Sunday, April 27, 2014

How the Economy Works

The first paperback English language edition of my book How the Economy Works has just been published by Oxford University Press.  I hope this edition finds a new audience that will take the time to consider the ideas I present.  The book provides, not only a history of contemporary economic thought, but also some fresh ideas for dealing with financial crises and for the design of a new financial architecture to prevent them from reoccurring.

Here are a few excerpts from the new Preface.
How the Economy Works, (HTEW) first appeared in 2010. By the time of its publication, the world was in the throes of the worst recession since the 1930s. Thirty-seven months after the NBER called the recession over, in June of 2009, the U.S. economy is still a long way from regaining all of the jobs lost during the crisis. I wrote this book to help you understand why this happened and to offer some new ideas to prevent similar financial crises from reoccurring in the future.

I am often asked if economics is a science. My response is very much yes. Economics is a science: but it is not an empirical science. The task of an economist is a bit like that of a team of research chemists. Imagine that the chemists are asked to identify an unknown substance subject to some rather unusual constraints. First, they can conduct no more than three experiments a century and second, as the team members change, new members are not permitted to read the research notes of their predecessors.
The experiments of economics are large disruptive events, like the Great Depression, the stagflation of the 1970s or the Great Recession of 2008. The research notes of our predecessors are the writings of the great economists who preceded us; writings that are no longer read by graduate students in economics who have been taught that economic history and the history of thought are unnecessary distractions from the business of building mathematical models grounded in rigorous theory.

All this needs to change. It is my hope, that by providing an introduction to the historical evolution of economic ideas, this book will encourage a few new minds to delve more deeply into the ideas that formed our subject
Since How the Economy Works first appeared in print, I have written more than thirty op ed pieces in the Financial Times, on Project Syndicate, VoxEU and on other blogs and media outlets. Those pieces are linked electronically on my website Many of them remained as top five or top ten most popular posts on the Financial Times Economists’ Forum for many months and some are still there as I write this preface. 
Collectively, these op eds present a coherent account of the Great Recession as it unfolded, beginning in 2009, when I was one of the first, if not the first, to mention the word Depression as a possible outcome following the collapse of Lehman Brothers in September of 2008. 
Economic literacy is as important to citizenship as literacy in mathematics and the physical sciences. It is more important than ever that we all understand how economic theory influences the policies that are having such a profound impact on our everyday lives. I hope that this reissue of HTEW in a, paperback edition, will contribute to that goal and that some of the new ideas I have provided will resonate, with you, the reader.

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