BOOKS: Like a well-balanced meal

BOOKS: Like a well-balanced meal - Those who haven't yet got a grip on how economics works could pick up more than a few crumbs from this tasty, myth-blowing little book, argues David Miles.

by DAVID MILES, professor of finance at Imperial College. His newbook, Macroeconomics: Understanding the Wealth of Nations, written withAndrew Scott, is published by John Wiley
Last Updated: 31 Aug 2010

Those who haven't yet got a grip on how economics works could pick up more than a few crumbs from this tasty, myth-blowing little book, argues David Miles.

In this short, chatty and illuminating book, David Smith, economics editor of the Sunday Times, outlines some of the big issues in economics today. Along the way, he provides nice potted biographies of some of the giants of economics. But he does himself a disservice in suggesting that Free Lunch's main aim is as an aid to reading the financial pages of newspapers and in understanding the economic claims of politicians.

A more appropriate goal, and one that Smith goes a long way to achieving, is to show why a significant proportion of what is written in newspapers, and of economic 'arguments' by politicians, is misguided. He makes a good start on this in his opening chapter, where he takes a look at the housing market and along the way explodes, rather neatly, some of the more nonsensical myths about house prices.

The idea of structuring the book as if it were an extended conversation over lunch in a restaurant with a large and varied menu works rather well.

The book makes no claims to be a comprehensive survey of economics but is a quick trip through a large range of issues, picking out a handful along the way - monetary policy, the euro - and illustrating how they have been analysed by economists.

What Smith does very well is get to the heart of the economics of some of these issues, spell out alternative positions and briefly explain what the giants of the past had to say about them. The book's one fault is its tendency to sit on the fence. On issues like globalisation and on how important manufacturing is to the UK, one senses he knows the answer but wants to be fair to both sides.

So, in the discussion of globalisation he is keen to say that the anti-globalisers' criticisms cannot be dismissed out of hand. Well, actually, they can. If the anti-globalisers believe poor countries are harmed by trading with rich countries and accepting inward investment from them - that is just nonsense. The world's very poorest countries are the ones that don't have much contact with the rich West - there is little trade and little inward investment. If the anti-globalisers think these countries would be better off if they had less contact with richer countries, maybe they would like to spend a few months in North Korea and follow that with a trip to Singapore, and then ask themselves which is better off.

There is some slight fence-sitting in the brief but interesting discussion of the role of manufacturing.

Smith raises the question as to whether or not we should be concerned that manufacturing in the UK now accounts for less than 20% of GDP. The sensible economic answer, I think, is 'No'. The US, the most successful economy in the history of the world, now has as small a manufacturing sector as Britain.

It is also a manufacturing powerhouse.

Productivity in manufacturing has risen sharply over the past few hundred years, while as real incomes rise people want to spend more of their extra income on services. As economies become richer and more successful, the importance of the manufacturing sector declines. Look at countries that have a much bigger manufacturing sector than Britain - say Angola or Belarus. Would we be better off if we looked more like them? Don't think so!

A particularly nice feature are the short asides on the lives of famous economists. Smith does well to get across what they achieved. I question, however, whether Marx deserves the status given him here. As an economist he was a disaster. That he wrote some of the most influential books ever is undeniable, but they are not books of economics but works of a rather more theological nature. Every economic prediction he made - they were largely based on a misreading of Ricardo - has been spectacularly proved false.

This book is a good read. It is well written and in a few hours someone who didn't know much about economics could learn a great deal. If you have any anti-globalisation friends, please buy them a copy.

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