New book re­veals short­com­ings in eco­nomics‘ ba­sics

The Star Early Edition - - OPINION & ANALYSIS -

SOME­ONE needed to write a book about how eco­nomic the­ory has been abused in US pol­i­tics.

And some­one fi­nally did. James Kwak’s Economism is a very im­por­tant and timely book, and any­one who is in­ter­ested in pub­lic af­fairs should read it.

Kwak, a Univer­sity of Con­necti­cut law pro­fes­sor, spins a tale of how sim­ple sup­ply-and-de­mand the­ory fed a free-mar­ket ide­ol­ogy that led to a fi­nan­cial crash, a dys­func­tional health-care sys­tem, spi­ralling in­equal­ity and a thread­bare so­cial-safety net.

The ba­sic idea is that by get­ting every­one to think in Econ 101 terms – per­fectly com­pet­i­tive well-func­tion­ing mar­kets, ra­tio­nal well-in­formed con­sumers and so on – free-mar­keters were able to re­de­fine the terms of the na­tional de­bate to favour their own in­ter­ests. With Econ 101 as every­one’s de­fault lens, Kwak ar­gues, govern­ment pro­grammes and reg­u­la­tions start to seem dan­ger­ous and in­ef­fi­cient, while in­equal­ity be­gins to feel like the nat­u­ral and just or­der of things.

Sim­ple the­o­ries can main­tain an al­most un­shake­able grip on our think­ing. The Econ 101 the­ory of sup­ply and de­mand is fine for some prod­ucts, but it doesn’t work well for labour mar­kets.

You should read Kwak’s book, even though it doesn’t ex­plain why economism has been so suc­cess­ful at cap­tur­ing peo­ple’s hearts and minds. – Bloomberg

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