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BOOK REVIEW: Ha-Joon Chang, Economics: the User's Guide (New York: Bloomsbury Press 2014)
The title of the book is Economics but aside from learning some terminology the reader will learn little economics from it. He writes that his book “differs from other economics books in that it contains a lot of information on the real world.” Much of the world he describes is the fantasy world of Marxists and leftists. He describes a multitude of old and new economic problems but there is no economic analysis in it but a lot of assertions. It has a lot of definitions of economic concepts and a bit of economic history, selected from a Marxist point of view. Not a single statement of how much the standard of living has gone up under capitalism
He defines economics as the “study of rational human choice” and defines capitalism as an economy organized in pursuit of profit, a dirty word to Marxists. Income would be a better word than profit but workers are also interested in income. A better definition of capitalism appears in Merriam-Webster’s Collegiate Dictionary 10th Ed., namely, “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.”
He offers his readers a survey of economic history. He begins with the “dawn of capitalism – 1500 to 1820”, followed by the period of the industrial revolution 1820-1870, and the rise of mass production 1870-1913.” From 1914-1945 is a period of “turmoil”, and 1945-1973, the “Golden Age of Capitalism,” which he attributes to the “development of mixed economies.” Then, “the rise and fall of neoliberalism,” 1980 to now. He calls attention to capitalist crises like the Asian bubble, 1997, and the financial crisis of 2008 and the role of government in “bailouts”, but, again, nothing about how capitalism raised living standards.
He is much taken by schools of economics which he calls an economics cocktail – Austrian, behavioralist, classical, developmentalist, institutionalist, Keynesian, Marxist, neo-classical and Schumpeterian. But you won’t learn much about any of them reading the book. He is an institutionalist and a Marxist, apparently.
He mentions Adam Smith’s invisible hand, Say’s law, and free trade. “The adherence to Say’s law made macroeconomic problems insoluble,” he writes. This is one of his typical assertions. The mixed economy and macroeconomists have not solved macroeconomic problems either as the history since 2008 shows! He mentions approvingly the anti-free market or market failure approach and asserts that private firms do not pay social costs, (No mention of their social benefits, of which there are many, including higher wages due to the development of skills and development of new technologies upon which future technologies build.)
“Despite (its) limitations, the Marxist school still offers some very useful insights”, he writes. Not one is listed! He continues, “Recognizing that there are different approaches to economics is not enough. This diversity needs to be preserved, or even promoted.” Why? No mention of a scientific approach to economics, which most economists claim to be a science.
He writes, “Changes in technologies are at the root of economic development.” No mention of invention, innovation, and more efficient management except for the rise of lean production (just in time). He does mention the importance of investment as a share of GDP but not who makes and implements the decisions to invest.
He asserts that we need to take environmental sustainability seriously. Nonsense, we may be taking it much too seriously. Developing countries need economic development to raise living standards and to better adapt to climate change, he writes. He has his priorities mixed, apparently, and they do not include a free competitive private market to promote economic development, which is how the countries of Europe, N. America, and S. Korea developed.
He notes the financial system has become more complex, and that its increasing complexity has made the system more inefficient and unstable. Evidence? There has been a vast increase in the frequency of financial crises, he writes. No mention that many economists blame government for the crises.
The “unholy alliance” between short-term oriented shareholders and professional managers (his assertion) has reduced the ability of corporations to invest. Evidence? He concludes that the financial system needs to be highly regulated. Some government bureaucrat will know better how to invest the money forced from taxpayers!
He mentions every alleged defect of capitalism, relative poverty, unemployment, child labor, transnationals “which affect the productive capabilities of the recipient countries adversely,” and foreign trade with keeps poor countries poor. Again, he mentions none of the progress during the past two centuries. One of his previous books is entitled, “23 Things They Don’t Tell You About Capitalism,” copyright 2010. None of the crimes of communism and national socialism are mentioned.
In his discussion of foreign trade, he alleges that rich countries exploit the poor ones, and transnationals are excoriated for affecting the productive capabilities of recipient countries adversely. Look how badly China has been exploited!
He writes that capitalists advocate “Open borders—except for people.” This statement is totally untrue in the US. The US Chamber of Commerce is in favor of legalizing the status of the millions of illegal immigrants now residing in the US.
“What Now?” he asks. “The question is too important to be left to professional economists.” “The 2008 global financial crisis has been a brutal reminder that we can’t leave our economy to professional economists and other ‘technocrats’.” Who should we leave it to? Government? “Learn economics and take action yourself.”
It is hard to believe that the author is on the faculty of Cambridge. A North Korea university is more likely.
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