Posted by larry in economics.

Below are both books and articles you can find on the net. On second thought, if you couldn’t find it on the net, what would be the point of recommending it.

Let me begin with a book that is both entertaining and enlightening about the current crisis – The Global Minotaur by Yanis Varoufakis (2011). He is scathing about the Euro crisis and who to blame which is summarized nicely in his parable of the ant and the grasshopper to which he gives his own twist: “Never Bailed Out“.

Extremely readable accounts of how to look at the economic system in general are by the late Robert Eisner. They are the following:

The Misunderstood Economy: What Counts and How to Count It (1994). This trashes what has become the standard view of how the economy works.

How Real Is The Federal Deficit? by Robert Eisner (1986). This is essential reading given the bullshit that is promulgated practically every day by dim economists and the mainstream media. A sovereign country with sovereign control over its own currency which has a floating exchange rate with other currencies has no deficit problems with respect to its own debts, and that includes social security, national health costs, education, or anything else like these. While about the US, the argument applies with equal relevance to the UK. The Eurozone, with its Euro, is in a different position, as none of the countries in the EMU have their own currencies, having relinquished them to use the Euro.

The Great Deficit Scare and Other Economic Myths by Robert Eisner (1997). This is a short but sweet account of the economic mythologies that virtually completely surround us.

Now for others.

Debunking Economics by Steve Keen (2nd ed: 2011). A definitively scathing attack on the neo-classical world view that underlies much current economic policy recommendations. He shows in exquisite detail what bollocks it all is. So, when a government official or economist suggests a remedy for an economic malady, ask yourself: what are the probable assumptions behind this particular set of recommendations. Keen argues that it is likely that you will discover neo-classical assumptions hidden within the verbiage, which in his view completely invalidates the advice.

“The Big Lie” by Michael Thomas (2011) in the Daily Beast. Brilliant invective against the bankers and politicians, the latter of whom he considers the greater malefactors, by an ex-banker who admits that his daily job consisted of lying to customers.

“Slash and Burn Capitalism” by George Monbiot (2011). This is one of his blog posts that castigates Osborne et al.’s approach to the environment using the economic crisis as an excuse for a particularly despicable kind of cronyism.

If you would like to know more about what Keynes said but find his expositional style a little offputting, then do give The Economics of J. M. Keynes by Dudley Dillard (1948) a try. Or you can have a gander at the shorter Keynes: The Return of the Master by Robert Skidelsky (2010).

More historical works are these:

A beautifully written account of the events leading up to the Great Depression and the four bankers who participated in and tried in their own ways to prevent catastrophe but failed, primarily because of the actions they themselves took, is Liaquat Ahamed’s Lords of Finance: 1929, the Great Depression, and the Bankers Who Broke the World (2010).

If you think that the industrial revolution and its aftermath was a paragon of entrepreneurial competence, you might like to rethink this. A blistering account of the US railroad bonanza and its accompanying disasters is Railroaded: The Transcontinentals and the Making of Modern America by Richard White (2011). An appropriate response to this account is OMG! How could they have been so stupid? All I will say is: think of Larry Summers and what an idiot he is yet how lauded he is by many.

I would guess this is enough to go on. Should you get through this list, you will understand our present plight better than most. You can then decide for yourself whether Osborne, Geithner, et al. are either incompetent or venal. Certainly, what they are doing and saying is not in the interests of the majority.

On that note, I wish you a happier, and hopefully more prosperous, new year. Though I wouldn’t count on either.

A little addendum:

For complementary histories of financial misdeeds and the like, which complement Ahamed:

Bethany McClean & Joe Nocera, All the Devils are Here: The Hidden History of the Financial Crisis (2010);

Edward Chancellor, Devil Take the Hindmost: A History of Financial Speculation (1999).

For the best book on the Irish crisis that takes no prisoners, you can do no better than Fintan O’Toole’s Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger (2010 ed. with an added postscript).

Who not to read:

Krugman is excellent on the politics of the financial crisis but goes astray on the macroeconomics of it. For example, he thinks the standard demand-supply curves are good pedagogical tools for introducing students to how the economic system in the large works. They aren’t.  And he still thinks that you can use an analogy between a household and the government to illustrate deficit spending and the like. The analogy is completely inapplicable. For these reasons, among others, I am unable to recommend Krugman unreservedly. That said, he should not be avoided.

Read nothing by the IMF. Their recommendations are inevitably disastrous for those they are supposedly helping. They have no idea what they are doing.

Avoid Olivier Blanchard. He is wedded to a kind of neo-classical view of the economic world and thereby goes astray.

Do not believe anything about the economic situation put out by either the UK or US governments. It is either deliberate misinformation or the consequence of incompetence. Geithner, for instance, is a failed regulator. And so far, a failed Treasury Secretary. A sterling record. He is either a liar or doesn’t have a clue. Take your pick. Osborne has been conspicuous by his unblemished record for getting things so wrong you woudn’t think we and he lived in the same world. And in a strong sense, we don’t. Danny Blanchflower doesn’t think Osborne knows what he is doing. Bill Mitchell thinks that it is likely that Osborne and his clique know precisely what they are doing, which is screwing us over for their own benefit. Again, take your pick.



1. David Oser - December 31, 2011

Larry – I must admit that I thought it was standard Keynesian fare that you couldn’t equate a sovereign state with a household or a firm within that state. Indeed, I thought it was a well-known ‘fallacy of composition’. This was first brought to my attention by that gentle old tribally Tory FT commentator Sir Samuel Brittan (yes – elder brother of Mrs Thatcher’s Lord Brittan) who still writes occasional pieces for the FT. He can be a breath of fresh air, despite his instinctive politics. Worth looking at. He blogs, but no rss, unfortunately …http://www.samuelbrittan.co.uk/text.html

Larry - December 31, 2011

David, many thanks for the Brittan reference. I admit I would never have found it on my own. I can stll see his brother in my head.

It *is* std Keynesian fare to contend that a sovereign state and a household are noncomparable. Yet you can find this sort of thing in a number of introductory macroecon textbooks along with a lot of irrelevant math and other dubious assertions such as the economic rationality hypothesis, and no substantial data analysis of the sort psychologists are used to (ignoring experiments).

2. Larry - December 31, 2011

David, many thanks for the comments. I guess I should have qualified K’s household analogy. He was advocating it as a useful teaching tool. But I haven’t been able to locate the piece that you mentioned where he trashes the household analogy.

It is true that Blanchard is more complex than I indicated, but I felt better safe than sorry. Thank you for the Blanchard reference.

Concerning Mitchell’s post and your problem with it, I have to admit that I am uncertain as well whether he meant what he wrote. He writes quickly and he has been caught out a few times. Usually, it is a little obvious. Not this time though.

As for the round pegs and square holes, I don’t think the flow would be smooth. To expect it to be so would in my view be utopian. But careful treatment ought to reduce the jaggedness/severity of the peaks and troughs. At least, that is the idea. Roosevelt didn’t do too badly, given that he didn’t do nearly enough and it took the war for the depression to significantly ease.

I don’t think we have a good idea of how to mate people’s desires with job opportunities. The Netherlands (before the Euro) used to have a system where a person who lost their job did not have to take another that was significantly unlike the one they lost, which effectively mated a person with a job they wanted. The conservative government trashed this of course. To effect such mating would cost money naturally, but it would not be money that would be necessarily lost, except under unusual circumstances. Roosevelt paid people to paint and sculpt with some excellent results. (I admit some of the art was ghastly, but that would be true in any case.)

3. David Oser - December 30, 2011

Apart from ‘my head hurts’ I’ve got three specific problems with this and the rest of Bill Mitchell’s blog on the MMT Job Guarantee approach to price stability http://bilbo.economicoutlook.net/blog/?p=17528: “This would see labour being transferred from the inflating sector to the “fixed wage” sector and eventually this would resolve the inflation pressures. Clearly, when unemployment is high this situation will not arise.”
1) Did he actually mean to write “to the inflating sector from the fixed wage sector”? Otherwise, surely drawing labour from the inflating sector to the fixed wage sector would tend to increase inflation, rather than decrease it?
2) A more general problem concerns round pegs and square holes – ie structural issues regarding employment: employees are not homogeneous and neither are jobs – so how to ensure a smooth flow from one sector to the other?
3) How is the ‘fixed wage sector’ different in its effect from unemployment benefit? Say if that were to be made more flexible increasing/decreasing as the need arose…
As I said – my head hurts…

4. David Oser - December 30, 2011
5. David Oser - December 30, 2011

Mainly agree – except Paul Krugman did trash the household analogy just a few days ago (check his rss feed), while 2 years ago Blanchard was responsible for an IMF Blog post in which he laid out ’10 commandments’ for dealing with the deficit, which, while admittedly possibly based on a mistaken undelying view, contained one commandment which ran ‘thou shalt not front-load thy debt reduction’. He recently produced a paper (also referenced in the IMF Blog) which clearly showed the disastrous effects of so-doing http://blog-imfdirect.imf.org/2011/12/21/2011-in-review-four-hard-truths/ I suspect that unless one is a fantic it is possible to reach sensible conclusions irrespective of your economic ‘school’. To paraphrase Krugman – the facts tend to have a bias of their own…

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