Book recommendations (2): False Economy

I read very few books owing to a lack of time. I read a great many articles and blog posts, which has possibly made me impatient when I think of reading a whole book. And many books are too long, taking several chapters to explain what can be expressed in a single short essay. This is often the publisher’s fault, urging an author to expand an essay to get a book out of it.

But there are some books that deserve to be books, that contain so much interesting content that you really are rewarded for taking the time. One I recently read that is dense with fascinating analysis, economic history and wonderful insights into the way the world works is “False Economy – A Surprising Economic History of the World” by the Financial Times World Trade Editor. Alan Beattie really understands economics (he has degrees from Oxford and Cambridge and worked at the Bank of England) and he can write.

The title is a bit misleading. It’s really an exploration of a number of themes in realeconomik, if I can coin a word. Many students do just a bit of economics, especially on MBA courses, and go off with a dangerously distorted sense of the subject. They learn a little bit about perfect competition and free markets and conclude that if governments stayed out of things life would be fine. Those who do more economics encounter not just the reasons why markets sometimes fail but the powerful effect of interest groups, politics and institutions on economic outcomes, what is sometimes called political economy.

The thread that runs through modern microeconomics (which is a much more successful subject than macro) is incentives. And although incentives don’t explain everything, they explain a great deal. Beattie shows how a mixture of incentives, historic accidents and bad choices by policy makers led Argentina to be far poorer than the US, when at the beginning of the 20^th century they were about the same in income. Similarly Botswana ended up many times better off than Sierra Leone. He talks about the distortions to world trade brought about by powerful interest groups, especially in the USA, such as the cotton farmers, the role of religion in economic success (actually minimal) and the reason that few countries with abundant natural resources achieve mass prosperity (the “resource curse”).

Much of the book should be familiar to those who have done a lot of economics – but that excludes most economics students I’m afraid, who tend to study only the technocratic stuff and never get to the really interesting ideas. For example, the resource curse, the reason why natural resource rich countries often don’t get rich, is explained beautifully in this book. I knew about this already and it’s a staple of development economics but this is a particularly lucid and entertaining analysis. It’s possible to use maths to explain these ideas (the original article on rent seeking by Anne Krueger is a brilliant example of using economic theory to make something precise) but you can get a very good idea of what drives economic growth, development and politics with no symbols at all, just clear analysis, imaginative examples and vivid writing. Beattie is good at all of these.

If you want a better idea of how the world economy really operates, the barriers to countries getting richer and the reasons why so many apparently stupid institutions and practices persist, Beattie can tell you, with a minimum of jargon and no equations. If you can live with the words “path dependency” (a very important concept in the human world) then you have nothing to fear from the book. It will teach you a great deal in a short time – the best justification for reading a book.