The global economy has been hit by another massive and unexpected shock this year in the form of the pandemic, which is already having knock-on effects on how people think about economics. Here, Professor Diane Coyle of Cambridge University chooses the best economics books published in 2020.
Just a preliminary question before we get to your selection of the best economics books of 2020: Has the COVID crisis shifted thinking among economists, and what new themes can we expect to see economists exploring in the future, as a result of the pandemic?
I think it’s changed the emphasis, rather than creating absolutely new themes. It’s certainly focusing people on inequalities, which have been widened by the crisis. The overlap between economics and epidemiology is a big theme at the moment. And then there are all those macro questions about the debt burden that are being revisited. Another thing that is not exactly new, but has definitely been much amplified, is that question about what it is that we’re aiming for? If we want to build back better, what does ‘better’ mean? It’s surely not money and profits and GDP? The ‘beyond-GDP’ debate has definitely got an extra boost as a result of what’s been happening this year.
Let’s explore these themes more as we go through your selection of the best economics books of 2020. First up is Deaths of Despair by Anne Case and Angus Deaton, which brings inequality in the US into sharp relief. Tell me why you chose this one.
It’s a really important book. It pulls together the work that they’ve been doing for a number of years now, looking at the fact that, for the first time, life expectancy in the US is falling, and falling very unequally. They have identified this phenomenon of white high-school dropouts who are falling victim to deaths of despair—suicides, opioids and other overdoses, and alcoholism. By bringing together all of this evidence, they have put a spotlight on the phenomenon.
“The ‘beyond-GDP’ debate has definitely got an extra boost as a result of what’s been happening this year”
It’s linked, obviously, to broader questions about the economic future of certain places in the United States, where the economic purpose seems to have evaporated as a result of all the changes in the economy. It’s also linked to the role of education and the way that the rewards to skills have continued going up, with skilled people congregating in big cities and the diverging fortunes of people in different places.
Do they identify structural things within US capitalism that are exacerbating this problem, or is it really about this ineluctable divergence in wealth as a result of differences in education and skills?
There are lots of potential explanations for broad social trends like this. They don’t try to identify in any detail which ones in particular are the most important. But I think the key thing that they have highlighted that’s new is the education gap. If you’ve got a four-year college degree, things are getting better, and if you have dropped out of high school, things are getting worse, to the extent that such people are dying younger. US life expectancy has been diverging from other rich countries since the mid-1990s, but it’s only since 2015 that it’s actually been declining in absolute terms. For this to happen in an advanced country that claims to be one of the richest in the world is absolutely staggering.
And do they suggest any obvious solutions to this?
There aren’t easy solutions. Complex phenomena never admit of one simple thing that you can do. I think that takes us back to this broader debate about how to equip people for a massively changing economy, something that I think policymakers everywhere have failed in. And, because the US has no universal health care and people therefore fall between the gaps in terms of care, it manifests itself in this total failure of capitalism. If capitalism doesn’t give us progress over time, what’s the point of it?
Let’s move on to Frank Ramsey: A Sheer Excess of Powers by Cheryl Misak.
This is a fantastic biography. Frank Ramsey was an extraordinary character, evidently brilliant from an early age. He made path-breaking advances in mathematics, philosophy and economics. In his spare time, he helped Keynes edit the Economic Journal. He translated Wittgenstein into English because nobody else could understand what Wittgenstein was saying. He was a larger-than-life character who hung out with the Bloomsbury Group and had an extraordinary life, and who then died tragically young at the age of 26. So, all of this he achieved between 18 and 26.
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The biography is a really interesting read, because he’s such an interesting character, and because he pushed forward the intellectual frontiers across this incredibly wide waterfront. It’s also a very good read about the Cambridge of the 1920s. I’m still relatively new to Cambridge, so I enjoyed learning about all of that. Then there are also inserts, where very distinguished people from maths, philosophy and economics explain some of Ramsey’s theories. So, for example, in economics, Misak has Partha Dasgupta explaining how Ramsey figured out what the right way to think about the social discount rate was.
This is intergenerational fairness with respect to taxation? Is that what he’s talking about, or is it broader than that?
It’s broader, it’s intergenerational fairness in any context—investment, thinking about the environment. The Ramsey rule is widely used.
And he thought the discount rate should be low, didn’t he?
The social rate should be lower than the private market rate. But exactly what it should be is much debated in economics even now, particularly in the environmental literature. But at least we know how to think about it and which bits we should be debating.
Next on your list of best economics book of 2020 is If/Then: How One Data Company Invented the Future by Jill Lepore, about Simulmatics Corporation. This is a history book as much as an economics book, isn’t it? Tell us why you’ve chosen it.
It’s business history. It’s a history of one of the first companies to use computers in a systematic way to try to make forecasts. They started out doing political forecasting. Then they did some business forecasting. And they got incredibly ambitious, and tried to do things like forecast the outcome of the Vietnam War and how to affect that, and how to win the hearts and minds of the Vietnamese people.
I’m very interested in efforts to use computers to understand society, because I think we’re going through that debate again, in talking about AI. Some of the visions that people have had for using AI to understand what’s going on now are just like the visions that were around in the 1960s, except with faster computers, and more data. So it’s a very good object lesson in why you should be cautious about any forecasts about the future. I’m thinking, in particular, about someone like Dominic Cummings, and the room he set up in the Cabinet Office to have screens full of data, taking the temperature of what’s going on in the economy, and the dangers that can lead you into.
Were the people at Simulmatics who were forecasting the Vietnam War working for the US government, or working for commercial enterprises who were trading on their insights?
They did both, but a lot of their work was for the US government, or the Department of Defense. A lot of it was political consulting. We’re still very familiar with that kind of work, manipulating the data to try and work out which are the key states for deciding an election, and what the key issues to influence voters are. So it’s all around still—you might think about Cambridge Analytica as another parallel to the kind of work that they did.
Jill Lepore is a brilliant writer. It’s a dream to read.
What happened to the company, did it fail?
It did. It went bankrupt, partly through over-ambition and not being very well-run, but also partly because more and more companies piled into the same markets. So you got, for example, all the Madison Avenue companies doing marketing forecasting, and a lot of other political consultants coming on the scene using the same techniques. It became a much more competitive market.
Let’s move on to Boom and Bust by William Quinn and John D. Turner. Tell us about this one and why you’ve chosen it as one of your best economics books of 2020.
It’s a very readable and systematic analysis of what drives booms and busts in financial markets. There are loads of books about financial bubbles and related issues, but what I like about this one is the way they have developed a framework for thinking about any bubble anywhere, anytime. It’s reasonably short and very well written, a really enjoyable read. So, if you want to learn something about why financial markets behave the way they do, it’s a great place to start.
They do. And, not surprisingly, they promise us that there’ll be even more financial booms and busts to come in the future. The story is about the dynamics of things that come along that look like the best thing since sliced bread and the way that, in almost all business cycles, money goes chasing after those, and you get the boom and bust. It’s about the inevitable dynamics of financial markets.
Last up is Rentier Capitalism, by Brett Christophers. Why has this made your list of best economics books of 2020? It’s focused on the British economy in particular, isn’t it?
It is. The author is an economic geographer, who has written a lot of very interesting books about the structure of the economy and finance in particular. This is really about the way that, in lots of different areas of the economy, there is a concentration of power by people who have bought particular kinds of assets, and they’re extracting monopoly rents—in effect—through that ownership. It covers land, housing, private equity, and infrastructure ownership. And, when you see it all together, it’s quite a striking reminder of the way—in the UK economy, in this case—concentration of ownership has continued to increase in recent decades. People have observed this phenomenon in the US. Thomas Philippon had a book that came out last year that was very good about that US experience. This does the same sort of thing for the UK and flags the issue of why ownership of assets is something to worry about.
“If capitalism doesn’t give us progress over time, what’s the point of it?”
For a generation now, UK policymakers have said that it doesn’t matter who owns an asset as long as it’s well-run. And so, in a way, it harks back to the very old debates about whether the public sector should own natural monopolies and whether privatization is a good or a bad thing.
Does he explore those debates as well? Or does he suggest ways of overcoming the problem, or advocate new forms of ownership that might mitigate the problem—some form of social ownership, maybe?
I think he’s mainly advocating backing away from the kinds of policies that have made these trends possible. So, for example, private equity has been significantly encouraged by tax breaks and the privileging of debt finance over equity finance. That’s something that lots of economists over the years—for instance in the Mirrlees Review—have identified as something that significantly distorts the way that investments get funded. In my view, the solution to monopolies is that you take competition policy seriously and apply it in these kinds of contexts.
But Christophers doesn’t, I think, talk about competition policies specifically as the main solution to these issues, or does he?
No, he doesn’t. That’s my gloss on it. I do competition economics, so I see it as the solution to everything, I suppose! But there is an important question here about whether the issue is one of monopoly, or whether it’s the private ownership of assets.
Each answer will take you to different solutions. If you think the problem is ownership per se, then you do have to start looking at the structures of ownership. Whereas, if it’s not just that, you’ve got a broader array of policy levers at your disposal.
But anyway, the book specifies the problem extremely well and in an uncomplicated fashion.
Yes, and it links to the kinds of income inequality and wealth inequality that we’ve seen emerging since the 1980s because the people who get their hands on these assets and extract the rents have become extremely wealthy. Often, they are asset stripping and keeping costs down as much as they can. And the people who work for them are often on low incomes, in precarious jobs or terrible conditions.
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Diane Coyle
Diane Coyle is Bennett Professor of Public Policy at the University of Cambridge and co-director of the Bennett Institute for Public Policy. She also runs Enlightenment Economics, a consultancy specialising in the economic and social effects of new technologies. She was awarded a CBE in 2018 and a DBE for her contribution to economic policy and practice in 2023.
Diane Coyle is Bennett Professor of Public Policy at the University of Cambridge and co-director of the Bennett Institute for Public Policy. She also runs Enlightenment Economics, a consultancy specialising in the economic and social effects of new technologies. She was awarded a CBE in 2018 and a DBE for her contribution to economic policy and practice in 2023.
