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Economics in Two Lessons, reviewed

August 18, 2019 - 16:50 -- Admin

A couple of reviews of Economics in Two Lessons have come out, from opposite ends of the political spectrum. The more interesting is Max Sawicky’s in Jacobin.

Sawicky does a great job in summarising the key ideas in the book. His is probably the best review so far for non-economists to get an understanding of the main themes.

Given the Jacobin audience, the key question is “Why should a socialist read a book about markets?” As Sawicky observes, the answer is easy for socialists in the Bernie Sanders mould – I share their views, a fact that is obvious to readers of this blog.

More generally

Quiggin’s deconstruction of Hazlitt’s “Lesson One” provides a lesson in “know your enemy” for anyone left of center. If your only instruction in economics was a principles course, this book provides an essential completion of the basic story.

More generally, Sawicky says

If your hostility to markets runs more deeply, then the mainstream theory elaborated by Quiggin provides a useful challenge. What becomes deemphasized, when it is not glossed over entirely, is, on the one hand, the proliferation of “externalities” that bind together the interests of ostensibly disparate individuals, and on the other, our capacity (historically demonstrated) to respond effectively on a cooperative, collective level. Economics as practiced by progressives pursues these insights, but, as I think Quiggin would agree, it has further to go. His “second lesson” is a crucial step in this journey.

I’m very grateful for this review, which gives me food for thought as I think about my next big project.

The view from the right is predictably less favorable. Writing in the Review of Austrian Economics (paywalled), Patrick Newman complains that I have treated Henry Hazlitt, the author of Economics in One Lessons as an advocate of Chicago school neoclassical economics, putting forward the idea that equilibrum market prices equal opportunity costs. This is contrasted with the Austrian approach, which rejects equilibrium thinking. The same criticism was made a while ago by David Gordon and I responded by quoting Hazlitt himself

“When production is in equilibrium there tends to be approximately the same profit margin, relative costs and risks considered, in the production of each of the thousands of different commodities and services.

Hazlitt was an eclectic thinker rather than an economic theorist, but I think I’m entirely justified in regarding his arguments as being based on equilibrium thinking.