Book Review: Good Economics for Hard Times (Chapter 1 - 4)
I am glad I stumbled upon this book a few years back. As one of my first serious reads in economics, I was surprised at how two nobel prize winners, Abhijit Banerjee and Esther Duflo, make their book approachable to econ normies. They did an excellent job to make this book light but full of content and meaning at the same time.
The first four chapters of this book explains about left-right political division, migration, trade, and preferences (likes, wants, and needs). The underlying story connecting these four chapters is how political division develops (and the fact that it has become stronger in recent years), and how migration, trade, and people's personal preferences influence current worldwide economic and political dynamics.
Economics, especially macroeconomics, is one of the fields where it is difficult to convincingly prove a theory because of two things. First, mathematically, the economic system is so complex and depends on so many variables that economists cannot create an exact model from the first principle like Einstein theory of general relativity. Second, if we are not able to create a theory or model from first principles, we should be able to do experiments and prove the theory using statistics like in biology right? It’s not so easy because the experiment playground for macroeconomics cannot be created by design easily and we often have to depend on actual phenomena in the real world. It is very hard to run a controlled macroeconomics experiment a thousand times in order to prove whether a theory is correct.
This fact makes econ normies have high confidence in their knowledge about the economy and more often than not these people have conflicting beliefs with economic experts. This makes it hard for the economist to "teach" normal people about economic knowledge and this can lead politicians to exploit these people by implementing a popular but incorrect policy just to win the election.
Chapter two and three explains the fundamentals of migration and trade. The pros and cons of both are tidily put up so that the reader can think for themselves whether migrations and trades are actually good for a particular country or not. This approach should teach readers to think independently, familiarize them with economic thinking framework, and expand their economic knowledge.
Chapter four talks about people's preferences where the authors beautifully said that preferences is not a cause of division but rather it is a symptom of sociological dynamics in the population. Preferences are shaped by various factors starting from lack of discussion between different groups of people, social media algorithms that reinforce echo-chamber, and labels among the population.
In conclusion, these four chapters set up a good foundation by explaining the straightforward topic of political division, what policy caused it and its impact on people's preferences. In the next session we will discuss more controversial topics in economy such as economic growth, inequality, and climate change.