Review: Economics: A Very Short Introduction by Partha Dasgupta (2007, 172pp.)

If there's one thing all three main parties in the U.K. agree on, — if there's one thing that hasn't been changed by the Liberal Democrats' sudden emergence as a main contender on the political stage, — it's the importance of economic growth. Of course, there isn't just one thing; bickering aside, the three prospective leaders probably share very similar views on lots of things in principle, but as Gordon Brown learned first-time-round, repeatedly saying "I agree" doesn't make for much of a televised debate. Right now, economics — The Economy — is pretty much as up there as you can get on the political agenda. You'd be hard pressed to find a politician who isn't talking about it. And you know things are bad when Greece's socialist leader is talking about how to make the country 'competitive' and 'viable' again, just like it was any other big, shiny business.

So given the headlines of late and over the last year (whereever you look), there's probably no better short non-fiction book to be reading right now than Partha Dasgupta's Economics: A Very Short Introduction. As with all the books in Oxford University Press' series (except maybe the one on the E.U.), this one can be picked up and put down — or into a coat pocket — with relative ease. It'll also help you understand that little bit more about the world we all seem to be currently inhabiting. Finally, importantly, the author seems to achieve the appropriate mix of enlightening and depressing that makes such books worth reading.

One of the reasons that this book is so accessible is that Dasgupta begins at the ground-level, with sketches of two ten-year-old children — one in the developed world, one in the developing. They are both similar in many respects, and yet they both live in totally different worlds. Dasgupta claims that economics can help us understand why those worlds are so different. Throughout his mostly straightforward explanations of complicated and abstract concepts it's his constant recourse to the human causes and effects that keeps the theory side relevant and applicable to the real world.

For example, after a brief and incomplete overview of macroeconomic history, Dasgupta begins his exposition with the idea of "trust". Trust is the crucial but mysterious ingredient at the heart of any material exchange between two people, because they need to co-operate with one another and if one co-operates and the other doesn't, then the exchange has failed. Yet trust is also it seems the limit of economic understanding.

Failure to co-operate could be due simply to an unfortunate pair of self-confirming beliefs, nothing else. No doubt, it is mutual suspicion that ruins their chances to co-operate but the suspicions are internally self-consistent. [...] Whether they co-operate depends on mutual beliefs, nothing more. I have known this result for many years, but still find it a surprising and disturbing fact about social life. [44]

One has to wonder whether this would be so striking a revelation if one were approaching it from somewhere other than a standpoint of uncompromising rationality. Bearing this limitation in mind however, it is the job of economics to describe transactions, then to try and explain what has happened, then where possible to create a model from the explanations it has put together in order to forecast what might happen in the future

Game theory, which depicts situations in which trust is called upon to make crucial decisions, is usefully covered but other books provide a more detailed and probably less confusing outline. (See, for a fun example, The Prisoner's Dilemma by William Poundstone. Or for a misleading but romantic view of one of its pioneering mathematicians, watch A Beautiful Mind.) The detailed distinction made between markets and communities is probably more useful. The way community is talked up today, mostly by politicians, suggests that co-operation, and maybe love and sweetness too, are at their heart but communities can be competitive; just as markets are also to a large degree based on co-operation, since co-operation is at the heart of trade. So Dasgupta provides a simple though much more insightful way of thinking about the two:

Communities are personal and exclusive. Members have names, personalities, and attributes. An outsider's word isn't so good as an insider's. [...] In contrast, [...] markets are impersonal and inclusive. Witness the oft-used phrase: 'My money is as good as yours.' [46-47]

What the book presents is economic concepts as they are understood by economists and then as they might apply to the real world — so, for example, there is a section on what an 'ideal market' would be and then that's contrasted with 'market failures' and why such ideals often seem to fall short. What the book seems to lack is a decent account of money creation or of the history of the emergence of institutions like banks. Institutions get a good going-over conceptually, along with government, reasons for regulations, and so on, but it's all ahistorical. While arguably explanations of concepts like 'fractional reserve banking' and legislation like the Glass-Steagal Act might more properly belong in an introduction to Finance (OUP haven't yet produced one), it seems a shame that they're not covered here since so much else is.

And therein lie some of the book's surprises. A whole chapter dedicated to sustainability illustrates that some economists at least are aware of the fields' shortcomings when it comes to accounting for the environmental impact of 'progress'. In abstract terms of course, economic growth can be infinite but it's good to see that some work is being done to address the apparent dismissal of, oh, say, the laws of physics in economic theory. There is even mention of the idea that nature might in itself have some intrinsic worth, though mapping this into existing economic understanding is obviously very difficult.

Finally, the book ends with a chapter on democracy and government. Government is in Dasgupta's account the overarching institution, whose authority lends legitimacy to economics transactions, allowing greater, more far-reaching trust, etc. In theory.

Elections, in theory, check and balance governmental power; stop it, in theory, from going corrupt. Dasgupta does not address the idea that the market might provide a more precise perfect democracy than a parliamentary voting system — an idea put forward by some free marketeers — presumably because he doesn't think it's an argument worth bothering with. He does, however, give an account of Kenneth Arrow's famous paper on the flaws in voting systems. Dasgupta explains that Arrow thought there were four principles a social decision-making process would have to meet in order to be perfectly democratic — but that, in cases where there were more than two choices to make, no known voting system could abide by all four principles. This section seems particularly pertinent right now and if the rest of the book weren't so enlightening, you'd be wise in skipping to this chapter.

It also brings to mind Winston Churchill's remark in his 1947 Speech to The House of Commons that 'democracy is the worst form of government except all those other forms that have been tried from time to time'. In his closing remarks however, Dasgupta is at once more sombre and more hopeful:

Stunted and wasted lives aren't caused by the 'impossibility theorems' I have reported in this monograph. They happen because people have yet to learn how to live with one another. [157]