Prospect's books of 2018: economics

Since 2008 many books have tried to explain why the financial crisis happened. None has been as monumental as Adam Tooze’s Crashed (Allen Lane). Tooze, a historian at Columbia University, writes authoritatively on a wide range of subjects—from the workings of the credit default swap market to the intricacies of Italian politics and the geopolitics of Ukraine. These were not, though, the things that would eventually derail the global economy. Instead Tooze identifies the real culprits with a sharp, novel focus on bank balance sheets, and cross-border capital movements. And he notes that amid the mutual backslapping of pre-crash G7 summits and IMF meetings, nervous policy wonks were fretting about national “imbalances.”

Behind the mountain of technical detail, though, lies a simple question: who is the economy supposed to serve? In David Pilling’s The Growth Delusion (Bloomsbury), the FT writer argues that economics is “just one way of imagining our world” and that for too long politicians and economists have been under the false impression that nudging up GDP would mean more everything, for everyone, forever. As such they ignored key issues like inequality, sustainable development and human happiness.

Also shaking up economic orthodoxy is economist Mariana Mazzucato, whose The Value of Everything (Allen Lane) is an exposé of how value extractors and rent-seekers have been masquerading as value creators. All economic wealth creation is, she says, reliant on a well-functioning education system and good public services—two parts of our economy that we systematically undervalue in favour of a bloated financial sector. In his similarly challenging Money and Government (Allen Lane), Robert Skidelsky charts the rise and fall of Keynesian economics, outlining the flaws in pre-crisis orthodoxy and making smart suggestions such as better fiscal and monetary co-ordination.

The overweening power of the City is the theme of Nicholas Shaxson’s The Finance Curse (Bodley Head). Shaxson suggests that the UK is too reliant on its financial sector and that, overall, it makes the country both worse off and a worse place to live. Documenting bizarre forms of financial engineering, Shaxson asks the key question: “What is it for?” The same question could equally be applied to the way in which the UK has become an offshore haven for some of the most corrupt people on Earth, as described in eye-watering detail by Oliver Bullough in Moneyland (Profile). Complaints about dirty money in Ukraine or Nigeria ring hollow when so much of it flows through London.

After all this criticism who is left to defend capitalism? Perhaps the man to turn to is Adam Smith, arguably the most influential political economist ever. In his spare time from being a government minister, Jesse Norman produced Adam Smith (Allen Lane), an intellectual biography that provides a rounded portrayal of the Scottish thinker. Contrary to some contemporary admirers, Smith was no heartless neo-liberal: instead in The Theory of Moral Sentiments, he described a world in which relations of mutual exchange and human empathy were vital in keeping capitalism on the straight and narrow. Let’s hope Norman’s colleagues in government all got a free copy.