“Freddie” Hayek is, of course, famous for the epic rap battles between him and his arch-nemesis, the maverick economist and Bloomsbury groupie John Maynard Keynes. Keynes may have been more charismatic, but Hayek had the edge in writing. The Road to Serfdom is a compelling and passionate defence of free-market economics and is much more readable than Keynes’s dense The General Theory of Employment, Interest and Money. Even the title is snappier. (The General Theory wasn’t written for a popular audience, though — Essays in Persuasion is a better read, although maybe less influential.)
Hayek does come across as a bit of a Cassandra, terrified that a bit of well-meaning socialism is just the first step on the slippery slope to fascism, totalitarianism and, well, serfdom. The shrillness of his warnings is explained by the context: he was writing during the second world war, and saw echoes in contemporary American society of Germany in the interwar years. He grew up in Austria before living and working in the USA and England, so he was well-placed for this comparison.
This short but thought-provoking book describes a way that New Zealand’s economy could be reorganised to focus on the wellbeing of all its citizens, defined as
The ability to lead the kinds of lives that they value and have reason to value.
Historian Ian Morris argues that in the evolution of human culture, changes in ethical values have been driven by energy. He thinks that in any given epoch, the dominant energy source sets limits on the kinds of societies that can succeed, and each society in turn rewards specific values.
As far as it goes, there may be some correlation, but he gets it backwards when he tries to base a grand theory on it. That’s my impression after listening to his talk at the RSA.
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The title describes the book: 23 things, some counterintuitive, some perhaps contentious, they you may not have realised about the economic system that the world runs on.
The presentation and organisation of this book is inspired partly by Dr Seuss, which is almost reason enough to buy it. There’s also a rather clever and useful section suggesting how to read the book with particular issues in mind: for example, if you don’t know what capitalism is, or if you think politics is a waste of time.
The Undercover Economist is full of useful explanations of many orthodox economic concepts. It explains why free markets are so powerful and what economic efficiency means. It also contains the most accessible explanation of the subprime mortgage crisis as I have ever read. But when all you have is a hammer, everything looks like a nail. For Mr Harford, like many others, markets are that hammer. He does a decent job of trying to address possible difficulties with market-based solutions, but he ignores some fundamental problems.
Economists call free markets “efficient”. This just means that nobody can be made better off without also making somebody else worse off. For example, 10 billionaires having all the money while a million paupers starve to death could be an efficient system, since we can’t give a crust of bread to a pauper without making a billionaire worse off (by the price of a crust of bread). Obviously, this sort of efficiency doesn’t say anything about whether the economy is at all desirable. Hartford briefly points out that we tend to value things like fairness too.