Unlike what most economists would tell us, Dr. Ha-Joon Chang said, economics is not a science but a political argument. He pointed out some of its limitations as it is practised today, suggesting ways to have it serve humanity better. The South Korean economist and bestselling author was at the LKY School to give a talk based on his forthcoming book, Economics: The User's Guide, written as an introduction to economics for the general public.
Dr. Chang said, The predominant view in the profession is that there's one way of doing economics. It's basically to set up some mathematical model, the more complicated the better. He noted that living beings are complex and economics should match it with an open pluralism.
His book advocates a return to fundamental issues in economics in the hope that it would address how to think, not what to think. One chapter introduces real life numbers, which he said is crucial to our ability to appreciate the subtlety and magnitude of changes and influences in our world. Numbers, often used as the cornerstones in economic arguments, are manufactured; their objectivity is based on theories and assumptions. He cited how gross domestic product, for example, excludes household and care work.
His book also examines production and work, long neglected in economics. He pointed out that standard economic theory defines people primarily as consumers and view work as a necessary evil. Yet this disutility affects us in fundamental ways practically and psychologically in our daily lives. It directly impacts our identities. As a result of this neglect as to how work works, people feel less happy despite higher incomes. He said, Unless work is taken seriously, any consideration of the welfare of society will be impaired.
It is difficult to change economic reality, sometimes due to active attempts of those who benefit from the status quo. The onedollar-one-vote rule of the capitalist market (also) drastically constrains those with less money to refuse undesirable options given to them. Yet, he asserted, The willingness to challenge is the foundation of democracy.
On the evolving happiness research
Monetary income doesn't really measure how happy people are. We try to measure it to give some objectivity, but other research has found that at least for the richer countries, there is no correlation between monetary income and happiness. Einstein once said, Not everything that counts can be measured, and not everything that is measured counts. This is a huge problem, but there are ways to make it more plausible.
Key dynamic shifts to break the "economy's cycle of myopia"
It's only been six years since we've had the biggest crash in living memory. The US stock market is 20 per cent higher than it was in 2007 although the US per capita income has not increased even by 2 per cent during the same period. There is widespread agreement that 2007 was basically bubble territory. So we're repeating the same mistake again and again. We haven't reformed the incentive structures since the last crisis, so we will still play the same game. Unless the system is changed, for example, by increasing capital requirements of the banks and restricting use of financial derivatives, this will happen again.
The role of government and real problems economics
Unlike professional economists, governments have to deliver. Sometimes ideas have to die with people, but governments have to respond to (changing) realities. Singapore is an exception par excellence, but many all over the world have ruined their economy by being overly driven by ideology. Initially, by socialism, then, a pure free market. This also happened to Latin American countries in the 1990s.
Melanie Chua is editor and case writer at the Case Study Unit.Email: melaniechua@nus.edu.sg