Common Good Economics

Another French economist contributes an uncommonly good book.

Not long ago around half my friends were reading Eleanor Catton’s The Luminaries and another half Thomas Piketty’s Capital in the Twenty-First Century. Few had the time to read both blockbusters.

Piketty’s book has a simple message. Income and wealth inequality has been increasing over the last few decades and the forces driving the inequality will continue. I have various reservations about his technical analysis together with my view that the only thing which is inevitable about social trends is that they are not inevitable. But to give Piketty his due, he set out the challenge of economic inequality firmly on the international nonfiction reading list and he has continued to work collecting the data which enables us to better understand the trends.

It is disappointing that a book by his fellow compatriot Jean Tirole (of the Toulouse rather than Paris university) has not generated the same public interest. My local bookshop (Unity of Wellington) tells me that they sold ten times as many copies of Piketty’s book In its first six months as Tirole’s Economics for the Common Good, even though in many ways it is a more important book.

The different receptions cannot simply be about ‘fame’; Tirole became a Nobel Laureate in economics in 2014. Nor about length; his book is a mere 563 pages. Perhaps its lack of public profile reflects its lack of startling predictions; rather it is a book on how to think about major economic issues.

With the exception of the chapter on the GFC, each chapter can be read independently of the others and they are not too technical except towards the end where Tirole gets into industrial organisation, the  area for which he was awarded his Nobel prize. (They are all the more fascinating because they get you up near a fast-moving frontier.)

Like Piketty’s, this book reflects the more dirigiste French view of economics with a wider vision than the narrow neoclassical economics which frames much of our public discussion. The French are so much more willing to contemplate intervention for social ends. (Both Piketty and Tirole also hold chairs in major US economics departments, so their work is respected by top American economists.)

Indeed the book’s title, with its reference to the common good, would be seen to be provocative by many narrow economists (although their focus on the individual good is as controversial, once you understand where they are coming from).

Tirole defines the common good for policy decisions by using the ‘veil of ignorance’ of  John Rawls. Choosing between options, we pretend we do not know what our social position is and how the policy will act on us personally. So we take into account what might happen to us when we have the lowest social position and judge the policy options from that perspective. This switches economic policy from its standard pro-rich bias to one more in the interests of the poor, although it need not be anti-rich since their actions may lift the wellbeing of the poor too.  (While the approach has considerable relevance for evaluating distributional outcomes, I have found it invaluable in other policy areas involving different impacts by gender, ethnicity, degree of disability, age and so on.)

Tirole does not stop there. Chapter 2 is about the moral limits of the market. His point is not to impose his morality but to insist that an economist evaluating a market cannot ignore moral concerns (or slyly impose their own morals). Their role is to  make explicit the consequences of a decision, allowing others to impose their moral checks on it.

Subversion pervades the book. Tirole does not see the fundamental policy issue as choosing between the state and the market but how the state is to design markets to align individual incentives with the common good. For instance, he does not rule out industrial assistance but tries to set out when support may be justified.

Although Tirole is writing for an international audience, he does not ignore French preoccupations. (His chapter on labour markets is almost entirely about French conditions and gave me a much better insight of what French president Emmanuel Macron is on about.)

A constant theme in the book is that the French (and we, I would add) have to be much less distrustful of the market mechanism Tirole is certainly not in the neoliberal camp of the pure market is best. Instead he supports careful design to enhance the common good. It should be seen as an instrument of public policy rather than an end in itself. (So there is a passionate chapter on the challenge from climate change where he advocates more use of market mechanisms.)

Tirole’s interests and expertise are wide (although there is little on distributional economics).The last few chapters of the book describe how we need better designs for markets dominated by monopoly, digitisation, intellectual property and innovation. (Since the first edition in French was published in 2016 there is no discussion on recent concerns of how social media’s funding is distorting its overt purpose.. But the book does prepare one. I guess that Tirole would snort ‘you didn’t think you were getting it for free, did you?’.)

Three chapters are devoted to the economics profession and being an economist. A recurring theme is the importance of making economic ideas comprehensible to a general audience. As a rule the book does this well although you will read a bit more slowly towards the end.

As I read, I kept thinking of those who pontificate on the sins of economics based on having done a one-year course in economics or less. It’s a bit like calling yourself a mathematician because you were trained (often badly) to count.

Yet I wondered how many professional economists were taught the approach that Tirole’s book presents and the material it covers. It would be anachronistic to expect all but the most recent graduates to have been taught the book’s exact contents, but too often their approach is so much narrower and nastier. One can but commend the oh-so accessible book to those professionals and laypeople who want to participate in our economic discourse in an up-to-date and socially aware way. Our policies would be more pragmatic and caring and New Zealand would be a pleasanter place if they did.


PS. Catton outsold Piketty eight to one at Unity.