The full title of this book by Alan Harvey is
“Demand Side Economics: Demand Side Minds: From John Maynard Keynes to Nouriel Roubini and beyond“.
In my review posted to Amazon.co.uk, I gave the book Four Stars. This means it is Good and Well Worth Reading.
Here is my book review.
Are You Prepared To Try The Dark Side?
As no one else has reviewed Demand Side Economics, I thought I’d share my thoughts as I read it.
As I started, it felt like I was taking a step into the Dark Side where what was good is now evil and what was evil, is now considered to be good.
I suspect that the author and I have very different political beliefs. He’s on the left, perhaps on the far left. I’m not.
He doesn’t seem to like capitalism. He appears to like big government. I don’t like crony capitalism where big business and big government combine to advantage special interest groups.
He doesn’t think that marketing should be a tax allowable expenditure. I think he’s never tried to start his own business. An experience that I believe is no finer teacher of how the product markets really work. I think many who pontificate from the safety of a public sector salaried position would be shocked at what a cruel world it is.
He thinks that demand side economics has been under-represented in the political and economic debates since the 1970s. I look at the huge public and private sector debts and believe that there has been much too much emphasis on pulling forward demand.
Where we agree is that economics as we know it is broken. The invisible hand of market economics doesn’t work very well with
– public goods (things that everyone benefits from like the police and justice system),
– externalities (society costs including pollution and climate change where many bear the costs even though they aren’t party to the transactions)
– and the use of natural, finite resources like oil and gas, various metals and even precious water
Left to its own devices, the market won’t pay for the first, doesn’t incur the costs of the second or factor them into the decision making and doesn’t recognise the opportunity costs of the third.
Some kind of intervention is necessary but those interventions create can problems and extra costs. Who gains, who suffers? As the saying goes “Power corrupts, absolute power corrupts absolutely.”
One big problem I see is this endless pursuit of economic growth. It’s become the big aim for big aim for political economists who need to justify their existence by making things better.
Unfortunately policies like the easy cheap money policies we’ve seen create the bubble before the 2007/8 crash and that have continued since then to moderate the damage is storing up problems. The market is being prevented from clearing out the malinvestments (bad loans etc) while encouraging even more debt induced consumption.
I doubt that the author and I will come to the same conclusions on the way forward but I welcome the challenge to my beliefs.
Update
=======
I finished reading the book faster than I expected. Initial problems with readability seemed to fade away so if you try the sample and struggle, I think it gets easier.
I enjoyed it more than I expected and I appreciated the focus on the thoughts of about nine other economists. I’ve already bought Stabilizing an Unstable Economy by Hyman Minsky and Debunking Economics – Revised and Expanded Edition: The Naked Emperor Dethroned? by Steve Keen to dig further into these ideas and I’ve read The Price of Inequality already.
I also agreed with more in the book than I expected.
The authors biggest complaint is not so much against capitalism but crony capitalism where politicians, public officials and regulators have been captured by big business.
We are in a big mess economically and it is going to be tough getting out of it. The author claims that the fault lies with neoclassical economics as it applies to macroeconomics. I had to look up what that meant.
Wikipedia says “Neoclassical economics dominates microeconomics, and together with Keynesian economics forms the neoclassical synthesis which dominates mainstream economics today.”
This isn’t what the author seems to imply as he’s against a monetarist / free market approach where Keynes has lost his influence.
With the regular government deficits in the UK, USA, Europe and Japan I don’t see a retreat from spending other people’s money although I accept that the role of the state varies significantly and the author mainly writes from a US perspective that is common with American writers.
In fact, a big drawback of the book is that it doesn’t explain to me why demand side economics hasn’t kept us out of trouble.
The author admits that borrowing from the state and private citizens for consumption and genuine investment (not financial speculation) is an injection into the economy that should have a positive multiplier effect creating even more growth.
But debt went up much more than GDP.
That’s why I struggle with the idea of spending more borrowed money to get the economy back to prosperity. The “we didn’t spend enough so we need to spend more” argument isn’t a strong one as far as I’m concerned.
The author accepts that the build up of debt has been a major problem and that GDP is a flawed measure. A big problem is that GDP isn’t adjusted for debt so it suggests a strengthening economy whilst the national balance sheet is weakening.
He suggests improvements to the way markets work based on the perfect competition model. I don’t disagree with some of them although I see a difference between product-markets and financial markets.
I don’t believe that perfect competition is “perfect” as it takes away the profit motive which I believe will destroy the incentive to innovate which is essential for future prosperity. People enter into market transactions through free will believing that they gain more than they give up. Genuine entrepreneurial profits are well deserved.
He also wants the state to play a bigger role but doesn’t have a suggestion for how we can stop the crony capitalism problem or individual incompetence and negligence. Putting more power into the hands of politicians like Gordon Brown or public officials like Alan Greenspan and Ben Benanke bothers me greatly, even though I believe they acted sincerely with what they believe is in the best interests of society.
Building up a greater reliance on the workings of the state to take responsibility for the well-being of all its citizens also concerns me.
This is where our politics differ.
I want to encourage self reliance and individual responsibility whilst providing a safety net for the most unfortunate. Equality of opportunity is more important than equality of outcomes in my opinion. Changes to open up opportunities for all need to be made but to my thinking, they are supply side issues.
It’s an interesting book and worth reading, whatever your existing political economic opinions. Economics as it’s taught and practised is broken and we need to find a better way.
Not enough questions have been asked yet but I believe that we’re still near the start of the economics crisis that started in 2007/8. Any recovery will be weak and unstable until we can resolve the fundamental issues. This includes the debt issues and regulation. Crony capitalism has weakened it in some places (e.g. the finance sector with the “too big to fail” banks and socialisation of losses) and strengthened too much in others to keep out competition and create super profits from the value created for customers.
It is available to buy from Amazon.co.uk and Amazon.com.
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