Economics: Making Sense of the Modern Economy

368 Pages·2011·3.963 MB·English

by  Saugato Datta

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economics
Making Sense of the Modern Economy
3rd edition
Edited by Saugato Datta
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THE ECONOMIST IN ASSOCIATION WITH
PROFILE BOOKS LTD
Published by Profile Books Ltd
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London ec1r 0jh
www.profilebooks.com
Copyright © The Economist Newspaper Ltd 1999, 2006, 2011
All rights reserved. Without limiting the rights under copyright reserved above, no part
of this publication may be reproduced, stored in or introduced into a retrieval system,
or transmitted, in any form or by any means (electronic, mechanical, photocopying,
recording or otherwise), without the prior written permission of both the copyright
owner and the publisher of this book.
The greatest care has been taken in compiling this book. However, no responsibility
can be accepted by the publishers or compilers for the accuracy of the information
presented.
Where opinion is expressed it is that of the author and does not necessarily coincide
with the editorial views of The Economist Newspaper.
While every effort has been made to contact copyright-holders of material produced or
cited in this book, in the case of those it has not been possible to contact successfully,
the author and publishers will be glad to make amendments in further editions.
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[email protected]
Printed in Great Britain by Clays, Bungay, Suffolk
A CIP catalogue record for this book is available from the British Library
ISBN 978 1 84668 458 6 (hardback)
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© 1996 Forest Stewardship Council A.C. (FSC).
It is ancient-forest friendly. The printer holds FSC chain of custody
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Contents
Contributors vii
Introduction ix
PART 1 What economics is about 1
1 Debates about the basics 3
2 How economies grow 26
3 Macroeconomic management: fiscal and
monetary policy 91
4 Microeconomics: the economics of everything 113
PART 2 The global economy 137
5 Before the storm: the forces at work 139
6 The global slump 160
7 Crisis-time economics 197
8 Recovery, repair and rebalancing 212
PART 3 Flaws and remedies: the future of economics 275
9 The failings of economics 277
10 An evolving field 300
11 Emerging economists 323
Index 332
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contributors
Matthew Bishop is The Economist’s US business editor. He
contributed articles to Chapters 1, 9 and 10.
Simon Cox is The Economist’s Asia economics editor. He contributed
to Chapters 1, 2, 8 and 9, and wrote Chapter 11.
Saugato Datta is The Economist’s economics correspondent. He
wrote some of the articles in Chapters 1, 2, 3, 4, 6 and 10. He is also
the editor of this book.
Greg Ip is The Economist’s US economics editor. He contributed
articles to Chapters 3 and 8.
Patrick Lane is deputy business affairs editor at The Economist. He
wrote parts of Chapters 1, 4 and 10.
Zanny Minton-Beddoes is The Economist’s economics editor. She
wrote some of the articles in Chapters 2, 3, 6, 7, 8 and 9.
John O’Sullivan is Britain economics editor at The Economist. He
contributed to Chapters 4, 7 and 8
John Parker is The Economist’s globalisation editor. He contributed
to Chapters 2 and 10.
John Smutniak was economics correspondent at The Economist.
Chapter 10 includes an article written by him.
Henry Tricks is The Economist’s Tokyo bureau chief. Chapter 8
includes an article written by him.
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viii EconoMicS
Paul Wallace is The Economist’s European economics editor. He
contributed to Chapter 10.
Pam Woodall is senior economics writer at The Economist. Articles
she wrote are part of Chapters 1, 2, 5 and 8.
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introduction
Discussions about economic affairs have acquired a rare immediacy
in the aftermath of the worst global recession since the Great Depres-
sion. After several years of robust global growth, what began as a
meltdown in America’s housing market developed first into a deep
financial crisis and eventually into a fully fledged global recession.
Output shrank, trade collapsed, industrial production fell off a cliff,
and many millions of people around the world found themselves
out of work. For a while, the world economy seemed in danger of
ending up in a slump like that of the 1930s. That it did not was largely
the result of government intervention on a massive scale. All this has
ensured that the minutiae of fiscal and monetary policy no longer
seem impossibly arcane or far removed from daily life, and debates
about economic policy have challenged many deeply held beliefs.
Every week, The Economist wades into these waters with its mix
of reportage, analysis and opinion. Making use of the best evidence
available and thinking matters through from first principles, its writers
take a stand on the issues of the moment. While the impetus for the
articles the newspaper publishes is usually found in the news of the
week, many of the things that provoke The Economist’s writers to
enter the fray are also questions – or aspects of questions – of endur-
ing importance. This means that much of what is published in the
newspaper remains interesting well beyond the precise context in
which it was originally written.
Such are the articles collected in this book, which seeks to provide
curious readers with a sort of guided tour of the many areas to which
economists apply the tools of their trade. Some of these are recognis-
ably the provinces of economics: fiscal and monetary policy, ways to
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x EconoMicS
promote economic growth, or how to measure a country’s standard
of living. Many of the articles concern the roots and effects of the
global economic crisis of 2008–09, the defining economic event of
the first decade of the 21st century. Others explore the challenges that
economic policymakers face in the years ahead as they struggle to
kick start growth in places where it is still sluggish or deal with imbal-
ances in the global economy. Yet others discuss issues that may strike
the reader, at least at first, as “not quite economics”.
Why do people give money to charity? What are the causes and
consequences of the all-too-familiar human tendency to put things
off for “later”? Is politically slanted reporting a sign of a dysfunctional
news media? What determines how much prostitutes are paid? All
these turn out to be areas where the tools of economic analysis have
something useful to say. The answers that economists have provided
to the wide range of questions they have turned their attention to
may not always convince, but they rarely fail to provoke discussion
and debate. Ultimately, economics’ greatest utility lies not so much in
its answers to particular questions, but rather in its providing a coher-
ent framework that can be used to think about a vast variety of issues.
This book opens a window into this enormous versatility.
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