Review of Foundations of Real World Economics: What Every Economics Student Needs to Know (Komlos 2019)

Abstract

Everyone who teaches undergraduate economics should read Foundations of Real World Economics: What Every Economics Student Needs to Know (Komlos 2019). The book provides a checklist of what is wrong with contemporary economics, especially as taught at the undergraduate level, and offers a host of interesting new directions. The book mentions basic income only briefly – with the author briskly expressing preference for guaranteed employment over guaranteed income. The richness of the writing and tables on employment, income, consumption, and inequality, however, can support debate in courses that address basic income. The coverage of inequality, drawing on Piketty, Saez, and Zucman, connects the trends to an analysis of why and how market economies produce more inequality than in the past. Inequality recurs in the sections on oligopoly and oligopsony, on the failures of market-based regulation, and on the returns to factors of production. Komlos expresses some idiosyncratic tastes. Christopher Lasch and Daniel Bell appear, which might scandalize both neoclassical economists and Marxists. Komlos casts a skeptical eye on conspicuous consumption, incomes, and debt. The excellent chapter on endogenous preferences, “Taste Makers and Consumption,” features witty and memorable illustrations, such as, “Doctors for Camels Exploit the Gullibility of Consumers.” The climate change discussion is elegant, but controversies around degrowth, which tend to engage students and which could link well to the skepticism of consumerism, do not appear. Some explanations and models are too abbreviated for students in introductory courses. For example, the diagrams on path dependence are difficult to follow for a reader without a background. “Corporations Invest Heavily in Order to Tilt the Playing Field in Their Direction” (Figure 8.2), is tangled in its outline of government lobbying, private advertising, and multiple audiences, although the one-line description, “In the real economy, tastes are endogenous, moneyed elites influence government, and there is herding behavior,” makes the point. Komlos’s approach is ad hoc, nuanced, and in no one’s vest pocket. “Price controls can be good” will provoke neoclassicals, but underconsumptionists may balk at Komlos’s assertion that the “endemic budget deficit” means that we are “taking our chances” with the future. Komlos’s approach is honest and ecumenical, but it is not clear that the eclectic approach can position students, especially at the introductory level, to understand the world systematically. An early chapter, “Homo œconomicus is dead,” thoroughly demolishes the neoclassical vision. But foundations require a constructive agenda, providing a paradigm for future inquiry and a ready rubric for estimating the right answer to pressing economics and policy questions. The Homo œconomicus model of maximizing behavior in largely competitive markets leads to the answer to rent control. The Keynesian emphasis on circular flow with attention to disrupted flow leads to the answer to recession. Marxian class conflict and capitalist circuit of capital lead to the answer to exploitation. Even institutional economics provides guidance (learn the details and the history and appreciate the contextual limitation of understanding). But Foundations of Real World Economics mostly pursues an agenda of fragmentation and demolition. Komlos critically reviews these approaches and sketches behavioral economics, neuroeconomics, biological economics, and even genomo-economics but settles on no final candidate for the new foundation. Behavioral economics has infuriated mainstream economists because it fragments motivations and expectations. One approach would be to rebuild micro with more realistic and psychologically informed behavioral rules. An alternative is to train students in identifying alternative approaches. Komlos has clearly been influenced by neoclassical, Keynesian, Marxian, institutionalist, and behavioral economics but resists either adopting one