Friday, 25 July 2014

Two good economics books

Earlier this month, at the NZ Association of Economists conference, I got pointed towards two new books, Diane Coyle's GDP: A brief but affectionate history, and Paul Dalziel and Caroline Saunders' Wellbeing Economics: Future directions for New Zealand, both of which are aimed at the intelligent layperson as much as the professional or semi-pro economist. Both are worth giving a go.

I'd read some of Diane Coyle's stuff before: her The Soulful Science: What Economists Really Do and Why It Matters is on the bookshelf behind me, I follow her blog The Enlightened Economist, and I'd read some of her contributions to the big post-GFC debate on what should be in the university economics curriculum. Her GDP is a quick and easy read - and I mean that as a compliment, given the length and turgidity of what a book on GDP might have been. In an easy style she gives us 159 pages on the history of GDP, its uses, abuses, and frailties, and ideas on where it might be taken next and what might be needed to supplement it.

You'll have your own favourite bits: for me I especially liked her reminder that GDP isn't a real thing "out there", which we try to measure with greater and greater precision and ever larger technical handbooks. It's a conceptual construct, and one that isn't even identical to the sum total of economic activity (though that's how we tend to view and use it), partly because there are arbitrary distinctions drawn between what's in GDP and what isn't. At a more nitty gritty level, I like her examples of how ropey attempts to compare countries' GDPs using purchasing power parity (PPP) can be, and I wish I'd read her bit on how to measure the output of the financial sector a year or two ago. I'd have been a lot better placed to discuss 'FISIM' (pronounced "fizz 'em", and standing for 'financial intermediary services indirectly measured') when Stats were looking at how it's compiled in New Zealand.

Don't be put off by the PPP and FISIM bits I've quoted, by the way: this isn't (thankfully) a book that spends a lot of time deep in the technical entrails of the GDP numbers. For the most part it keeps to the big picture, and you'll learn a lot about a concept that's ubiquitous in the business and political media, but not always properly understood or deployed.

Dalziel and Saunders' Wellbeing Economics is one of the recent Bridget William Books Texts, each being "a short, digital-first piece of high-quality New Zealand writing, produced swiftly and distributed globally online", mostly on current affairs. They're making quite a stir - Shamubeel Eaqub's Growing Apart: Regional Prosperity in New Zealand in particular has hit the publicity hot spot - and Wellbeing Economics is on the button, too.

The authors (both economics professors at Lincoln) list five principles of 'wellbeing economics', which they say is "a new framework...emerging internationally for understanding economic policy questions and their solutions. It aims to address issues like unemployment and poverty directly, rather than thinking these problems would be solved automatically with economic growth". At its most general level, they say, wellbeing economics starts with the principle that "The purpose of economic activity is to promote the wellbeing of persons", and they go on to look at what the world would be like if that principle - and four others, such as (Principle 3) "Economic policies should expand the substantive freedom of persons to lead th lives they value and have reason to value" - were put into practice.

In many ways this book is a liberal manifesto, and will resonate with what I suspect is the wide but unappreciated swathe of New Zealand opinion that is market-friendly but socially liberal. A lot of us would like a prosperous dynamic economy and a tolerant civilised society, and we're not well served by the libertarian flog-the-criminal freaks at one end nor by the killjoy anti-market wowsers at the other. I especially liked the book's recognition of the role markets play in enabling people to deliver what they value, such as a good paying job or a decent education, and as they say (pp71-2), "Whatever caveats we may hold about their operation in particular times and places, the universal adoption of markets to organise production and exchange is itself evidence of this institution's enduring contribution to human wellbeing".

In talking about the role of markets, they quote (New Zealander) John McMillan's superb book on the role of markets, Reinventing the Bazaar: A Natural History of Markets. It's so good, whoever I lent my copy to made off with it. You may find your copy of Wellbeing Economics doing a runner, too.


  1. Two points. 1) "libertarian flog-the-criminal freaks" If you think this is libertarianism you don't understand libertarianism. Remember libertarians are socially, politically and economically liberal . See the 3rd edition of David D. Friedman's The Machinery of Freedom: Guide to a Radical Capitalism just out in Kindle Edition. Also when Dalziel and Saunders speak of "substantive freedom" do they mean it in terms of positive or negative liberty? 2) as to the McMillan book, having read it twice I can't help thinking that McMillan had never meet a government intervention he didn't like.

  2. Thanks. 1) Fair point, I wasn't aiming to besmirch libertarianism: I like to think I'm pretty liberal myself. What I was trying to say (maybe not too clearly) was that I don't see the complete package of liberal economics and liberal politics actually on offer in NZ. Liberal on one tends to come with illiberal on the other. On positive or negative liberty, dunno: they mention (pp71-6) the merits of markets allowing specialisation, rewarding consumer-friendly innovation and entrepreneurship (the Schumpeter thing), and allowing decentralised decision-making (the invisible hand/ Walras thing), so it sounds like 'liberty to' rather than 'liberty from' if that's the distinction 2) You could be right, though I don't have the same recollection of McMillan, what I mostly remember is the ubiquity of markets, the different kinds and why each had gone the route it had, some modern auction stuff, and the preconditions for them to work well. And that's it - can't say much more since (as I mentioned) someone nicked my copy...

  3. I agree about the lack of a liberal package in NZ politics. That is one of the (many) sad things about politics in this country and one of the reasons I don't vote. There is no one to vote for. As to McMillan, from memory it was the last part of the book that I took exception to. But Seamus Hogan, he of Offsetting Behaviour fame, once took me I was wrong in my interpretation, so may be I'm being too mean to McMillan.


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