About the book "Economics: The User's Guide" en ru

This is the second book by Ha-Joon Chang that I've read. The first one, Bad Samaritans [ru], left a good impression, and it was also positively reviewed by Tim O'Reilly in his book WTF? [ru]. So, "Economics: The User's Guide" took its place on my reading list, and finally, I have read it.

Here and further, all quotes point to the Russian edition of the book and are translated into English by me (I have only the Russian edition) => inconsistencies are possible because of double translation English->Russian->English.

According to Chang, the book was conceived as an "introduction to economic theory for the widest possible audience" (page 299), and this reflects its essence well. I would only add, from the perspective of my post-Soviet education, that the book looks more like an "overview of the diversity and complexity of economics, supplemented with an introduction to the theory" rather than an "introduction to the theory".

The book contains no mathematical formulas or jaw-dropping statistics, just concrete facts. What makes it valuable, however, is a set of prisms through which you can — and should — view the economy to gain a basic understanding of what's happening around you.

Chan provides a set of points of view through which you can examine economic processes; describes their advantages and disadvantages; accompanies all this with examples, historical references, and facts.

Since the book serves as a sort of textbook, I won't attempt to retell it in full — this would lead to an attempt to repeat the book in a couple of pages, and I definitely can't do that. I will limit myself to describing the author's view of the economy as a whole as I understood it.

Nuances of presenting the material

The book was published in 2015 — almost 10 years ago. From that moment, life has significantly shaken humanity, so don't forget to place all facts and statements in the context of the mid-tens.

The author definitely has his own view of things and his own ideology. From my perspective, "Economics: The User's Guide" does not look like a manifesto of these ideas. Unless you consider as a manifesto an advocacy for a critical view of things, rational thinking, and common sense.

In the book, Ha-Joon Chang:

• Advises studying various economic judgments, developing critical thinking, and choosing an approach/theory/model suitable for concrete circumstances.
• Tries to explore a wide range of countries, each differing in various parameters, to avoid biases akin to the WEIRD phenomenon in psychology.
• Constantly criticizes opinions like "there is only one right approach to …".

The author clearly states that he tried to convey the full range of opinions without polarization. I think he succeeded. But I have my own perspective, you have yours. Remember that the book reflects the author's opinion, and the essay is my personal perception of it.

Structure of the book

"Economics: The User's Guide" consists of two parts.

The first part provides a historical background, describes the most influential economic schools, and introduces basic concepts.

In the second part, the author examines specific prisms through which you can look at the economy and related concepts, such as GDP, derivatives, investments, etc.

In the final part, there is a brief summary of Chang's view of the economy. I'll retell it in my own words.

Economy is inseparable from politics

Chang says he wanted to show "how to think about economics, not what to think" (page 293).

He denies economic theories an objective scientific truth and, consequently, denies economics the status of science.

Economic theory has always been and remains a part of politics. It has never been — and will not become — a science because there are no objective truths in economics that can be established independently of political and often ethical judgments.

page 293 "Economics: The User's Guide", Ha-Joon Chang

This is a bit strange, as earlier in the text the author calls economics a science.

In other words, our economic decisions are always influenced by not only the "objective reality" but also our subjective views of what is right and what is wrong.

For example, there is no scientific list of what should and should not be sold on the market. This list changes throughout human history depending on our needs and core values.

Economic decisions not only depend on politics but also change it. Exaggerating, if you can bring some stuff (like water, people, health, child labor) to the market, you increase the influence of the rich people on it (the "one dollar — one vote" rule starts to work) and reduce the influence of the "powerful" people. If you remove stuff from the market, power is redistributed in the opposite direction (the "one person — one vote" rule starts to work in the case of democracy).

By the way, MMO developers constantly face similar dilemmas. I often thought about this while working on The Tale.

Also, if we look at the measuring part of the economy, we can see that the actual numbers are based on ethically/politically biased theories, shaky definitions, and inaccurate data, therefore, always controversial. Answers to questions like "What to include in GDP calculation? What not to include? How exactly to calculate it?" are always subjective and politicized.

Such a position has curious consequences.

Firstly, the author recommends not to trust any economist who claims his analysis is scientific and free from evaluative judgments.

Secondly, "the economy is too important to be left to professional economists" (page 294).

Chang says each person should be prepared to challenge professional economists (including the author) because their arguments are primarily political, not objective/scientific. Economists do not (and should not) have a monopoly on truth.

The author goes even further and says that the willingness to challenge economists should be the basis of democracy. That we should not allow a "bunch of self-proclaimed experts" (page 296) to govern our society.

Everyone should know and understand the diversity of economic theories to prevent their use as a political argument and effectively resist manipulation.

Thirdly, there is something valuable in every economic theory. Instead of fanatically following one of theories, it is necessary to choose wisely and critically how and through what we look at a specific issue in a specific context.

My opinion

I have a dual attitude towards Chang's position.

On the one hand, I agree with him in general. I have written more than once that:

• models of reality [ru], which are economic theories, are always limited, and they should be applied with the proper context in mind.
• the use of memeplexes [ru] as a strategy should be avoided in favor of the composition [ru] of fundamental methods.

On the other hand, Chang's position seems slightly radical and not well aligned with the book's main text (Chang formulated his view in the final chapter). Perhaps this is a translation issue (to Russian), and the author used softer statements.

I agree that the economy is inseparable from politics, but I do not understand why studying of some subjective thing cannot be considered science. Instead, we need to choose more appropriate tools for scientific research.

Also, I agree that the regulation of the economy should be democratic, but isn't it already (in developed countries)? After all, economics experts do not regulate the economy directly. This is done by elected representatives of the people, who, in turn, can choose whose economic advice to follow.

Funny ideas and facts

The book contains many interesting historical facts. I stopped writing them down at some point, noting only the most curious for me. Here are a few:

• From 1776 to 1980, the production of pins increased from 20 to 800,000 pins per day per worker.
• In 1804, the acting Vice President of the United States killed the acting Minister of Finance in a duel.
• By estimates, 30%-50% of international trade in industrial products is actually intra-firm trade or just the transfer of resources within one multinational or transnational corporation.
• The average holding period for shares decreased from 5 years in the 1960s to 2 years in the 1980s to 7.5 months in 2007.
• Deindustrialization does not mean a decrease in the volume of production. It's just that the cost of production is decreasing, and the cost of services is not.
• "We have always lived in a knowledge economy. It has always been the quality of the knowledge used, not the physical nature of the products produced (whether material goods or non-material services), that made industrialized countries richer" (page 174). Technologies just become obsolete. For example, the production of woolen fabric in the mid-18th century was one of the most high-tech industries, and today it is one of the least high-tech.

Some thoughts inspired by the book

Derivatives

The mechanisms of trading derivatives are crazy and become even crazier. It is similar to when mathematics and statistics are used as a cargo cult.

Andy Haldane, Executive Director for Financial Stability at the Bank of England, once noted that to fully understand how CDO works (one of the most — but not the most — complex new financial products), a potential investor must absorb more than a billion pages of information.

page 200 "Economics: The User's Guide", Ha-Joon Chang

Moving Away from Simplifying Production Operations

For a long time, there was a trend in production to simplify the worker's operations: from manufactories to conveyor belts, work became simpler and more monotonous.

In my opinion, over the past 30-40 years, the trend has changed and is moving in the opposite direction.

Resources and time spent on a detailed analysis and elaboration of production operations lead to a slowdown in the manufacturer's response to market changes. Your processes (and production, as a result) may becoming obsolete before you optimize everything and put it on the shelves.

Therefore, the value of multifunctional professionals with many skills, high learning ability, and independence is increasing. Such people, of course, are not able to super-optimize their work, but they can quickly bend it in any direction, no matter where the market wind blows.

With the explosive development of AI, this trend should become even more noticeable, as the focus of work will shift not from optimizing operations to optimizing processes but from optimizing processes to optimizing ideas when the "average" worker will need to change not the company's processes but the product ideas.