Tuesday, 6 December 2016

The Most Important Econ Books of 2016

We are slowly moving towards that time of year when we look back and summarise the most important events that have occured over the last twelve months. Of course, Life of an Econ Student wouldn't be much of a an econ blog if it didn't supply a list of our beautiful field. Unfortunately I see that both the Financial Times and Tyler Cowen at Marginal Revolution beat me to this, and I'm happy that they, at least partly, agree with my choices.

Of course, this list is entirely biased by my interests (banking, money, econ history, inequality) and my current experiences. Enjoy!

Robert Gordon: professor at Northwestern University who began this year with his Rise and Fall of American Growth, an almost 800-page tome that  perhaps irrevocably  broke the profession into an optimist-pessimist divide. His story is not a very pretty one; throughout American history, innovations, improvements and rising standards of living due to economic growth have radically changed the lifestyle of every generation. This, Gordon argues, only happened through what economist call 'Total-Factor Productivity' growth of 2-3%/year. The take-home point is shown in the chart below; we are a long way from those golden 2-3%/year, which allegedly explains the slow growth and (the myth of) stagnant wages since the 1970s:

The snarkiest summary I can give is this: in the 30s and 40s and 50s Americans saw life-changing innovations such as electricity, washing machine, the internal combustion engines and wide-spread car usage. Today, they're likely to see an improved Facebook feed and smoother Amazon user interface. The innovations simply don't add up. (For more, see some of the many many reviews and comments on his book)

Deirdre McCloskey, my favourite historian whom I write about too often, and hardly ever have enough time to read, finally published her long-awaited final volume Bourgeois Dignity: How Ideas, Not Capital or Institutions, Enriched the World. Having hyped the book for six-months straight I have to shamefully admit that I still have a few hundred pages to go. The story, for those unfamiliar with her beautiful, poetic, flowing and well-rounded writing, is that a rhetorical and social change in perceptions about entrepreneurs and making money and innovating caused the Industrial Revolution. That's right, the most important and life-changing event in the history of mankind was caused by slight changes in how normal people view the morality of innovation. Having yet some hundred pages left, the most persuasive piece of evidence I've found is the meaning of the word 'honest'; McCloskey uses literature to show how its use in English (and some other languages) changes from a characteristic that the upper classes simply were (with no implication of today's meaning 'truth-telling') to a description of truth-telling and sincere merchants and innovators. For some additional reasons, see Matt Ridley's review here or McCloskey's summary in the Wall Street Journal

In April, Branko Milanovic's bluck-buster seemed to me a complete game-changer for the discussion of inequality. Shortly thereafter, the Economist and the Financial Times picked it up and discussed it, before most people seemed to have forgotten about it. Just the other day, an otherwise brilliant fellow student of mine repeated some of the mistaken beliefs about global inequality that Milanovic so thoughtfully corrects: that growing income inequalities within countries is the same as growing income inequalities between countries. Milanovic shows that as poor countries (indeed, those that have most benefited from globalisation) growth richer, world inequality taken as a whole narrows. He extends the idea of a Kuznet's curve (where inequality starts low in poor societies, rises with growth, and then falls back again) and develop Kuznets waves moving up and down over time. Hence, he foresees a future where inequality is income is much more determined by what you do than where you are born. One of the best quotes of the book comes right at the beginning:
Reading about global inequality is nothing less than reading about the economic history of the world. (p. 3)
Shortly thereafter, Anwar Shaikh, world-famous marxist economist, published his massive magnum opus, the culmination of his career in one book: Capitalism: Competition, Conflict, Crises. In my reading group with my fellow USYD political economy students, we managed about a third of the book before life and other adventures interrupted me. The book is literally about everything in economics; theory, micro, macro, assumptions, empirical evidence, marxism, inequality. You name it, Shaikh analyses it. It's one of those books where every single page brings something to the discussion, and quite often every single sentence. Rarely have I enjoyed reading such a formidable left-wing author, and I seriously hope that I can manage to finish the book one day. 

Before starting University again in September, I made the all-too-common mistake of beginning to read another great book. The former governor of the Bank of England, Mervyn King, had recently published his End of Alchemy: Money Banking and the Future of the Global Economy, an account of the financial crisis focusing on the ideas of policy-makers, bankers and academic economists that guided their actions until the crisis. As I begin my not-yet-published review of King:
Any book that Paul Krugman spends almost 4000 words partly praising, partly viciously denouncing must be a great read. In fact, King's book is likely be become one of those must-reads of not only 2016 but probably the turbulent decade following the GFC.
My biggest surprises is how King can go pages sounding like your most hardcore Austrian before turning around completely and advocating his own version of pre-determined banking reserve-holdings. As Lawrence Summers says on the cover of the book: King "may well have written the most important book to come out of the financial crisis".

The next book on the list is presumably here due to some combination of present bias and home bias. Since my dissertation is on banking crises in history, it was very neat that our very own Catherine Schenk, (professor of international economic history at University of Glasgow), together with banking historians Youssef Cassis and Richard Grossman recently edited the Oxford Handbook of Banking and Financial History. Let's just say that this great and incredibly well-written 600-page overview of financial history has saved me from tears both once and twice. Nineteen of the most amazing scholars in this field write great introductory chapters explaining every and any aspect you may want to know. A great read, indeed. 

A year of Brexit and the migration crisis in Europe can't be ignored not even in Economics, and an authoritative book on the euro and the European project is bound to show up. Markus Brunnermeier, Harold James and Jean-Pierre Landau is a combination of reputable economists likely to produce a really good on-point discussion of the euro area. Their brand-new The Euro and the Battle of Ideas will probably be at the forefront of great writings in this topics. Admittedly, this one hasn't even arrived in the mail yet, and so has to wait until after the holidays for a proper review. In the meanwhile, I rely on Matthew Klein's review in the FT, Foroohar in NYRB and a recent LSE lecture

Last, but absolutely not least, is Joel Mokyr's absolutely incredible A Culture of Growth. Since it arrived a few weeks back, it has been a constant distraction from other work (read: dissertation...), and Mokyr's dive into evolutionary economics really seemed to have paid off. The first part of the book discusses evolution as an analogy for ideas, how social ideas spread from person to person, and how those ideas cooperate into an avalanche of innovations; not at all far away from Matt Ridley's point that "Ideas have sex". Mokyr's bottom line is that the cultural foundations of growth are found somewhere between Columbus and Newton, where Attitude  the willingness and the energy to investigate the natural world around us  mixes with Aptitude  the success in turning that knowledge into productivity and rising standards of living through technological innovation  to create our modern wealth. As you may see, his work is very close to McCloskey's (above) but uses a rather different approach to reach similar conclusions:
For the economic historian, the great advantage of evolutionary thinking is that it tried to explain why the present is the way it is and not some other way by using history. [...] behaviour and actions are the observable outcomes of preferences and knowledge. (p. 28)
For anybody interested, I recommend the 13-page introduction, freely available at Princeton University Press (who, by the way, wins the award for best publisher, with 3/8 titles on the list) for a taste of Mokyr's brilliant writing and exciting research.  

Overall, 2016 was an amazing year for great econ books, signalling the return of Economic History. Or perhaps that's just my biases playing with me

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