The Case for Economic Reasoning Finance & Development, December 2017, Vol. 54, No. 4
Economics for the Common Good
Princeton University Press,Princeton, NJ, 2017,576 pp., $29.95
In the wake of the global financial crisis, many observers—including the Queen of England, who asked why economists hadn’t foreseen the crisis—questioned the usefulness of traditional economics. Heterodox economists even called for alternative approaches. But French economist Jean Tirole spells out the usefulness of rigorous economic thinking for society in deep, yet accessible, language in his book Economics for the Common Good.
The strength of the book is its breadth. It brings clarity and simplicity to many complex topics covering various fields in economics ranging from climate change, labor market laws, and the global financial crisis to the euro crisis and the gig economy. Many illustrative examples—mostly from France—make the book accessible, and each chapter can be read on its own.
I particularly recommend the chapters on digitalization and the future of work, as they propose answers for challenges ahead.
The chapter on innovation addresses a number of interesting questions. How should property rights over data be regulated so that new firms won’t face barriers to entry? What are the implications of artificial intelligence and machine learning technologies that allow platforms to break up production into simple tasks and to discriminate among customers via surge pricing? How does the drift to a superstar economy—in which a small group of giant companies dominates—affect the optimal tax system in a dematerialized world of increasingly easy international tax arbitrage? Tirole, to his credit, does not focus simply on the efficiency gains of new technologies but also studies their impact on income and wealth inequality.