On Balance: Books of Interest

The editorial staff have identified these books that are a bit off the beaten track of Benefit-Cost Analysis, but yet might have some interesting lessons.


Confronting Inequality:  How Societies Can Choose Inclusive Growth

By Jonathan D. Ostry, Prakash Loungani, and Andrew Berg. Foreword by Joseph E. Stiglitz

Columbia University Press, 192 pp., 2019, $30 (paper)

The distribution of income is a recurring theme in discussions of both theory and practice in benefit-cost analysis. The linkages between inequality and growth may indirectly suggest some new directions in these discussions.  See more from Columbia University Press, below.

Inequality has drastically increased in many countries around the globe over the past three decades. The widening gap between the very rich and everyone else is often portrayed as an unexpected outcome or as the tradeoff we must accept to achieve economic growth. In this book, three International Monetary Fund economists show that this increase in inequality has in fact been a political choice—and explain what policies we should choose instead to achieve a more inclusive economy.

Jonathan D. Ostry, Prakash Loungani, and Andrew Berg demonstrate that the extent of inequality depends on the policies governments choose—such as whether to let capital move unhindered across national boundaries, how much austerity to impose, and how much to deregulate markets. While these policies do often confer growth benefits, they have also been responsible for much of the increase in inequality. The book also shows that inequality leads to weaker economic performance and proposes alternative policies capable of delivering more inclusive growth. In addition to improving access to health care and quality education, they call for redistribution from the rich to the poor and present evidence showing that redistribution does not hurt growth. Accessible to scholars across disciplines as well as to students and policy makers, Confronting Inequality is a rigorous and empirically rich book that is crucial for a time when many fear a new Gilded Age.

Welfare States:  Achievements and Threats (Elements in Public Economics)

By Peter H. Lindert

Cambridge University Press, 75 pp., 2019, $18 (paper)

A persistent problem in benefit-cost analysis is how to assess the benefits of programs typically associated with a Welfare state.  By drawing linkages between growth in GDP and health, crime, immigration, and an aging population, this book provides some insight into understanding, in a qualitative way, what the programmatic benefits might be. If nothing else, the question of a "free lunch" and whether everything has a cost, is certainly relevant. See more from Cambridge University Press, below.

The traditionally, and wrongly, imagined vulnerabilities of the welfare state are economic. The true threats are demographic and political. The most frequently imagined threat is that the welfare state package reduces the level and growth of GDP. It does not, according to broad historical patterns and non-experimental panel econometrics. Large-budget welfare states achieve a host of social improvements without any clear loss of GDP. This Element elaborates on how this 'free lunch' is gained in practice. Other threats to the welfare state are more real, however. One is the rise of anti-immigrant backlash. If combined with heavy refugee inflows, this could destroy future public support for universalist welfare state programs, even though they seem to remain economically sound. The other is that population aging poses a serious problem for financing old age. Pension deficits threaten to crowd out more productive social spending. Only a few countries have faced this issue well.

Where Economics Went Wrong:  Chicago’s Abandonment of Classical Liberalism

By David Colander and Craig Freedman

Princeton University Press, 288 pp., 2019, $27.95 (hardcover)

While the topic of this fascinating book is not directly benefit-cost analysis, some of the issues—including how to think about the role of economics in policy, and the limitations of the viewpoint of economics as an exact science – are certainly relevant.  See more from Princeton University Press, below.

Milton Friedman once predicted that advances in scientific economics would resolve debates about whether raising the minimum wage is good policy. Decades later, Friedman’s prediction has not come true. In Where Economics Went Wrong, David Colander and Craig Freedman argue that it never will. Why? Because economic policy, when done correctly, is an art and a craft. It is not, and cannot be, a science. The authors explain why classical liberal economists understood this essential difference, why modern economists abandoned it, and why now is the time for the profession to return to its classical liberal roots.

Carefully distinguishing policy from science and theory, classical liberal economists emphasized values and context, treating economic policy analysis as a moral science where a dialogue of sensibilities and judgments allowed for the same scientific basis to arrive at a variety of policy recommendations. Using the University of Chicago—one of the last bastions of classical liberal economics—as a case study, Colander and Freedman examine how both the MIT and Chicago variants of modern economics eschewed classical liberalism in their attempt to make economic policy analysis a science. By examining the way in which the discipline managed to lose its bearings, the authors delve into such issues as the development of welfare economics in relation to economic science, alternative voices within the Chicago School, and exactly how Friedman got it wrong.
Contending that the division between science and prescription needs to be restored, Where Economics Went Wrong makes the case for a more nuanced and self-aware policy analysis by economists.


Economics of Regulation and Antitrust, Fifth Edition

By W. Kip Viscusi, Joseph E. Harrington, Jr. and David E. M. Sappington

MIT Press, 1,000 pp., 2018, $110 (hardcover)

While part of this book focuses explicitly on antitrust, a greater part is about economic regulation more broadly and about health, safety, and environmental regulation (including workplace and product safety, and pharmaceutical regulations). Although not about benefit-cost analysis per se, this book is loaded with benefit-cost and cost-effectiveness evaluations and covers how recent developments in behavioral economics apply to these types of analyses. See more from the MIT Press, below.

Regulation and antitrust are key elements of government policy. This new edition of the leading textbook on government and business policy explains how the latest theoretical and empirical economic tools can be employed to analyze pressing regulatory and antitrust issues. The book departs from the common emphasis on institutions, focusing instead on the relevant underlying economic issues, using state-of-the-art analysis to assess the appropriate design of regulatory and antitrust policy. Extensive case studies illustrate fundamental principles and provide insight on key issues in regulation and antitrust policy.

This fifth edition has been thoroughly revised and updated, reflecting both the latest developments in economic analysis and recent economic events. The text examines regulatory practices through the end of the Obama and beginning of the Trump administrations. New material includes coverage of global competition and the activities of the European Commission; recent mergers, including Comcast-NBC Universal; antitrust in the new economy, including investigations into Microsoft and Google; the financial crisis of 2007–2008 and the Dodd-Frank Act; the FDA approval process; climate change policies; and behavioral economics as a tool for designing regulatory strategies.


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