What would David Ricardo say about the U.S.-China trade war; Adam Smith about the deindustrialization of the U.S. or Britain; Irving Fisher about the Great Recession; or John Maynard Keynes and Milton Friedman about the various government responses to 2008? These are some of the questions tackled in Linda Yueh’s “The Great Economists,” which in each chapter pairs famous economists with a modern challenge and considers how they would recommend solving it. Other featured thinkers include Karl Marx, Joseph Schumpeter, Friedrich Hayek and Robert Solow.
Each chapter includes a description of the question – Can China become rich? What can we do about inequality? Why aren’t wages growing? – followed by a short biography of the economist, and, finally, how they would analyze the question. The recommendations are not difficult to predict, but that’s not really the point. The value comes from taking today’s challenges out of the newspaper headlines and putting them into a historical perspective.
Most interesting for me as an observer of European affairs were the chapters on Keynes, Friedman and Hayek about the business cycle and appropriate government responses to recessions. The German government has been under mounting pressure to turn toward Keynesianism and spend more to stimulate its (and Europe’s) sluggish economy. Low levels of private investment are a particular problem, which is something Yueh discusses in the Keynes chapter. The explanations offered for low investment include that expectations of weak future demand are depressing investment, uncertainty still reverberating from the crash and the eurozone crisis discourages firms from committing funds to long-term investment, and unorthodox monetary policies like ultra-low or negative interest rates and quantitative easing mean there are more attractive places to put cash. It’s a common theme in economic debates that explanations for problems are easy to find; the hard part is deciding which ones are (most) correct.
I was also very interested in the discussion about the services sector. It’s difficult to accurately measure the sector, which distorts perceptions of trade balances and could help explain the appearance of slow productivity growth. But it was the chapter on Robert Solow and his productivity paradox near the end of the book that has been on my mind the most. The paradox is that innovation in information technology has not resulted in productivity growth. (“You can see the computer age everywhere but in the productivity statistics,” Solow said in 1987.) One possible explanation for this is that it has taken people time to figure out how to best make use of innovations in computing – an idea supported by the fact that productivity did, in fact, jump in the 1990s. Solow’s work ties into the concept of secular stagnation, essentially the idea that slow growth is the new normal. “The Great Economists” won’t – and doesn’t try to – solve every problem, but it’s a solid introduction to the challenges we face today and different ways to think about them.
Ryan Bridges, analyst
There’s a joke I’ve heard in multiple Southeast Asian countries about the region’s leaders that goes something like this: “Everyone wants to be Lee Kuan Yew, which is why we’re stuck with so many Hun Sens.” The idea is that every time a Southeast Asian leader visits Singapore, they come back enthralled by its extraordinary development, bewitched by its wealth and near-total victory over corruption, and determined to replicate the blueprint for its success. Interpretations of this blueprint vary, but they typically involve elements of state capitalism, “managed democracy” (i.e. de facto one-party rule), limited civil liberties, and at least superficial commitment to technocratic, squeaky-clean governance and long-term development plans that are protected from populist political forces and power struggles.
There are invariably two problems: One, Singapore is a city-state whose enviable geographic position astride the world’s busiest trade routes makes it indispensable to regional commerce and invaluable as a partner for outside military powers. The sprawling, fractured geography of most other Southeast Asian countries makes centralized, technocratic governance impossible and long-term development planning an exercise in wishful thinking. Two, Singapore’s modernization was overseen by its incomparable founding father, Lee. Few of the region’s leaders have shared his talents, and none could approach the job like Lee did, as a sort of super mayor with an army. As a result, Southeast Asian states have often been stuck with rather uninspiring, aspirational strongmen like Cambodian leader Hun Sen, too weak and inherently vulnerable to eradicate the deeply ingrained problems of their states.
Lee was, indeed, a singularly adroit leader. But in his memoir, “The Singapore Story,” the metronomic city-state’s path from colonialism to its role as the straw that stirs the East Asian drink was by no means inevitable. Singapore is tiny. For all its geographic advantage, it has no strategic depth or, as Lee spent countless sleepless nights stressing about, even control over its own water supply. As an inchoate state, it was attempting to find its footing and carve out room for maneuver amid the regional vacuum of power that followed World War II, the collapse of colonialism and the upheaval of the Cold War. And it was beset with deep ethnic divides that made communist forces at home an ever-present threat. Under these conditions, Lee concluded that Singapore could only survive if it joined the newly formed state of Malaysia. But less than two years later, Lee reluctantly concluded that Singapore had to go its own way. He, of course, succeeded against great odds. But perhaps the lesson to other regional leaders should be: don’t try this at home.
Phillip Orchard, analyst