Yesterday I received this email request: “I am an undergraduate at … I was wondering if you could let me know which introductory textbooks you would recommend for micro- and macroeconomics in preparation for master’s programmes in public policy?”
The answer depends on whether or not my correspondent has done economics as an undergraduate, and the email didn’t specify. For an absolute novice in economics, I’d recommend starting with a couple of the popular books – I like Tim Harford’s The Undercover Economist on micro and The Undercover Economist Strikes Back on macro. Then I’d go on to the new (and free) CORE online textbook, Economics.
Moving on from there, the undergraduate macro text I’d recommend would be Macroeconomics: Institutions, Instability and the Financial System by Wendy Carlin and David Soskice, recently published and addressing the challenges the financial crisis has presented to macro. On micro, I’m less sure. I’ve always stuck to Hal Varian’s Intermediate Microeconomics, and there’s a recent edition. The two new textbooks, Microeconomics and Macroeconomics, by Peter Dorman are an alternative.
However, one book I’d strongly recommend is the new Angrist and Pischke book, Mastering Metrics. It’s very clear, the technical material is cordoned off and can be skipped if not needed, and the empirical nous is a great foundation for a public policy course. It’s micro-focused, not covering any time series/macro econometrics at all.
Finally, I’ve been looking at public policy economics texts for the undergraduate course I now teach, and haven’t found the perfect text. Some chapters from the LeGrand, Smith and Propper book The Economics of Social Problems work well but they focus is very much on social policy. Parts of Joseph Stiglitz’s Economics of the Public Sector and Charles Wheelan’s Introduction to Public Policy are also very useful. None of them is entirely the right shape for my purposes but the latter two would be a good overview for a public policy course.
Those are my suggestions – others welcome in comments.
After I last wrote about the history of economic thought, pondering which economists would go into The Worldly Philosophers 2.0, I was shocked when someone asked had I never read Roger Backhouse’s 2002 Penguin History of Economics? It turned out I hadn’t missed it, but had read it under its other title The Ordinary Business of Life. What’s more, I’d really enjoyed it – just like his Capitalist Revolutionary (with Bradley Bateman).
I just quickly re-read the History of Economics/Ordinary Business. The book is a masterful overview of thinking about economics from the ancient world to the present. It does this in a compact 330 pages too. This makes it quite dense reading, inevitably, so it isn’t as easy to polish off as Heilbroner’s classic The Worldly Philosophers, say. Equally, it doesn’t go into the same depth about the economics as Sandmo’s Economics Evolving, which covers a narrower range of history and economists. This is not to say that Backhouse’s book gets the worst of both worlds. On the contrary, I think it’s a really useful book which sets economic thinking in the context of the relevant intellectual and cultural world, and one all economics students should read.
I’d forgotten lots of details, especially from the earlier chapters. That St Augustine had pointed out that private property is the creation of the state, and had argued that the state therefore had the right to take it away. That scholastic writings on economics had their origin as handbooks for priests hearing confessions, who needed to advise people on ethical business practices. I was reminded about the economic modelling done by engineers (Navier, Minard, Dupuit) at the Ecole des Ponts et Chaussées in the early 1800s.
So how much ought economists know about the history of the subject? The answer is certainly some (compared to none now in many cases), and at least as much as in this book. But it did not persuade me that extensive knowledge of the classical economists – Ricardo or Marx – is useful. I know economists I greatly respect including Ian Preston (see this) and my University of Manchester colleague & current office mate Terry Peach will disagree with me about this. It’s obviously good to know that questions of class struggle and distribution, or technical change and growth dynamics, exercised earlier economists and have a general idea what they said – Ian’s Storify is a tremendous public service. But Ricardo’s specific models, or Marx’s dense accounts of surplus value and the declining rate of profit? I’m not convinced.
The more recent the history, the more important to understand the development of the way economists have thought, of course. Given that our starting point today is that economists and economics students know (I’m about to generalise) almost nothing about the intellectual history of their subject, learning some is better than learning none.
A link on Twitter sent me to the first chapter of Mary Morgan’s book, The World in the Model: How Economists Work and Think, titled ‘Modelling as a method of inquiry (pdf).’ In the chapter she sets out a brief history of the use of models in economics and argues that economists use models not to uncover economic truths but as a practical form of reasoning or enquiry.
The early economists used words to write about a few general laws – Malthus being a good example – and only a handful used anything like a model. She cites Quesnay’s Tableau Economique as the main example. By the late 19th and early 20th century the use of models had become more frequent – Edgeworth, Marshall and Fisher are cited. But not until the 1930s did modelling come to be ubiquitously used in economics, according to Morgan.
I think this understates the earlier use of modelling. Cournot and Condorcet came to my mind as I read the chapter. I also happen to be reading Roger Backhouse’s History of Economics, and his chapters on the 18th and 19th centuries cite quite a lot of relatively formal modelling such as the introduction of demand and supply curves. However, the reason for counting differently may be that Morgan equates modelling with mathematical notation, and I disagree with this narrow definition. Maps are models – think the London Tube map – and a historical account of the causes of the 2nd world war is a model too. Modelling is an effort to encapsulate causal relationships as parsimoniously as possible in the face of the complexity and messiness of the world. Economists like to use maths – more than ever, according to this paper – and probably too much so. But the maths could almost always be written out in words. Either “C=a + bY + ε” or or “consumption is proportionately related to income, above a necessary minimum and subject to random shocks”.
However, I do agree with Morgan when she writes: “Models function both as objects to enquire into and as objects to enquire with.” She describes them as a way of making informal inference – or, when applied econometrically, of formal statistical inference. Again, though, though, this dual function seems to me to characterise many disciplines. Nor do I think economists only use models, which would be madness, although some do over-use them and fail to distinguish between the model and the world. As John Kay put it, citing Alfred Korzybski, the map is not the territory. Apart from statistical methods, historical reasoning and experiments also have an important place in economics.
The book looks interesting. I have a teetering in-pile at the moment but might put it on the for-later list.
In my own small tribute to Leonard Nimoy, it seems appropriate to recall a 1997 article I wrote in The Independent pointing to Mr Spock, along with Hercule Poirot, as the ideal rational economic man. Economists seem particularly keen on the two genres of science fiction and detective fiction I argue there, and both Noah Smith and I have revisited that theme.
Live long and prosper!
For all who don’t know it, Star Trek: The Human Frontier by Michele and Duncan Barrett is a fabulous exploration of why the series and films say so much about humanity and western culture.
I’ve been grazing along the shelf of my old Penguin economics texts and stumbled on this quote from J.K.Galbraith’s (1952) American Capitalism: The Concept of Countervailing Power (in M.A.Utton’s Industrial Concentration): “The modern industry of a few large firms is an excellent instrument for inducing technical change. It is admirably equipped for financing technical development and for putting it into use. The competition of the competitive world, by contras, almost completely precludes technical development.”
Galbraith is talking complete nonsense, of course. As this little textbook points out in the next paragraph: “The supposed antithesis between price competition and innovation is false: they are different forms of the same competitive process. Innovation is competition.” Many is the oligopolistic industry that has failed to innovate. As Will Baumol pointed out in his book The Free Market Innovation Machine, big firms tend to do incremental innovation, while radical innovation tends to come from small entrants.
This is the heart of the competition debate about Google etc. Will some new entrant come along an torpedo it in the search market, or has it through its scale effectively foreclosed new entry? Critics of the EU competition authorities’ assault on Google (including this week Barack Obama – but listen here to Martha Lane-Fox demolish him) point to its continuing record of innovation; but from another perspective, that looks like it leveraging its scale advantages into new markets, something dominant firms always try to do. I’m with Tim Wu, whose fabulous book The Master Switch argues that the opportunity for new entrants to cause upheaval in technology and communication markets has always been created by a regulatory intervention.
To be fair to Galbraith, this being one of his books I’ve not read, this summary suggests he was not relaxed about oligopoly power; however, he suggests the ‘countervailing power’ of organised labour is the way to control it. I’m all for workers having adequate bargaining power in the labour market but fail to see how that fixes a lack of competition in product markets. Google’s workers are very well treated. I wonder what Galbraith would make of these modern business titans?