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It is fair to say that faith in economists, and economic forecasts, has taken a hit in recent years. Part of that comes down to the unprecedented nature of shocks to the global economy, from the pandemic to geopolitical tensions and war. But a considerable element owes itself to macroeconomists’ sometimes blinkered focus on theoretical models.
Shocks, Crises and False Alarms by Philipp Carlsson-Szlezak and Paul Swartz (Harvard Business Review Press, £25) lays out a rational new approach for decoding the international economy in uncertain times. The authors, both economists at Boston Consulting Group, think the current focus on simplistic models of cause and effect increasingly fails to account for the true complexity and dynamism of macroeconomic relationships. Their approach is built on three core pillars.
First, ending the “master-model mentality”, whereby a dogmatic focus on empirically observed economic relationships can obscure interacting factors. Central bankers’ reliance on the Phillips curve — the observed inverse relationship between inflation and unemployment — during the current interest rate cycle is just one example.
Second, the authors underscore the tendency of negative or even doom-mongering messages, amplified by media, to prevail. They caution analysts to step back to understand whether the risks and mechanisms are in place for the worst-case crash or crisis scenarios to even unfold. One example they cite is the overly doomsterist predictions of the impact of the Covid-19 pandemic on the global economies, which they say failed to incorporate government reactions and a rational assessment of the shock itself.
Third, they favour practising “economic eclecticism”, an approach that meshes economic theory with narratives and insights from a wider array of disciplines. This is a fresh, thorough and practicable book for anyone who wants to sharpen their macroeconomic judgment, structured in an easily accessible and insightful manner. It offers an invaluable framework to better understand growth, the financial sector and the key trends shaping the global economy.
The balance between central and local governance is essential to sustainable and equitable long-term economic prosperity. But few nations get it right. In Left Behind (Allen Lane, £25) Paul Collier, a professor of economics and public policy at Oxford university, provides a detailed assessment of how and why overly centralised bureaucracies and orthodox approaches to economic policymaking, undermine nationwide prosperity.
Collier draws on his experience as a development economist using case studies from across the developed and developing world, from rundown former industrial powerhouse towns in Britain to once prosperous copper-mining regions in Zambia.
At the heart of Collier’s argument is that building up local institutions that have a better grounding in ensuring policies meet local needs is generally better for overall prosperity than having highly centralised decision-making.
He bolsters his argument with insights from social psychology and behavioural economics, to underscore how local governance empowers and gives people a stake in their own economic success. In doing so, Collier lays a significant portion of the blame for Britain’s left-behind rural, coastal and post-industrial regions at what he considers to be an overbearing UK Treasury.
This is an essential, global and multidisciplinary analysis of the inequality-of-opportunity problem that continues to plague too many parts of the world and has a corrosive impact on our democracies.
Over the 20th century, the Polish and Vietnamese economies were both ravaged by war and poor governance. Now, economists and policymakers see both countries as symbols of developmental success. In How Nations Escape Poverty by Rainer Zitelmann (Encounter Books, £21.99) the author, a German historian and sociologist, outlines how the two nations have managed to turn things around.
Zitelmann’s thesis is unashamedly pro-capitalist. His argument is that Poland and Vietnam’s successes owe themselves to economic growth focused on wealth creation and enterprise, and the reformers that encouraged it. Although there are mechanisms by which too much inequality can strain economic dynamism, Zitelmann reminds us that income differentials can, and have been, both a side-effect of rapid economic growth and an important entrepreneurial motivator that can bring dynamism to once opportunity-strained nations.
This is a novel read that brings a different perspective on how the tenets of capitalism are viewed by people in emerging nations. It is also a useful insight into two fascinating countries that are set to play an important part in the 21st century.
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