Abstract
The book by John Komlos (2019) makes a valuable contribution to the literature. It will probably work better, however, as a reference text for teachers and scholars than as a textbook for “Econ 101.” As detailed in this review, the key for determining how the book will be useful is identifying its dominant function.
The structure of the book is straightforward. Chapter 1 serves as the Introduction: “Welcome to Real-World Economics.” Chapters 2 through 13 are the main content. Chapter 14 discusses the lead up to, and then the U.S. response to, the 2008 economic crisis. Chapter 15 is “Conclusions: The Foundations of Real-World Economics.” Each chapter includes footnotes that tie into the literature. The book includes figures, 18 tables, 13 illustrations, and a comprehensive index.
In the Front Matters section, there are two paragraphs indicating the purpose of the book and its intended audience: This textbook offers students a valuable and introductory text with insights into the working of real markets not just imaginary ones formulated by blackboard economists . . . for students . . . this textbook redresses the existing imbalance in economic teaching . . . . [the book] sketches the outline of capitalism with a human face, an economy in which people live contented lives with dignity instead of focusing on GNP. (p. i)
The book includes a wide range of topics from the undergraduate curriculum. To name but a few, there are discussions on the nature of demand, utility functions, firms, factors of production, and aspects of microeconomics. Chapters 10 to 12 are devoted to macroeconomics. Chapter 13 is on international trade.
In each chapter, the pattern is more or less the same. Komlos summarizes his interpretation of mainstream terms. He then appeals to data and reports and makes observations about actual circumstances. While not the only purpose of the book, in each section he attempts to present “a real-world perspective as opposed to the fantasy of mainstream textbooks” (p. 1). Among other things, he claims that “conclusions reached by the process of deduction from assumptions as practiced by the mainstream are logically valid in theory and work well on blackboards of academia but often turn out to be toxic at street level” (p. 31).
As the chapters proceed, Komlos builds his case for why he thinks “mainstream economics is in need of a paradigm change” (p. 10). He also points out that “although many economists and students have rejected the simple mainstream models, their views have not been adequately represented in mainstream textbooks” (p. 11).
Throughout, Komlos reveals his humanistic perspective and concern. As a case in point, he characterizes the traditional Ricardian trade model as an “example of the misapplication of economic principles is economists’ unconditional support of free trade without regard for those who are devastated by the foreign competition” (p. 13).
It would not be fruitful to attempt a summary of his detailed arguments, but I can point to a few: Chapter 2 suggests that currently the economy fails roughly 40% of the U.S. population (p. 39). He is concerned about the reach and influence of Madison Avenue. He accuses corporations of exploiting the psychological weaknesses of consumers to artificially create demand (p. 47). He draws attention to “The Illusion of Perfect Competition” and concludes that we should not complacently assume efficiency in markets (p. 101).
In Chapter 8, Komlos argues that we need oversight, regulation, and control of markets. In Chapter 11, partly by appealing to data and surveys (one of which includes a ranking of “human happiness”), he wants the reader to uncouple the faulty link between economic growth and life satisfaction (p. 194). In Chapter 12, Komlos argues that taxes are the price we pay for public goods. Furthermore, he argues for the government’s role as a macroeconomic regulator. In Chapter 13, he turns his attention to the “deleterious consequences” (p. 219) of overreliance on free trade as he takes the theory of comparative advantage to task. In Chapter 14, Komlos lists what he believes to be 31 factors that contributed to the 2008 crisis. He outlines what he views to be errors made by the Obama administration in their efforts to handle the crisis. Chapter 15 includes a list of eight “inconvenient truths” about the U.S. economy and describes 14 “headwinds” the U.S. economy faces.
Komlos concludes, “Hence, we need to reform the economics discipline so that it begins with empirical evidence as its basis rather than deductive theories written on college blackboards” (p. 272).
On the positive side, the book draws on extensive research, including data on wealth, income, growth, productivity, and taxes, to name a few. Komlos proves to be a shrewd observer of a wide range of contexts and circumstances. He convincingly focuses the reader on the evident disconnect between mainstream models and street life.
Some of his suggestions regarding methodology are on point and are consistent with, for instance, emerging heuristics in ecological economics that economics is not separate from but a component of world processes. He pays particular attention to the shortcomings of policies that are too reliant on blackboard economics. For instance, regarding the 2008 meltdown, Komlos points out that “[w]e could have bailed out the banks without bailing out the bankers and attached enough strings to the bailout package so that the taxpayers would have owned the upside as well, not only the downside” (p. 256).
I do have some issues with the book. A minor point, but it would have been good if—in a Preface perhaps—Komlos would have indicated the differences between the first and second edition.
For various reasons, I doubt that the book will work well as an entry-level text for students. Each chapter includes the author’s views, claims, inferences, opinions, and informed speculation. That manner of expression, however, provides little foothold for beginners to reach preliminary understanding of key issues, models, and real-world circumstances discussed and referenced in tables and charts. Questions of omniscience and omnipotence of markets (Chapter 2) and “homo oeconomicus” (Chapter 4) are advanced topics that require historical perspective and foundational background well beyond the norm for students in “Econ 101.” Also, lacking are “best practice” pedagogical strategies such as reviews, exercises, problems, applications, worked examples, case studies, supplementary sources for students, topics for discussion, and student projects.
I need to mention a few technical matters. No doubt, teachers or scholars who use the book will sort these out. But I felt that some comments would be appropriate. Chapter 4 touches on the need to integrate results from the sciences and human sciences. But the topic is scantily treated. This would be understandable if the book were a standard undergraduate textbook. But in the context of the intent of the book, the lack of such an integration remains a major problem. In addition, references in footnotes do not mesh with recent work.
As another example of a technical issue, the discussion of utility function rests on the same type of assumptions often used. While the function itself follows all of the mathematical rules needed for a demonstration of utility maximization, it is not motivated by anything in the real world.
While Komlos intends to take the reader from the blackboard to the real world, he provides no new theory by which to explain data and the problems he discusses. In the concluding discussion, the book implicitly calls for “non-anemic” gross domestic product (GDP) growth, productivity, and development. Unfortunately, Komlos relies on the traditional definitions of these terms as defined by mainstream models and offers no new definitions or new models that allow us to move forward.
Komlos advocates for a new approach that builds on empirical evidence rather than deductive models. He professes that capitalism should have a “human face” (p. 272) and the book helps underline these two needs. But as alluded to above, neither of these address the structural problems. For instance, except for making suggestions that government help reduce volatility of the business cycle, the book accepts that the business cycle is a normal and inevitable feature of economic processes. Nor does Komlos attempt to explain the function of markets that link Wall Street to Main Street, even though this linkage is a recurring topic of public discussion.
Was the economic crisis of 2008 the “greatest meltdown in the history of mankind”? (p. 272) The emphasis on this question is one of the ways that the book seems overly focused on recent events rather than taking a more historical perspective. While not to downplay the severity of the 2008 crisis, it was only one especially troublesome manifestation of deepening global economic, cultural, and ecological crises.
As I write this review (May 2020), the world has been struggling with the Covid-19 pandemic and its dire economic consequences. Initially, reports were of a strange flu-like disease. More recently, precise communiqués from the medical field tell of surprisingly diverse symptoms. For the most part, governments and medical organizations of the world have been doing their best to deal with the problem. The ethos has been, in a word, humanistic. Obviously, in order for governmental policies to be effective, new understanding in biochemistry also is needed in this case. Fortunately, progress is being made both in finding medications and toward developing vaccines.
In the sciences, the pattern just described is normal. Discovering and reporting anomalies can reveal the need for new understanding. And through new understanding comes progress. Komlos’s book is a contribution of that genus. That is, by tracking through the undergraduate syllabus, and by looking to numerous situations, the author draws attention to diverse ways in which mainstream economics is inconsistent with “real-world economics” and is perhaps harming humanity.
When communicating with colleagues, such reporting can be brief, dense, and journalistic, as is the writing of the book. So, while probably not suitable as a textbook for first-year students, it can serve well as basic research, preliminary reporting of anomalies in the field. The book helps reveal the need of a “new approach” (p. 272), a new “understanding” (p. 4), and that we “need to rethink economic principles” (p. 9). Consequently, it could also serve as a supplementary text for teachers of “Econ 101” and beyond. Topics could be selected from the book but would need expansion and pedagogical presentation.