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Published: November 30, 2006

 
 

Best Business Books: Economics

What Mr. Warsh has written is a conversational but substantive sociology of economic model building around the idea of ideas in generating sustainable growth. To hear how a Nobel laureate like Robert Solow articulates his modeling philosophy versus how Nobel laureates Robert Lucas or Ken Arrow articulate theirs is to discover just how conceptually and technically idiosyncratic the field’s greatest minds can be. Readers gain insight into how high-level economists persuade their peers. By blending personality profiles and descriptions of the dueling mathematics, Mr. Warsh demonstrates both the economics and the politics of model building. This is how a science evolves. Yes, there are paradigm “shifts,” but there are also paradigm jerks, twitches, mirages, and meltdowns. Mr. Warsh comfortably describes them all.

Unfortunately, Mr. Warsh lacks both the quantitative and expository chops to take the mathematical models of Professors Romer, Arrow, or Solow and make them accessible to his readers. The book would have benefited from a successful deconstruction of the high math of New Growth theory into a narrative that let readers sense the virtues and limitations of formalism as a tool for thought. This is more than a quibble, because quantitative modeling is intrinsic to every issue Mr. Warsh addresses. And excising a malformed chapter on Microsoft’s monopoly travails would also have improved the book. The company’s adventures in antitrust really don’t resonate with the provocative “knowledge economics” themes that precede it.

Evolution and Complexity
Eric D. Beinhocker’s The Origin of Wealth takes up the technical challenge that Mr. Warsh shirked. Where Mr. Warsh’s journalistic sensibility makes him an effective storyteller, Mr. Beinhocker’s consulting background has made him a master synthesizer who packages “big ideas” into accessible taxonomies and ecologies. Mr. Beinhocker nonetheless manages to spin fine yarns, but always in the service of exposition. He cheerfully describes the guts of “genetic algorithms,” “fitness landscapes,” and “random graph theory” in a manner that any reader can grasp. Although The Origin of Wealth is emphatically not The New Economic Paradigm for Dummies, it’s clearly written to focus on the technical essence of economic evolution. The intellectual overlap between Mr. Warsh and Mr. Beinhocker is both complementary and creative. Comparable themes are examined from starkly different perspectives.

Where Mr. Beinhocker really shines, however, is in his discussion of how “traditional economics” has been gradually supplanted by what he calls “complexity economics,” an adaptive system of constantly changing networks that reflect the evolutions of society, technology, and business. His review and dissection of the simplistic, misleading, and pathological assumptions that inform “equilibrium economics” is simply masterful. Without mockery, he shreds the silliness and outright intellectual dishonesty that has kept so many flawed economic theories in contemporary curricula and policy debates for so long. In one especially apt passage, he compares the economists who keep traditional theory alive by using mathematical tricks and gimmickry to the technically gifted gearheads in today’s Cuba who keep their 1950s Cadillacs running like new. They’re trapped in a time warp; let’s move on.

But to what? Here’s where Mr. Beinhocker’s commitment to technical exposition yields increasing returns. After disposing of such dysfunctional assumptions as “random walks” and quests for “optimal efficiencies,” Mr. Beinhocker embraces the new math and models of complexity economics. To do so, he draws heavily on research and ideas from places like the Santa Fe Institute, where biologists, physicists, and economists collaborate to see to what extent their mathematics and metaphors can help one another. But Mr. Beinhocker’s great accomplishment is to present a variety of the singular ideas that can be assembled into economic models that indeed help explain the “origin of wealth.”

 
 
 
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