BLOCL

A Little History of Economics

By Niall Kishtainy

To many people around the world spending money on a book and being able to read it would seem as likely as a trip to the moon.

Economics is a matter of life and death. A baby born today in a rich country has a tiny chance of dying before the age of five.

In the poorest countries of the world, though, more than 10 per cent of children never make it to the age of five because of a lack of food and medicine.

A central question of economics, then, is how societies overcome the worst effects of scarcity – and why some don’t do it nearly as rapidly.

Meeting history’s economic thinkers in this book is a great starting point; their ideas show how wonderfully varied economists’ attempts have been.

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To stop global warming it’s not enough for us all to agree that it’s bad. That on its own won’t change our behaviour. To deal with the problem we need a dose of economics.

William Nordhaus (b. 1941) considers the emission of carbon dioxide a special type of externality because it extends over space and time.

To achieve the reduction the government could require everyone to halve their emissions. It could even ban the burning of coal.

Governments could get people to reduce their emissions by putting a tax on carbon.

The government should set the tax at the level that ensures that society produces only half as much pollution as before.

The tax-based method is cheaper because some people can reduce their emissions more easily than others.

Another economic solution is to issue ‘carbon trading permits’. They’re certificates that allow whoever owns one to emit a tonne of carbon dioxide.

Nordhaus believes that with a decisive application of the most basic tool of economics – the balancing of costs and benefits – we still have time to solve the problem of global warming and avoid a planetary disaster.

But economics has struggled with broader questions about how human societies as a whole work.

Do societies progress better with free markets and competition, or by people getting together and cooperating? What exact role should financial markets play in the growth of the economy?

And long before the crisis, economists used their theories of free markets and rationality to redesign entire societies, such as in Africa in the 1980s and in Russia in the 1990s after communism ended. The results were disastrous.

What tends to get left out of basic economics courses is the ideas of rebellious thinkers.

All of them were interested in the biggest questions of how economies and societies develop.

By appreciating the different responses of history’s thinkers we can be inspired to come up with our own, the new ideas we need in order to face today’s economic problems, whether that’s extreme inequality, financial crisis or global warming.

Get them right and more of us have a chance of a good life; get them wrong and many will suffer.

It’s a task for all of us, not just for professional economists.