Book Review: Economics for the Common Good by Jean Tirole

“Economics for the Common Good is an ambition: to help our institutions serve general interest by studying those situations in which individual motives conflict with the interests of society, in order to suggest policies that align social and private interests.” Jean Tirole

 

Nobel Laureate Jean Tirole accomplished a seemingly impossible task with his book Economics for the Common Good (2017): he wrote about complex economic ideas and argued various normative roles for economists in an accessible and understandable narrative. The discipline economics is seemingly only really understood by those who enter into its study. In other disciplines the layman understands what is being studied: a historian studies the past ages of society, a doctor studies human anatomy and its manipulations, a biologist studies plants and animals. The layman understanding of what an economist studies may simply be that the individual studies money. As Tirole helps explain, the discipline of economics goes farther than it: economics studies how transactions between independent parties can be rationalized, can be manipulated, and can have effects for third parties. Economics is complicated, yet in his book Tirole explains economic theory, its relevance, and the role of economists in contributing to our wellbeing.

 

Apart from his powerful narrative ability, Tirole’s greatest strength is his breadth. The book has five parts: the relationship between economics and society, a discussion of the economist’s profession and his role in society, the relationship between the state and the economy, macroeconomic challenges (climate change, labour market reforms, the euro crisis, the 2008 financial crisis), and industrial challenges (digitization, intellectual property, innovation, sector regulation). The various chapters are explored by looking at a variety of examples (many of them in France), and each chapter can be read alone. For laymen, the chapters discussing the relationship between state and market, the economic challenges of dealing with climate change, the euro crisis, and the 2008 financial crisis are likely to be most interesting as they seem most relevant. The discussion of how challenges, such as asymmetric information, the freerider problem and externalities, impact international political debate on dealing with climate change is fascinating. His chapter on how immediate incentives, such as reelection, counter-intuitively incentivize politicians to pursue harmful economic policies is likewise impressive and relevant for the general public.

 

For economists the most impressive discussions are likely those relating to the normative role of economists within society. Tirole argues that economists must make greater effort to share their knowledge and findings within the public sphere to help explain how public policies can be used for the common good. Rather than only contributing research to their small academic circles, economists should seek to communicate their knowledge to the general population and integrate their knowledge within public policies. Tirole often remarks that the electorate simply blames elected officials when things go badly in the market economy, however, elected officials give us the policies we want and vote for. Politicians rarely veer away from majoritarian preferences, and Tirole argues that politicians give us the policies we want even though these policies may hurt us in the long run. Here the role of the economist is to point towards knowledge and evidence of why certain policies are bad and others good. Making sense of economic research and explaining how externalities, the freerider problem, and behavioural patterns affect the market, economists can help explain why things happen in a market economy in ways that politicians may not want to. Their findings can then help create policies that allow the market economy to operate for the common good, rather than the good of a few.

 

Economics for the Common Good is impressive in its accessibility and breadth. Tirole is most impressive in his ability to communicate complicated economic theories and public policy suggestions in laymen’s terms. Although a book about economics may not be the first choice of reading material for many, for those who pick up this book there will be lots to learn.

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