Book review: Economics for the Common Good

There is an unwritten expectation that Economics Nobel Prize winners will write a book soon after their award (if they have not done so already), expounding their great ideas or contributions to the discipline in a way that is accessible to a general audience. However, as many of these great economists have spent their careers in academic circles, not all are well equipped to connect with a generalist audience. I am reminded of the essay The Hedgehog and the Fox by the philosopher Isaiah Berlin, that draws on a quote from the ancient Greek poet Archilochus: "a fox knows many things, but a hedgehog knows one big thing". Some economists are hedgehogs, and they have made deep contributions in a single area of research (or several closely related areas). Others are foxes, with contributions across multiple different areas of research.

When it comes to economics research, the 2014 Nobel Prize winner Jean Tirole is a fox, having made contributions to our understanding and regulation of natural monopoly, platform markets (or two-sided markets), and several other research areas. So, I was looking forward to reading his 2017 book Economics for the Common Good, which I have delayed reading for far too long (in part, daunted by its 550 pages including notes). And the book starts well. Tirole summarises the aim of economics for the common good as:

Economics works toward the common good; its goal is to make the world a better place. To that end, its task is to identify the institutions and policies that will promote the common good.

The 'common good' that Tirole refers to is the collective well-being of society. There is little to argue against this as a goal for economics, or for the book. However, as a fox, Tirole knows many things, and it appears that this book is to be the venue for all of those things. So, rather than a clear and well scaffolded exposition of economics' potential contribution to the common good, from an expert in particular institutions, the book is instead a collection of several different, and tenuously related, threads, any of which could have been expanded into a book treatment on its own. Part I talks about economics and society, markets and market failures, before Part II outlines the role of the economist and some of the basic assumptions of economics. Part III discusses an institutional framework for the economy, and Part IV presents and discusses a number of macroeconomic challenges, including climate change, labour markets, the European project, finance and the 2008 financial crisis. Finally, Part V delves into industrial economics and competition policy, an area where Tirole has made the majority of his research contributions.

The problems with such a diverse book are twofold. First, Tirole isn't able to give a deep treatment to any of the particular topics. This is problematic in the early chapters, which feel like they are underexplored, and in the last part of the book, which is too technical and could easily have been explained in a more accessible way if more space was devoted to it. Second, while the common good was presented at the beginning of the book, I felt like it was less of a unifying theme than might have been expected given the title and the introduction. The book simply tried to do too many things, and would have benefited more from a focus on a more narrow aspect of the research areas that Tirole has great expertise in, such as regulation. In that sense, a book that is more like Alvin Roth's Who Gets What - and Why (which I reviewed here).

So, overall, I was a little disappointed in the book. Having said that, there were a number of highlights. Unlike many books by economists and others, Tirole does acknowledge realistic political constraints on decision making, such as:

The enthusiasm for top-down approaches originates in governments' desire to appear to be doing something to tackle climate change. Patchy but expensive initiatives that are visible to voters but concealed from consumers (because they are included in feed-in tariffs imposed on electric utilities or in the price of goods and services) are politically less costly than a carbon tax, which is very visible to those who have to pay it. Subsidies are always more popular than taxation, even if, in the end, someone has to pick up the bill for them.

I also really appreciated Tirole's views on government and the market:

This analysis shows that the market and the state are not alternatives but, on the contrary, are mutually dependent. The proper functioning of the market depends on the proper functioning of the state. Conversely, a defective state can neither contribute to the market's efficiency nor offer an alternative to it.

And:

Some of those who want change envision a vague alternative in which the market would no longer be central to society; others, on the contrary, favor a minimalist state that would make laws and dispense justice, maintain order and conduct national defense, the minimum functions necessary to enforce contracts and property rights necessary for free enterprise. Neither of these two approaches help deliver the common good.

Tirole also has some fun in the book, including a short discussion of the economics of 'dwarf tossing'. The best parts of the book to me, though, were those parts at the end where Tirole has the most experience, and the most to offer. I made a number of notes that I will incorporate into my teaching of platform markets and natural monopoly. However, in general those sections were more technical than necessary. If they had been made a little more accessible to the average reader, this would have been a much better book.