This was supposed to be a review of Joseph Heath's new book "Filthy Lucre: Economics for People who hate Capitalism". But I'm not used to doing book reviews, so it's going to turn into a ramble on the teaching of economics, and economics in the political spectrum.
I got the call to act as "host" (sort of interviewer) for Joseph Heath at the Ottawa Writers Festival. I said "yes", because I had really enjoyed his previous book (with Andrew Potter), "The Rebel Sell: Why the Culture can't be jammed". Quick and dirty synopsis: "Forget it Naomi Klein fans; the marketing guys are waaay ahead of you!" Actually there's a lot more than that in what is an incredibly wide-ranging book on philosophy, politics, culture, economics, and stuff.
"The Rebel Sell" was a hard book for me to read. I read it twice, and still wasn't sure I understood it all. "Filthy Lucre" was a much easier read for me, because it's about economics.
There are two facts about "Filthy Lucre" that, in conjunction, are very puzzling. First, it's written by a philosophy professor; second, he gets the economics right. Sure, you can quibble with odd bits of it, as you can with anything, but basically he understands economics, and at a fairly sophisticated level too.
That is very good news. Canada has a new "public intellectual" (he's a very good and very funny speaker) who is economically literate, and who is not an economist. Unlike most economists, he actually knows some other stuff too; and when he says that economics really does have a point, people may listen to him, because he's not just another economist shilling his own discipline.
But it's also very bad news, in another way. This book was written by a guy who took one (first year) economics course, and skipped all but the first two lectures (he did read the text, because that's where you found the answers to the multiple choice final exam). He learned economics by himself, in his spare time, much later, because he wanted to figure out how economies worked. He's bright, so it didn't really matter in the end. But most people aren't that bright. We must be doing something wrong, as teachers of economics.
Why do we need a philosophy professor to explain economics to capitalist-hating lefties? Why are we failing to do it ourselves? I asked him this question, and he gave two answers.
The first answer, speaking more from his personal experience, was that he couldn't think things through graphically; demand and supply curves just made things harder to understand. (And, funnily enough, he didn't say he wanted it all expressed in math instead). That's a familiar complaint, of course.
His second answer, speaking more generally from the experience of those who approach economics from the left of the political spectrum, was a less familiar complaint. The assumption of self-interest, usually introduced very early in the teaching of economics, is a real turn-off for lefties especially. Their reaction is: "Economics is based on the assumption that everyone acts selfishly; well that's obviously false, as well as bad, so I might as well ignore this rubbish!"
He argues that though there is economic illiteracy on the right, economic illiteracy on the left, especially left-wing intellectuals who ought to know better, is much deeper ingrained. He blames the self-interest assumption for this.
Joseph Heath's own views on the selfishness assumption are nuanced. He believes that people can and do act for other than selfish reasons, but getting them to act this way in certain contexts takes a lot of coaching. His answer to the Coasian question of the boundaries between firms and markets rests on the tension between this coaching people to play for the team and giving their self-interest free-rein. (Read the book if you want to know more).
My own take is that what is key to economics is not selfishness, but the assumption that different people want different things. If we all wanted the same thing (i.e. exactly the same allocation of resources), there would be no conflict, most of the "economic problem" of scarcity and choice would be reduced to production engineering, and there simply wouldn't be very much for economists to talk about.
If all people were perfect altruists, who also shared all values, we would all want the same thing. Any other case will almost certainly result in some conflict from different people wanting different things, so we might as well call it "self-interest", even if it isn't.
But if the self-interest assumption really is what turns many people off learning economics, we ought to find some way first to think about what it really means ourselves, and then explain what it means and why it makes sense.
OK, I expect I ought to review the book.
It's a good book. A good book for economists to read, because I bet that you too will learn some economics from it. I did. I learned a whole new way of looking at corporations as being lenders' cooperatives, and why lenders cooperatives can work, and why milk-producers' cooperatives can work, but why workers' cooperatives and customer cooperatives usually don't work. (Hint, which goods are fungible commodities, so that the owners of the firm will share a common interest?). But a very good book for non-economists to read. And an excellent book for left-wing non-economists (its intended audience) to read.
It's got a faux symmetry about it. The structure is symmetric: 6 right-wing fallacies followed by 6 left-wing fallacies. But the content isn't. It's 6 left jabs followed by 6 hard right hooks. But the author himself seems to be centre-left. A moderately left-wing economist would be very comfortable with the approach. It's really written by the economically literate left for the economically illiterate left. And I agree they really need it.
The sharpest of the 6 jabs at the right is when he invokes Lancaster/Lipsey's "The General Theory of Second Best". OK, confession time, for all you current and ex-economics students: what's the theory of second best; and what are its policy implications? Were you ever taught it? (Answer, in a nutshell: if one market is distorted the second-best policy is generally not to leave all the other markets undistorted, but to impose a tax or subsidy in all the other markets to distort them too.)
The heaviest of the 6 hooks at the left is his discussion of Say's Law. Now I know that Say's Law isn't exactly correct, and Joseph Heath knows it too. In fact, Joseph Heath reveals a better understanding of problems with Say's Law, and the role of money in recessions, than most economists (except moi, of course). When you sell goods you earn money; and you use that money to either buy goods, lend to someone else to buy goods, or you hold it. Supply really does create its own demand (Say's Law), except when people want to hold more of the medium of exchange.
It had never really sunk in, until I read his book, how much the whole edifice of so many left-wing critiques of capitalism, from Marx to Matrix, rested on a total failure to understand the AD curve.
His economics may not be perfect, of course. I'm not sure he fully understands that the marginal productivity theory of distribution (wages) is a half-truth, not a zero-truth, because the value of marginal product of labour and the marginal opportunity cost are co-determined, along with the wage and level of employment, in simultaneous equilibrium. That's tough to explain, without demand and supply curves, or math.
But that's a pedantic quibble. It's a good book for even economists to read. But I really hope it sells well among the people he wrote it for.
And he reads this blog, and especially enjoys Stephen's posts on poor hapless journalists who get economics wrong!