Economics of the real world

by Peter Donaldson

In recent years a dramatic counter-revolution has taken place in economic theory and policy - a rejection of Keynesian interventionism and the re-assertion of the old orthodoxy. As in the 1930s, wage cuts and balanced budgets are seen as the way to improve competitiveness and solve unemployment. It appears we have learnt nothing from earlier experience. Arguing that economic policies have exacerbated the impact of world recession from which Britain should have been relatively immune, the author contends that the underlying issues are quality of output and consumption, the nature of work and a more equal sharing of the freedom and power that income and wealth confer.

Genres: Economics, Nonfiction

244 pages, Paperback

First published August 30, 1973

Reviews

[Daniel Clemence · Rating 4 out of 5]

A study of economics, as if people mattered. This is part of the title of Small Is Beautiful, a book by E. F. Schumacher. It is a very person-centric version of economics. Economics is a discipline that does not care much about people. More accurately, economics tends to ignore the suffering that economic policies cause to people. After all, the only thing that matters is balance sheets, and a government needs to have a good balance sheet. So, public services need to be cut. The suffering does not matter to economists.

Economics of the Real World is different to that. Written by Peter Donaldson, it provides a different vision of economics, which is rarely discussed by economists. People matter. Given how bad the world is right now and how economics seems to be partly a cause of this, it is refreshing to read an economics book that seems so dedicated to helping people. Economics of the Real World may appear to be dated. After all, it was written in the 1970s and based on a BBC documentary. Yet, one of the central aims of the book is how to achieve universal employment. This is completely different today. Conservatives have a totally contradictory view of unemployment; they disdain the unemployed as scroungers and yet support higher rates of unemployment to control inflation.

Economics of the Real World has a central thinker who is the basis of its ideas. John Maynard Keynes. John Maynard Keynes, who was the most important economist of the mid-20th century, becomes the central figure in Economics of the Real World. His ideas dominate the book. One of the central ideas of Keynes, which is reiterated in the book, is that totally unregulated, laissez-faire, and free-enterprise could not create or maintain full employment (page 31), and anything that can raise demand will increase employment (page 29). The book does have a fair amount of economic theory, particularly in how economic mechanisms work. But the book, unlike many contemporary economics books, does not have lots of abstract graphs.

Despite the centrality of Keynes, there are still parts of Economics of the Real World that are critical of Keynes. Keynesian economics, particularly in the application of the multiplier effect. The precise impact and amount of the multiplier effect should be studied for maximum impact or risk having no impact (page 57). The second criticism of Keynes given is that governments have multiple objectives, as well as focusing on providing jobs for people (page 58). The central question of jobs for all is dealt with via the use of Keynesian demand-side economics. Economics of the Real World argues that the issue with Keynesianism is that it does not do enough in producing jobs.

Then there is the mystery as to why the UK dropped behind other countries across the developed world. The book provides some interesting answers as to why the UK dropped behind other advanced countries. One reason explained was that Britain had a much more industrialised economy (compared with other industrialised countries) and so did not have the productivity gains of population shifts from agriculture to industry (pages 113 to 114). As late as 1968, 15.8 per cent of France and 22.5 per cent of Italy had workers employed in agriculture (page 113). In contrast, the UK had just 3 per cent. Another reason was the lack of size in the economy, or that the British economy was too small to create large economic growth, and Britain being outside the EEC reduced the size of its economy (page 112 to 113). The final explanation was that the government reduced economic growth itself (page 114). Economics of the Real World also questions the assumptions about what the economy should be about. Should we just create lots of jobs, or should we create jobs which are meaningful? Does the greater distribution of cars have a negative impact if it creates traffic jams and other negative externalities?

The overall content of this book is good. I would say that despite the dated nature of the economics book, it is really interesting and thought-provoking to read. There are references which are drip-fed throughout the book. Many of the ideas around the focus on full employment are no longer seen as important. But the content of this book should inspire the reader to think of economics as more than just a set of numbers. It is a book to read if you want to understand economics, as if people matter.

[Jodie · Rating 5 out of 5]

The latest edition of this was published in 1984 I think, so one must remember certain differences between the UK economy then and now. Donaldson deals greatly with the concept of social welfare and how to use economic policy to this end- something which has increasingly become prominent in today's society. Nevertheless, the book provides an insightful and concise explanation and exploration of main schools of economic thought and theory with the context of the various issues plaguing the UK economy at the time of writing. The book therefore informs the reader of crucial economic concepts whilst providing an interesting and illuminating perspective on the UK economy from the 70s and 80s which bridges the gap between the end of the war and where we are now quite nicely.

[Jomar · Rating 4 out of 5]

good and nice