Read: 07.11.16

All quotes are by Ha-Joon Chang unless specified.

“Economics is a political argument. It is not - and can never be - a science; there are no objective truths in economics that can be established independently of political, and frequently moral, judgements. Therefore, when faced with an economic argument, you must ask the age-old question ‘Cui bono?’ (Who benefits?), first made famous by the Roman statesman and orator Marcus Tullius Cicero.”

Let's keep it real— this book was a boring read. There were interesting sections here and there, but overall it was pretty dull. In the author's defense, he mentions that he doesn't expect the average reader to read the whole book, since it's a "Guide" after all. 

Regardless, my favorite aspect of the book was that it invites those who reject the study of economics. The people that believe human interactions cannot be summarized by theories or models. 

“Life is often stranger than fiction, and history provides many successful economic experiences (at all levels - nations, companies, individuals) that cannot be tidily explained by any single economic theory.”

But studying economics is still necessary, as Ha-Joon Chang explains:

“Without having some knowledge of key numbers - like output level, growth rates, unemployment rate and measures of inequality - an informed understanding of the real-world economy is impossible. But we need to use them in full awareness of what each number does and doesn’t tell us.” 

I've recorded some memorable parts of book, you can have a look below. Mr. Chang covers a wide variety of topics, so it's a pretty long list. Hope you read through them.

On Humanity

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” - Adam Smith

"humans have layers of motivations behind their behaviors- instincts, habit, belief and, only finally, reason.”

“Human beings are complicated. Yes, most people are self-seeking much of the time, but they are also moved by patriotism, class solidarity, altruism, sense of fairness (or justice), honesty, commitment to an ideology, sense of duty, vicariousness, friendship, love, pursuit of beauty, idle curiosity and much else besides. The very fact that there are so many different words describing human motives is testimony to the fact that we are complicated creatures.”

“The problem is, simply put, that human beings are not very rational - or that they possess only bounded rationality. The list of non-rational behavior is endless. We are too easily swayed by instincts and emotion in our decisions - wishful thinking, panic, herd instinct and what not. Our decisions are heavily affected by the ‘framing’ of the question when they shouldn’t, in the sense that we may make different decisions about essentially the same problem, depending on the way it is presented. And we tend to over-react to new information and under-react to existing information; this is frequently observed in the financial market. We normally operate with an intuitive, heuristic (short-cut) system of thinking, which results in poor logical thinking. Above all, we are over-confident about our own rationality.”

On Financial Systems

“As discussed above, our financial system has become too complex to control - not just for supposedly clueless regulators but also for the supposed ‘sophisticates’ of the financial industry. We need to reduce this complexity by limiting the proliferation of overly complicated financial products, especially when their creators cannot prove beyond reasonable doubt that their benefits outweigh their costs. 

…Arguing for a stricter regulation of the financial system does not imply that is it not an important part of the economy. On the contrary, it needs to be regulated exactly because of its power and importance. We didn’t have traffic lights, ABS breaks, seat belts and air bags in the days when most people walked, used bullock carts and at most sprinted on horses. Today we have - and started demanding through regulation - those things exactly because we have cars that are powerful and fast but that can do a lot of damage if something - even a small thing - goes wrong. Unless the same reasoning is applied to finance, we will keep having the economic equivalents of car crashes, hit-and-runs or even motorway pile-ups.”

On Social Mobility

“Reduce social mobility means that able people from poorer backgrounds are excluded from high-end jobs and thus have their talents wasted from both an individual and a social point of view. It also means that some of the people filling the top jobs are not the best that the society could have got, had it had higher social mobility. If sustained over generations, such barriers make able youngsters from less privileged backgrounds give up on even trying for high-end job. This leads to cultural and intellectual ‘inbreeding’ among the elite. If you believe that big changes require fresh ideas and unconventional attitudes, a society with an ‘inbred’ elite is likely to become bad at generating innovation. The result is reduced economic dynamism.”

“Even when they work long hours, many people in poor countries are working in marginal jobs in the informal sector that add very little to the social output. It is because they cannot afford ‘not to work’. Some of these jobs can only be described as ‘invented’. These are people who catch doors for others entering an upmarket building, sell chewing gums that no one really wants and provide an unsolicited car-windscreen wash at a traffic junction - all in the hope that some kind souls may toss them some change. Whether to count all these people as employed or unemployed in a moot point.”

On Production and Work

“…In most economic discussions, people are mainly conceptualized as consumers, rather than workers. Especially in the dominant Neoclassical economic theory, we are seen as working ultimately to consume. Insofar as work is discussed, it ends at the factory gate, or shop entrance, so to speak. No intrinsic value of work is recognized, whether it is creative pleasure, sense of fulfillment or the feeling of dignity that comes from being ‘useful’ to society.

… All of this has serious consequences for the way in which our economy and society is run. Work is seen as an inconvenience that we have to endure in order to get income, and we are seen as being purely driven by our desire to consume with that income. Especially in the rich countries, such consumerist mentality has led to waste, shopping addiction and unsustainable household debts, while making it more difficult to reduce carbon emission and fight climate change. he neglect of work means that deteriorating working conditions are accepted regardless of their impacts on workers’ physical and mental well-being, as far as they are accompanied by rising wages. High unemployment is considered a relatively minor problem despite its enormous human costs, while a slight rise in inflation is treated as if it is a national disaster.

Work has become the embarrassing mad uncle of economics that we pretend does not exist. However, without taking work more seriously, we cannot build a more balanced economy and a more fulfilled society.”

On Economics Theories and Politics

“..the same market dominated by a monopoly can be seen as a most successful one by one school of economics (the Schumpeterian school or the Austrian school) and as a cast of most abject failure by another (the Neoclassical school).  The case of monopoly may be the most extreme example, but throughout the book we have seen many cases in which some schools see a market success where others see am market failure. For example, I have point our that a Neoclassical economist might praise free trade for allowing all nations to maximize their incomes, given their resources and productive capabilities, but a developmentalist economist might criticize it for preventing more backward economies from changing their productive capabilities and thus maximizing their incomes in the long run.” 

“Even if we accepted that the economic theory that the proponents of the government failure argument adopt is the ‘correct’ one, it is not possible to draw a clear boundary between economics and politics. This is because the very boundary of the market is in the end determined by politics and not by an economic theory - of whatever variety."

“Examples of successful state intervention do not, of course, mean that more government is always better. Real life governments may not necessarily be the Leviathan of the libertarian discourse, but they are not the modern reincarnation of Plato’s Philosopher King either. There are many governments that have harmed the economy, sometimes even disastrously. But the fact remains that the state still remains the most powerful organizational technology that humankind has invented and thus big economic (and social) changes are very difficult to achieve without it.”

“Especially in difficult economic times, such as the 1930s or today, disaffected native workers, manipulated by right-wing populist politicians, come to believe that their woes have largely been caused by immigrants. But much bigger causes of stagnant wages and declining working conditions are in the realm of corporate strategy and government economic policy: shareholder value maximization by corporations, which requires squeezing workers, poor macroeconomic policies that create unnecessary amounts of unemployment, inadequate systems for skills training that make local workers uncompetitive and so on. Unfortunately, the inability and the unwillingness of mainstream politicians to tackle those underlying structural issues have created the space for anti-immigrant parties in many rich countries.” 

“However, globalization is not an inevitable consequence of technological progress. During the Golden Age of capitalism (1945-73), the world economy was much less globalized than its counterpart in the Liberal Golden Age (1870-1913). And this was despite having much more advanced technologies of transportation and communications than the steamships and wired (not even wireless) telegraphy of the earlier period. The world has become globalized in the way it has in the last three decades only because the powerful governments and the business elite in the rich world decided that they wanted it that way.

Nor has globalization created ‘the best of all possible worlds’, to borrow a famous expression from the French writer and philosopher Voltaire’s novella Candide, as its proponents have claimed. In the last three decades of hyper-globalization, economic growth has slowed down, inequality has increased, and financial crises have become far more frequent in most countries.”

On Life

“You should be willing to challenge professional economists (and, yes, that includes me). They do not have a monopoly on the truth, even when it comes to economic matters (not to speak of ‘everything’). To begin with, most of the time they cannot agree among themselves. Very often, their views can be narrow and distorted in particular ways - like all other professions, the economics profession is subject to what the French call déformation professionelle. It is entirely possible for people who are not professional economists to have sound judgements on economic issues, based on some knowledge of key economic theories and appreciation of underlying political and ethical, as well as economic, assumptions. Sometimes, their judgements may even be better than those of professional economists, since they may be more rooted in reality and less narrowly focused. The economy is too important to be left to the professional economists alone.” 

“As the Italian Marxist Antonio Gramsci said, we need to have pessimism of the intellect and optimism of the will.” 

Chang, Ha-Joon. Economics: The User's Guide. London: Penguin Group, 2014. Print.