Bedtime economics

During his long life John Kenneth Galbraith could be counted on to write about economics for the lay person - scholarly and well-written books, without those annoying freehand diagrams of supply and demand, and without pretentious equations designed to impress rather than inform.

But since his death two years ago there has been a dearth of economics books that make for good bedtime reading.

Ross Gittins' Gittinomics (Allen and Unwin 2007) fills that void, and it's Australian.

Gittins explains economic ideas which, when presented in undergraduate courses, students find difficult. But his work is lucid; it flows easily, with plenty of everyday illustrative examples.

By the time the reader puts this work down he or she will have covered macroeconomic concepts such as the construction of national accounts, and their exclusion of unpaid work (which would add another 80 percent or so to GDP). Gittins covers many topics in microeconomics, such as how firms use price discrimination for different classes of consumers, and his explanation of the labour market - how we trade off between work time and other time - is sharp and clear. In a few paragraphs Gittins explains how the tradeoff between work and ‘leisure' looks very different depending on one's starting point (a point which most economics texts present in incomprehensible prose and complex diagrams of ‘indifference-curves'). Contrary to conventional wisdom, higher pay may motivate those with low incomes to work harder or longer, but it can have the opposite effect on the well-off. That extra $200,000 for a medical specialist or business executive is most likely to bring forward the day of early retirement.

He explains the treadmill of ‘joyless consumption' - our addiction to working longer hours to buy things we don't need to impress friends and neighbours who are engaged in a similar race. ‘We live in an era where the material is crowding out the human' he says in his concluding chapter.

Those who want a deeper understanding of the relationship between material progress and happiness can go to a work such as Avner Offer's scholarly work 'The Challenge of Affluence: Self-Control and Well-Being in the United States and Britain since 1950' (Oxford 2006). In Offer's work they will find more than adequate evidence for Gittins' generalizations. But Offer is not bedtime reading, and most of us would do well to polish off the more digestible prose of Gittinomics instead.

Most importantly, particularly in an election year, Gittins covers public policy issues such as ageing (it won't send us broke), health care, housing, education and crime. Politicians generally simplify these issues to the point of banality, but Gittins demonstrates that it is possible to explain concepts such as public goods and the difference between financial wealth and real wealth. (Your house may have doubled in market price over the last five years, but you still have the same house, the same wealth.)

Those seeking to apply a ‘left' or ‘right' label to the author will have misunderstood his work. Gittins' task is to explain, rather than to advocate.

I commend it, however, for those people, generally described as on the political ‘left', who are disengaged with economics. If those on the left do not enter the economic debate, they can hardly complain when governments practice bad economic policy - such as under-investing in education and physical infrastructure, dismantling our health care system, ignoring our environmental problems, or retarding our labour productivity under the guise of labour market reform.