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Best Economics Books of 2017

recommended by Diane Coyle

With an array of intriguing and accessible books coming out, there's no excuse not to be reading about economics. e
'Enlightened Economist,' Diane Coyle, recommends the best economics books that hit the shelves this past year.

1 2 3 4 5
Economics for the Straight Talk on Trade: Adaptive Markets: The Wisdom of The Financial Diaries:
Common Good Ideas for a Sane World Financial Evolution at Finance: Discovering How American Families
by Jean Tirole Economy the Speed of Thought Humanity in the World Cope in a World of
by Dani Rodrik by Andrew W Lo of Risk and Return Uncertainty
by Mihir Desai by Jonathan Morduch
and Rachel Schneider

J
ust starting with a general question about this list of the best economics
books of 2017: are they accessible for someone who’s trying to learn more
about economics, who maybe isn’t an economist?
Yes. ey’re all books I’ve reviewed on my blog and they’re deliberately not technical. e books
are always accessible to general readers. Diane Coyle
Diane Coyle is a professor of
economics at the University of
So your blog is a good place to find out more about these and other economics Manchester and a fellow of the
books? Office for National Statistics.
She also runs Enlightenment
Economics, a consultancy
Anything that I read, no matter when it was published, if it’s not a technical book I’ll do a review. specialising in the economic
So, I don’t know how many I do a year but it’s more than these ve. and social effects of new
technologies. She was awarded
the OBE in 2009.
What kind of books are you looking for when you’re reviewing economics
books?
It’s a little bit random. Some of the publishers send me books they think I’ll be interested in.
Some are things I pick up myself. Some are things I nd in second-hand shops. ey tend to be
around my own interests. I’m not a macroeconomist, so I look at very few books about general
things like, ‘Where’s the world economy going?’ ‘What causes nancial crises?’ at’s just not my
territory. ey’re much more about markets and technology and all the more applied issues.

Where, some people would argue, economics, as a subject, is at its strongest.

Well, I’m one of those people. I don’t think we know very much about macroeconomics, really. I
think this is a growing consensus, because the ESRC for example, the Economics and Social
Research Council, has funded what’s called a Rebuilding Macroeconomics network to try to
bring in some completely di ferent kinds of ideas into macroeconomics. is is all partly the
legacy of the nancial crisis, when it was the macro people who were in the ring line for not
having predicted what was going to happen.

But I think even before that, many people like me felt that macro—that big picture stu f about
how the economy works—had backed itself into a dead end. It was very much based on
extremely unrealistic, what they call ‘microfounded’ models. So you make some assumptions
about rational behaviour by individuals and aggregate that up. at seems to iron out all the
actual features of real economies.

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“I believe economics is much more like one of the

historical sciences—like geology, like evolutionary
biology”
So, before the crisis, very few macro models included banks or still less, shadow banks and hedge
funds. Clearly you can’t understand the nancialized modern economy without looking at that
kind of thing.

So let’s go through these books you’ve chosen as the best economics books of
2017. Let’s start with your favourite, the one that ultimately won the 2017
Enlightened Economics Prize. This is by the French economist and Nobel Prize
winner Jean Tirole, and it’s called Economics for the Common Good.
Jean Tirole wrote this book a ter he won his Nobel Prize in 2014 because, he said, people kept
coming up to him and saying, ‘ Tell us what it’s all about!’ For the rst time, he felt that he ought
to write a book that was accessible to people who wanted to learn from him. His own specialty is
industrial organisation in either regulated markets (like electricity) or digital markets (like the
digital platforms). But the book ranges much more widely than that.

e rst half of the book is about what economists do, the state of the subject, what kinds of
things we do know about and what kinds of things we need to be cautious in claiming anything
about. It describes how you do economic research and how he’s done his own research; the sort
of structures—so that people can get a bit of an understanding about how reward systems in
universities work and therefore why people do the kind of research they do.

e second half of the book is topics. He discusses everything from the Euro crisis, climate
change and environmental economics to the issues close to his own heart like how you regulate
better and how the electricity market works.

So is this a good book for somebody to read if they’re thinking about studying
economics? An insight into what it’s like to be an economist?
Yes, it would be. It would be very good for students. It’s a book that you can dip into as well. In
fact, he recommends that because it’s quite a dense book to just read through from beginning to
end.

Yes, it’s quite long.

It is quite long and I’ve read it in chunks as well, so I think that’s probably the best way to do it—
to read the rst half properly as a book and then to dip into the topics in the second half as they
interest you or in di ferent segments.

I’d understood that Jean Tirole worked on oligopolies and anti-trust stuff, which
seems to be very, very important at the moment.
at’s right, anything to do with market structures and how markets operate and, in particular,
the kinds of markets where it’s very di cult to get competition working e fectively. at
includes things like the natural monopolies and it also includes these new digital markets, where
there are such big economies of scale that it’s very di cult to have many di ferent competitors.
So, if you think about it, we’ve got one Google search. We’ve got one Amazon that dominates
online retail. We’ve got one social media company, Facebook, that’s incredibly dominant.

e book reminds me of one of my all time favourite books in economics, which is Reinventing the
Bazaar by John McMillan, which I think I’ve recommended to you in the past.

Does he have practical solutions about how to deal with Facebook and Google?
Because the book is partly about economists making themselves more useful—I
mean I know some academic economists felt, in the wake of the crisis, that
maybe they needed to play a more active role in policymaking rather than just
doing their economics.
Nobody has cast iron solutions for these digital markets yet. It’s an area of very active research in
competition economics. But he’s got some thoughts about it. When it comes to the more familiar
kinds of markets, he’s worked very closely with policy makers, with the French authorities, to
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come up with practical solutions.

Let’s go on to your second book, Straight Talk on Trade, by Dani Rodrik, who is a
professor at Harvard. What is his straight talk on trade?
Dani Rodrik is somebody who, for a long time, has been cautioning about the very gung-ho
attitude many economists had towards liberalising trade, including nancial lows. For a long
time, certainly up until the nancial crisis and for a bit a terwards, he was a bit of an outlier
among economists because, for most economists, more free trade is without question better.

“Dani Rodrik is somebody who, for a long time, has

been cautioning about the very gung-ho attitude
many economists had towards liberalising trade,
including nancial lows”
I think now a lot more people would take that point of view. I think I, for one, was much too
relaxed about the e fects of globalisation and how quickly it was happening and what e fects that
might have on the economy and people’s livelihoods. It’s not that I’ve changed my mind about it
being a good thing—but I’ve become much more cautious about how quickly change happens
and the need to be much more nuanced rather than just saying, ‘More trade is better.’

So he’s gone from being a bit of a maverick to being a really very in luential voice in this debate.
e book is a summary of a lot of things that he has said in the past about that and then the new
context of a more protectionist world, post- nancial crisis, but also post-Trump and post-
Brexit, where the political mood has certainly changed.

It’s largely about trade and for anybody who has read his academic papers, a lot of it will be quite
familiar. ere’s also quite a bit, again, about what economists do and what economists can
validly say—you know, where we should be more humble than we have been in the past. So it’s
another book that’s a little bit about the state of economics itself.

And about what should economists be more humble, in his view?

About trade but particularly about nance and the nancialization of the world economy that
happened post-1980, really. Capital lows, in particular, he would single out as being an area
where we ought to be incredibly cautious in saying, ‘ is is a good thing for the economy.’

When he argues that trade isn’t always a good thing: I can see that free trade has
political implications, which might be bad. But is he also saying it’s not
necessarily a good thing from an economic point of view?
Yes, he has a famous ‘trilemma,’ which is about not being able to get everything you want at the
same time in international economics—something has to give.

So is this book a good way of becoming familiar with his work?

Yes, it’s a great introduction. He is another really clear writer, so it’s very accessible. He’s
probably still a bit outside the mainstream in his views about this, but he’s somebody who has
been much more ‘right’ than many other economists and should absolutely be taken seriously
about this.

Shall we go on to book number 3? This is Andrew Lo’s Adaptive Markets, which

is all about financial markets.
is is a somewhat tougher read, although it’s not technical. Anybody who is interested in
nance or has worked in the nancial markets will be interested in it. It’s a very ambitious book.
It’s trying to bring together what we know about human behaviour and psychology and what we
know about some of evolutionary theory and how that might operate in the economy and
transferring that to nancial markets.

As well as being a nance professor, Andrew Lo is somebody who has actually run a fund and
been active in the nancial markets. So in both ways, he knows what he’s talking about. It’s
getting away from the E cient Market Hypothesis of ill repute, which I think has been broadly

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discredited now. It’s a much more sophisticated and nuanced approach to thinking about
nancial markets.

He’s come up with an ‘Adaptive Market Hypothesis’ to replace the ‘Efficient

Market Hypothesis.’ Do you think he succeeds in that?
I think almost. It’s not quite there as a synthesis, but I like the ambition of saying that what we
say about economics needs to be consistent with the other human sciences. So if you’re doing
economics you ought to be thinking about whether your theories and evidence are consistent
with what we know from cognitive science and psychology and biology. I think that’s really
important because it’s about the status of economics.

ere are critics who would say economics is just like I don’t know—history or literary criticism,
where you have di ferent schools of thought. Ultimately, you’re going to be a member of one
school or another. I just don’t believe that. I believe economics is much more like one of the
historical sciences—like geology, like evolutionary biology. We will never have the same kind of
evidence as an experimental science (although we’re doing more experiments) but we need to
think about society and the economy as part of that human construct in the natural world. We
are part of the natural world and we need to be much more aware of that than typically we have
been.

So I really liked that ambition. I don’t think it’s quite the grand synthesis, but in the speci c
context of nancial markets, it gets quite a long way.

The books mentions hedge funds being the Galapagos Islands of finance. What’s
that referring to? It sounded quite intriguing.
I don’t remember, but I’m sure it’s an allusion to Charles Darwin’s insight that came from
visiting the Galapagos, where he saw that the nches had evolved slightly di ferent beaks as soon
as they couldn’t travel and were separated by the ocean between the islands. at’s what gave him
the insight to come out with the theory of evolution by natural selection.

Let’s talk about book number four on your list, which is called The Wisdom of
Finance, by a finance professor at Harvard Business School, Mihir Desai.
is is a slightly quirky book, which I really enjoyed reading. It’s about getting over some
messages about nancial markets using stories. e idea of storytelling and economics is
gaining ground. Robert Shiller, the Nobel Prize winner, is doing a book now about narratives. I
think this is partly because economists have come to realise, in the past few years, that the way
we talk to people analytically doesn’t resonate with many of them. Almost all economists said
Brexit was going to be really bad for the economy and that message didn’t get through at all. It
didn’t speak to people.

So, for a number of reasons, I think this idea of narrative has become more salient. is is just a
very nice book that uses di ferent kinds of stories to make points to students. It started as a
lecture course—a single lecture even—just to make some points to students about how the
nancial markets operate and how people who work in them ought to behave. So it’s a somewhat
moralistic book as well—about doing good nance and not bad nance.

It’s just an incredibly, incredibly enjoyable read. Again, nance isn’t my area so I couldn’t
comment with expertise on how good he is at nancial economics, but I really enjoyed reading
the book.

Is it a good starting point for understanding finance? Because there is a lot of

work to do in terms of broadening the number of people who do. I notice that
even academics in other subjects admit to knowing nothing about finance and
think that’s fine—even though it’s so woven into our daily lives.
at really bugs me. I put a lot of e fort into trying to communicate clearly about economics in
ways that will speak to people. But just like it’s okay to say ‘I’m no good at maths’ it seems to be
okay to say, ‘I don’t understand nance.’ But it shouldn’t be okay. It’s bad enough when it’s the
general public and it matters to them personally. It’s even worse when it’s other social scientists.
Remarkably few sociologists or anthropologists have looked at nancial markets. I can think of a
few books, but there haven’t been all that many.

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ese really basic explanations are incredibly important to people. I do think this is a very good
book for that. It’s up there with the John Lanchester book a few years ago, Whoops!, which I
thought was another great, complete introduction to what had happened in the nancial crisis.

So if you were just starting out and didn’t know much about finance, which of
these books should you read first, do you reckon?
De nitely this one. e Andrew Lo one does assume much more knowledge about nancial
markets.

Finally, let’s talk about book number 5 on your list, The Financial Diaries: How
American Families Cope in a World of Uncertainty.
is is a very di ferent kind of book. I suppose you would put it alongside a number of more
general books about what’s been happening to the working and middle classes in America of
late. It’s a repeat of a study that was done—I think it was in South Africa and India some years
ago—where they spent a lot of time with families to understand where their money comes from
and how they use it and how they save; the sort of everyday mechanics of what people do.

What they learned from doing this in America was that even people who had what looked like
quite a high level of income on average experienced great uncertainty—because of the way their
jobs worked or because they don’t have health insurance or some big bill to do with their car
landed and they had to have their car for work. So it’s about that kind of vulnerability and how
extensive that is in American life.

I thought it was a much more interesting insight than saying, ‘ ere are some very poor people
in poor communities,’ which is part of this genre, because of the detail and because of the fact
that it does go so far up the income scale. It’s an incredibly sympathetically written book. e
researchers actually went and spent a lot of time with the families. You get a very detailed and
sympathetic perspective on how they cope.

It’s probably not in the scope of the book to find solutions—or does it look at
possible policy changes, etc?
It looks a bit at whether there would be ways of developing nancial products to suit people—
savings vehicles and the way that the credit market operates, more than policy. Because I think
the policy questions about that take you to some very big social contract kinds of decisions.

To any European, it’s just astonishing that the US health insurance market operates the way it
does. But that’s the kind of question that gets raised by it, I think. It also takes you to all of the
concerns about gig work and zero-hour contracts, which are not really to do with the digital
companies. ey’re to do with the fact that that’s the way the American labour market has been
going for a long time. ere’s been a lot of contingent work. It’s nothing to do with digital.

In one of the bits of blurb that I was reading about the book it mentioned that
there are now more small credit and payday loan stores in the US than
McDonald’s and Starbucks combined, which sounds incredible.
It’s an epidemic of uncertainty and it goes a long way to explaining the politics of the US. Or the
European countries where there has been populism, for that matter. I suppose, in a way, it links
back to Dani Rodrik’s arguments about the price we’ve paid for having ignored the transition
costs of the free trade, globalised, nancialized world.

Interview by Sophie Roell

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Princeton University Press authors The Best Books of 2017

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