Book Review: "Economics Rules"

As y'all know, I love a good book about econ philosophy-of-science. Economic Rules: The Rights and Wrongs of the Dismal Science, by Dani Rodrik, is my favorite book in this vein to come out in quite some time.

I gave Rodrik's book a glowing blurb in Bloomberg View, and it was well-deserved. But actually I do have one big problem: the first two chapters. These chapters consist entirely of Rodrik's very general thoughts on economic models, and what they should and shouldn't be used for. 

The problem with these early chapters is the audience. Economists will already have heard most or all of these philosophical ideas. Non-economists, in contrast, will probably not understand what they're reading, because the chapters are written in sweeping, general terms, and move very quickly between a number of difficult topics that each require a good deal of background knowledge. So these early chapters suffer the same issue as Karthik Athreya's Big Ideas in Macroeconomics - they fall into an uncanny valley, too old-hat for economists but too inside-baseball for non-economists. 

So I fear that many readers may get turned off early and not finish the book. Which is a shame, because the latter two thirds of it are really excellent, and should be read carefully by economists and non-economists alike.

Rodrik really shines when he talks about his own field, development econ. He gives a vivid recounting of the Washington Consensus - why it was adopted, why it went wrong, and how the mistakes could have been avoided. The story of the Washington Consensus provides the perfect backdrop for Rodrik's ideas about what economists and models should do. The episode demonstrates why it's important for policy advisors to look at a bunch of alternative models, and use personal judgment to choose which ones to use as analogies for reality. It is the perfect example of the "models as fables, economists as doctors" worldview that Rodrik is trying to lay out.

In fact, I wish more of the book had been about trade and development economics. Rodrik's blog posts and articles on these topics are always top-notch, and when you look at how Rodrik has struggled with these topics, you easily understand why he thinks about modeling and policy recommendation in the way that he does.

Anyway. Enough nitpicking. It's Rodrik's book, not my book. 

Chapters 3 through 6 of  Economics Rules alternate between Rodrik's criticisms of his colleagues and his responses to outsiders' criticisms of the econ profession. On all of these points, I find myself pretty much in agreement with him. It's very difficult to sum them all up (so go read the book), but here's a few that really stood out:

* Rodrik notes that economists tend to present a much more simplistic, pro-market stance to the public than they show in their research and behind closed doors. He attributes this to economists' widespread belief that the public is biased against markets. Rodrik suggests that economists give the public a little more credit, and change their public stance to reflect the true diversity of their views. That sounds right to me.

* Rodrik strongly criticizes the New Classical and RBC macro theorists of the 1980s. He essentially accuses them of trying to create a grand unified Theory of Everything, which in econ is just never going to work. That sounds about right. 

* Rodrik tries to counter the criticism that economists ignore things like norms. In doing so, he basically says "The evidence shows that norms often matter, and economists pay attention to the evidence." This demonstrates Rodrik's deep respect for data and evidence. He doesn't even mess with the question of "theory vs. data" - to Rodrik, the two always go together. I admire that a lot.

* Rodrik does say one thing that kind of bothers me. He says that economics, unlike science, doesn't replace bad models with better ones - it just makes new models, expanding the menu of models that policy advisors have to choose from. That seems very true in practice. You rarely hear economists talk about models being "disproven", "falsified", or "rejected". But to think that any model is appropriate in some situation seems wrong to me. There are always many more models than real-life situations. Most of those models are just never applicable or useful to any real-world phenomenon. I think economists could stand to recognize this more.

Anyway, this is a great book, and a quick read. Get it and read it if you haven't.