Economics Notes by Ha-Joon Chang

What is Economics?

• Instructor: Ha-Joon Chang, Department of Economics, SOAS University of London.

The Scope of Economics

• Economics is sometimes viewed as the 'Science of Everything'.
• Examples of books that apply economic principles to diverse areas:
  • The Undercover Economist by Tim Harford.
  • Freakonomics by Steven D. Levitt and Stephen J. Dubner.
  • The Open Economic Naturalist by Robert H. Frank.
  • The Logic of Life by Tim Harford.

Standard Definition of Economics

• Economics is defined as “the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”.
• Attribution: Lionel Robbins, An Essay on the Nature and Significance of Economic Science (1932).
• This definition implies a focus on rational choice theory as the primary methodology.
• Alternative view: Economics should be defined by its subject matter (the economy) rather than its methodology.
  • Subject matter includes: money, jobs, transfers, consumption, production.
  • This allows for diverse approaches to studying economics, similar to the multiple approaches in biology.

Main Topics of Economics

Consumption

• Consumer behavior: responses to changes in prices, quality, advertising.
• Influence of social factors: class backgrounds, cultural norms shaping consumer preferences.

Production

• Organization of production activities within firms.
• Development of production capabilities: R&D, worker skills, relationships with other firms.
• Competition and cooperation among firms: Industrial Organization, monopoly issues, competition policy.

The Macroeconomy

• Economic variables affecting most economic agents:
  • Aggregate levels of consumption, investment, and savings.
  • Government spending levels.
  • Interest rates and money supply controlled by the central bank.
• Influence of these variables on the behavior and interaction of economic agents.

International Trade, Investment, and Production

Economic Development

• How former colonies can improve their economic and social conditions, and why they sometimes fail.

Environment

• Addressing pollution, climate change, and other environmental problems.
• Seeking compatibility between economies and nature.

Reproductive Economy (or Care Economy)

• Importance of care work and household work (often unpaid, mostly by women) for society and economy.
• Negative impacts of gender discrimination and patriarchy on society and economy.

Finance

• How money flows influence decisions about consumption, investment, and work.

Labour

• Employment and unemployment.
• Trade unions.
• Working conditions (and class struggle).

Poverty and Inequality

• Distribution of income, wealth, and power.

Economic History

• Development of economies over time.

History of Economic Thought

• Different economic theories, their development, and interaction.

Different Schools of Economics

• Nine major schools:
  • Classical
  • Neoclassical
  • Marxist
  • Keynesian
  • Schumpeterian (neo-Schumpeterian)
  • Austrian
  • Institutionalist (Old and New)
  • Behaviouralist
  • Developmentalist
• Several smaller schools:
  • Neo-Ricardian
  • Latin American Structuralist
  • Evolutionary
  • Feminist
  • Ecological

Comparing Different Schools of Economics

• Reference: Economics: a User's Guide: a Pelican Introduction by Ha-Joon Chang (2014).
• Classical
  • The economy is made up of: classes
  • Individuals are: selfish and rational (but defined in class terms)
  • The world is: certain (“iron laws”)
  • The most important domain of economics is: production
  • Economies develop through: capital accumulation (investment)
  • Policy recommendations: Free market
• Neoclassical
  • The economy is made up of: Individuals
  • Individuals are: Selfish and rational
  • The world is: certain with calculable risk
  • The most important domain of economics is: Exchange and consumption
  • Economies develop through: Individual choices
  • Policy recommendations: Free market or interventionism depending on the economist's view on market failures and government failures
• Marxist
  • The economy is made up of: classes
  • Individuals are: Selfish and rational, except for workers
  • The world is: uncertain, but with “laws of motion”
  • The most important domain of economics is: production
  • Economies develop through: Capital accumulation in productive capabilities
  • Policy recommendations: Socialist revolution and central planning
• Keynesian
  • The economy is made up of: individuals
  • Individuals are: Not very rational (driven by habits and animal spirits); ambiguous on selfishness
  • The world is: complex and uncertain
  • The most important domain of economics is: ambiguous, with a minority paying attention to production
  • Economies develop through: individual choices and technological progress
  • Policy recommendations: Active fiscal policy, income redistribution towards the poor
• Austrian
  • The economy is made up of: Individuals
  • Individuals are: Rational only because of an unquestioning acceptance of tradition
  • The world is: Complex and uncertain
  • The most important domain of economics is: Exchange
  • Economies develop through: Rooted in tradition
  • Policy recommendations: Free market
• Schumpeterian
  • The economy is made up of: Individuals
  • Individuals are: No strong view, but emphasis on non-rational entrepreneurship
  • The world is: Complex and uncertain
  • The most important domain of economics is: No strong view, but puts more emphasis on production than do the neoclassicals
  • Economies develop through: Technological innovation and change
  • Policy recommendations: Ambiguous- capitalism is doomed to atrophy anyway
• Institutionalist
  • The economy is made up of: organisations and institutions
  • Individuals are: boundedly rational and layered
  • The world is: complex and uncertain
  • The most important domain of economics is: interaction
  • Economies develop through: individuals and institutions
  • Policy recommendations: No strong view
• Behaviouralist
  • The economy is made up of: individuals
  • Individuals are: selfish but layered
  • The world is: complex and uncertain
  • The most important domain of economics is: No strong view, but some bias towards production
  • Economies develop through: no strong view
  • Policy recommendations: No strong view
• Developmentalist
  • The economy is made up of: Classes and institutions
  • Individuals are: No strong view
  • The world is: No strong view
  • The most important domain of economics is: Class struggle
  • Economies develop through: Temporary government protection and intervention
  • Policy recommendations: Ambiguous, depends on economist

Additional Notes

• 'The Singapore Problem' or