Notes from Ha Joon Chang's book on economics

 

I started listening to Ha Joon Chang’s book right after completing Douglas Adams’ The Hitchhikers Guide to the Galaxy. Imagine my surprise when the first chapter starts with multiple references to Hitchhikers Guide to the Galaxy!

Chang starts off by defining economics, first in a manner of popular economics paperbacks, as something that explains life, universe and everything.

In his defense, he does explain the rationale behind such an explanation, perhaps speaking for the many such popular economics books for commoners, calling it  fair as it does the job of informing the reader not ‘How economics explains everything about the economy’ but ‘How economics explains the economy and many other things too’

In fact, I was really interested to find out what economists think of such popular books for common people and so I added this question on Quora :What do economists think of popular books on economics for common people like the ones by Tim Harford?

Alex Tabarrok, a professor at the George Mason University and co-author of many books with Tyler Cowen answered :

I would compare these books to the best of the popular science books say by Briane Greene or Richard Dawkins. Instead of dumbing down the material these books write up the quality making difficult ideas accessible to a larger audience and offering interesting applications and big-picture perspectives. As a professional economist I can say that I have learned from all of the above named authors.  

On the matter of popularity of economics and key events of economic importance like recessions, Chang talks about economic forecasts, also putting in a quote by John Kenneth Galbraith

“The only function of economic forecasting is to make astrology look respectable.”

So is economics the study of the economy?

Well, not exactly. Conventional textbooks define economics as study of production, consumption, goods and services.

But is that all? Again, not exactly.

Chang quotes Lionel Robbins :

“Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.”

He talks about how economics can be used to talk about marriage, drug wars, having children etc which can be the subject of calculation.

a study rational choice i.e. choice made on the basis of deliberate, systematic calculation of the maximum extent to which the ends can be met by using the inevitably scare means.

When Chang proceeds further to define an economy, he links up the narrative starting with the most intuitive explanation :

Economics is something to do with money, having it, not having it, lending it, spending it etc.

But to have money, one requires a job. Speaking of an individual worker, getting paid for your job commensurates with the demand for the skills required to do the job.

If your company imports a new machine from China that can do the same job as you, albeit much faster and more efficiently, you may lose your job, or get paid less. So you also need to think about technology and trade. 

Trade, Wages, Jobs - all are generally very much influenced by politics and state policies. These also include taxation and subsidies.

Economics is also about transfers - parents funding children’s eduction, elderly pensions, charity etc. all of which involve exchange of commodities or money. 

You need resources for survival.  So study of procurement, spending and transfer of resources concerns economics. These could also be goods or services and their consumption. When we talk of consumption, how can we leave aside the production of these resources in the first place?

This entire line of thought, which focuses on the methodology of economics rather than the theory sets apart Chang’s treatment of the subject matter. He talks about how the popularity of neo-classical economics has almost overshadowed the other schools of economics.

This could be, one of the best ways to see economics, in a sort of birds-eye view relating to the life around us.

Or perhaps, economics does explain about life, the universe and everything, almost.