Economics for good
Jean Tirole’s book Economics for the Common Good
is out now and is highly recommended. As I had the privilege of helping
prepare the English edition, I’ve read it with careful attention, and
most appreciated Tirole’s ability to crystallise complicated issues in a
straightforward way, combining surgical analysis with very clear
explanation. This is too rare a skill among economists.
The first part of the book concerns the influence of economics and
economists on society and the role of the market, followed by a section
on what doing (good) economics involves, and also how economics is
changing. There are then two chapters on organisation, the first on the
relationship between state and market, the second on the role of
business. These sections are in the same spirit as Dani Rodrik’s Economics Rules,
although their experiences and examples differ. Here in Economics for
the Common Good is an economist at the pinnacle of the profession
(Tirole won the 2014 Nobel prize) giving a thoughtful, reflective
account of what economics can properly contribute to – well, the common
good. Although much of his work is highly technical, he has always been
concerned with its application to practical challenges in organising
society: “Academics must ..collectively aim to make the world a better
place; consequently, they cannot refuse, as a matter of principle, to
take some interest in public affairs.” If an economist has appropriate
professional competence in some area, she has an obligation to take a
position on it – while acknowledging that what is known changes and
re-evaluation may always be necessary.
The final two sections of the book turn to applications of economics,
big macroeconomic questions such as financial market stability or
tackling climate change, and then applied microeconomic issues such as
competition policy, digital platforms, intellectual property and the
regulation of network industries. Given my own interests, this final
section was riveting. No other individual economist has done more than
Tirole to take forward the economic analysis of these kinds of areas,
incorporating issues of asymmetric information, principal-agent
problems, incentive compatibility, and so on. The final chapter, on
sector regulation, is a must-read for anyone interested in this area. (I
drew on it in a recent FT column.)
The book is non-technical, aimed at the general reader, and packed
with examples. It does in parts require a careful read, but each
sections and chapters stands being read alone, so one can dip into the
book. There’s a nice publisher blog post in which Tirole explains his motivation for writing the book and what he hopes it can achieve.
It ends with an epilogue reflecting on the status of technical
knowledge in a time of populism (the French edition was published early
enoug in 2016 that it feels like a different era), and the even greater
responsibility economists have to engage and communicate – “Economists
must … with humility and conviction, harness economics for the common
good.”
http://www.enlightenmenteconomics.com/blog/index.php/2017/10/economics-for-good/
Jean Tirole on Economics for the Common Good
September 5, 2017 by
When Jean Tirole
won the 2014 Nobel Prize in Economics, he suddenly found himself being
stopped in the street by complete strangers and asked to comment on
issues of the day, no matter how distant from his own areas of research.
His transformation from academic economist to public intellectual
prompted him to reflect further on the role economists and their
discipline play in society. The result is Economics for the Common Good,
a passionate manifesto for a world in which economics, far from being a
“dismal science,” is a positive force for the common good.
What inspired you to write this book, and what did you learn in the process?
I wanted to show how economics can open a window to the world. I have
long taken part in policymaking, conversing with private and public
decision-makers, but as yet I had never engaged with the wider public.
After receiving the Nobel Prize I was regularly asked by people I met in
the street or as I gave talks to explain to a broader audience the
nature of economic research and what it contributes to our well-being.
Not as a commentator on each and every topic, but simply to share with
the public how scientific knowledge can guide economic policies and help
us understand the world we (will) live in. I tried to write a book that
is intelligible for any intellectually curious reader even with no or
slight knowledge of economics. The book is divided into 17 stand-alone
chapters so the reader can pick and choose.
Can you talk a bit about the value of making economic ideas comprehensible to a general audience?
Repeatedly blaming politicians for flawed policies won’t get us very
far. Like us all, they respond to the incentives they face, in their
case the hope of being (re)elected. Very rarely do they go against
majoritarian public opinion. So we, citizens, get the policies we
deserve. And as I explain in the book, our understanding of economic
phenomena is obfuscated by various cognitive biases; we are dependent on
rules of thumb and narratives, and we often believe what we want to
believe, see what we want to see. Economics acts as a deciphering key,
although it of course has its own shortcomings
.
In the book you talk about economics for the common good. What exactly is “the common good?”
Economics for the Common Good is an ambition: to help our
institutions serve general interest by studying those situations in
which individual motives conflict with the interests of society, in
order to suggest policies that align social and private interests. The
invisible and the visible hands—the market and the State—are mutually
complementary; to function well a market economy needs an efficient
State to correct its failures. But sometimes the State does not work for
the Common Good; for example, many countries are leaving their children
substantial levels of unfunded public debt, unemployment, a degraded
educational system, inequality, and a lack of preparation for the
digital upheaval that our societies are on the brink of encountering.
And the world does little to contain climate change. The book therefore
pays particular attention to what is going wrong with governments and
how this can be remedied to promote the Common Good.
Why do economists have a reputation as “scaremongers?”
I have already mentioned our cognitive biases. Economics is
accessible, but can be counterintuitive if one stops at first
impressions. Accordingly, and as I illustrate in the book though
housing, labor market, climate and other public policies, the road to
economic hell is often paved with good intentions. Public policies—the
reflection of the electorate’s beliefs—too often ignore side effects.
Contrary to general opinion, these side effects are usually borne by
third parties rather than the beneficiaries of the policies. Economists,
when pointing to the indirect harm on mostly invisible victims (e.g.
those who don’t find a job or decent housing, or the taxpayers), are
often accused of lacking empathy for the intended and very visible
beneficiaries.
Economists may also be the bearers of bad news; while the classical
economics representation of a society of purely self-interested
individuals is a mediocre description of reality (the book details how
morality is privately and socially constructed), when economists mention
the need for incentives they trigger anxiety and resistance; we would
all rather live in a world of honest, hardworking and empathic citizens.
To my mind, the whole point of economics is to design policies and
institutions that work towards reaching this different world, where
individuals spontaneously operate for the Common Good.
Economics has come under sharp attack, especially since the 2008 financial crisis. Is it a science?
Economists’ judgment may be impaired by financial conflicts of
interest, political friendships, or ambitions to be a publicly
recognized intellectual. But we must also be humble and accept that as a
science, economics is an inexact one. Like any science, it is built on
to-and-fro between theory, which provides a lens to the world and allows
us to understand observations and describe their implications, and
empirical work, which measures the importance of effects and helps
question the theory: lab experiments need fieldwork, econometrics, big
data. But our knowledge is imperfect; good data may be unavailable,
theories may oversimplify, and behavioral patterns and self-fulfilling
phenomena (such as bank runs or bubbles) may complicate the analysis.
Overall, an economist will generally feel more comfortable analyzing
past events and proposing future policies rather than forecasting. A
characteristic that is incidentally shared by doctors and seismologists,
who detect environments that are conducive to a heart attack or an
earthquake and provide useful recommendations, and at the same time may
be hard-pressed to predict the exact timing of the event or even whether
the latter will occur at all.
Jean Tirole, the winner of the 2014 Nobel Prize in Economics, has been described as one of the most influential economists of our time. He is chairman of the Toulouse School of Economics and of the Institute for Advanced Study in Toulouse and a visiting professor at the Massachusetts Institute of Technology. His many books include The Theory of Corporate Finance and Financial Crises, Liquidity, and the International Monetary System.
Economics for good
http://play.cadenaser.com/audio/001RD010000004563652/
http://transicionebc.blogspot.com.es/2018/03/economics-for-good.html
http://www.enlightenmenteconomics.com/blog/index.php/2017/10/economics-for-good/
http://transicionebc.blogspot.com.es/2017/05/economia-del-bien-comun-tirole-pnobel.html
http://transicionebc.blogspot.com.es/2017/06/economia-del-bien-comuntirole.html
http://transicionebc.blogspot.com.es/2017/11/las-reflexiones-de-un-nobel-sobre-los.html
http://transicionebc.blogspot.com.es/2018/03/la-economia-desenmascarada-economistas.html
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