Book review: Common Sense Economics

I have an intense dislike of the caricatures that some people have of economists as libertarian free-market fundamentalists. While it is true that there are some economists, possibly many, who genuinely believe that markets are the best and only way to organise economic activity, and the government should just get out of the way, that view is by no means universal.

So, I was extremely disappointed to read Common Sense Economics, by James Gwartney, Richard Stroup, Dwight Lee, and Tawni Ferrarini. A book with that title has set itself a high bar, but this book simply paints a picture of an economics that is out of touch with the importance of understanding market failure, the limits to rational behaviour, and the necessary role of government as more than simply an impediment to growth and prosperity. Nowhere is there a hint that the 'common sense economics' portrayed might not be the view of most economists.

To be clear, the economics in the book is not bad. It just fails to consider that the purely rational, full-information, complete-markets model of the world is not the one that we observe around us. While it is important for economists and economics students to understand the ideal model of markets, a common sense approach to economics needs to be grounded in the real world and recognise the limitations of the theory.

With the markets-first approach to economics given primacy, a very strong libertarian narrative persists throughout the book. Take this quote:

Government is a little bit like food. Food is essential, but when consumed excessively, it leads to obesity, energy loss, and other health-related problems. Similarly, when constrained within proper boundaries, government can be a powerful force for prosperity. But when it expands excessively and undertakes activities for which it is ill-suited, it undermines economic progress.

Now read that paragraph again, substituting "the market" in place of "government". It makes just as much sense, and is just as accurate. The authors present these sorts of libertarian ideas as 'common sense', but it mostly comes across as unconvincing. They could make a stronger case if they provided adequate support for some of their assertions, but that support is sorely missing. Take this example:

The political process will favor older firms, even if they are economically weak, over newer growth-oriented firms.

That might be true, but is left as an assertion with no empirical or even anecdotal examples, let alone theory, to support it. There are many similar examples.

The book isn't all bad, however. The last section is devoted to personal finance, and contains mostly good advice. However, it is an abrupt change of pace from the rest of the book and seems a little out of place. From my perspective, this section goes some way towards redeeming a book that otherwise seems to exist to paint an enormous target on economists. However, even though the personal finance section is good, there are much better books around that are devoted purely to personal finance.

Overall, I don't recommend this book for any lay reader who wants to understand economics. The only people who will get substantial value out of the book are those who (unfairly) want to paint economists as out of touch with the real world.