 Good afternoon. Thank you for coming. Can everyone hear me? I'm Michael Lind, Policy Director of the Economic Growth Program at the New America Foundation. And it's my great pleasure to welcome you to this event featuring Hajun Chong, author of Economics the User's Guide. Professor Chong is a professor at the University of Cambridge and a frequent consultant with organizations such as the United Nations and other international agencies. He's become very prominent in recent years as a spokesman for what is sometimes called heterodox economics which I would define as, to use another term, real world economics. I am not a PhD economist. Most of what I learned from economics, sadly was from sources other than the current neoclassical economics profession. I discovered in college as an undergraduate in college and in graduate school that if you wanted to learn about business organization or the structure of public utilities or government regulation or social insurance or waves of innovation and technology from the steam engine to the internal combustion engine, the last place you would actually go to learn about these fundamental aspects of the economy would be an economics department. And I thought that was kind of strange. It was sort of an astronomy department and say well I want to learn about stars and sunspot cycles and the rings of Saturn. And they say oh you're in the wrong place. We do orbital mechanics. We map the orbits of hypothetical bodies. But if you want to learn about the rings of Saturn you have to go somewhere else. So I hope that both in his presentation and in our conversation afterwards, Professor Chong will explain why economics in its familiar form in their other schools that he discusses in his very good book, Economics the User's Guide, why there's so little of the economy in economics. Thanks. Well thank you Mike. Well you've already done my talk. That's the summary of it in like one minute. But yeah let me give you a bit more flesh to this. I don't say it explicitly in the book but I sometimes say that I wrote this book in order to if you like democratize economics. Because economics today is an esoteric subject which ordinary people cannot understand. So when it comes to economic discussion people say oh yeah too difficult, too technical, I don't really know. I haven't got a degree. I've never taken a course in economics and so on. But why do people take that attitude? Because when it comes to everything else people are very happy to pound their opinions despite having no qualification whatsoever. Think of gay marriage, climate change, American foreign policy, you name it. I do the same. I have a strong view on American foreign policy but what do I know about international relations? I took one course in international relations back in 1983 when I was an undergraduate student in Korea and the crusty old professor who used the textbook from the early 60s. International relations theory I know is 50 years old and then I say all kinds of things. I'm sure you are the same. So this curious state of affairs has come to be because my professional colleagues have been fantastically successful in convincing the rest of the world that the stuff is so difficult that you don't understand it even if we try to explain it to you. So no need to sweat over it, just go home, be happy. But why? Why should it be like that? And indeed in my previous book 23 things they don't tell you about capitalism. I wrote a brief professional suicide note and said 95% of economics is common sense which my colleagues hate. Of course common sense but made to look difficult because we use all kinds of jargon and equations and graphs and to scare people off basically. And I believe that even the remaining 5% can be understood in its essence if not in all technical details if somebody bothers to explain it in an accessible way which is what I at least try to do in this book. So I pull all the stops I can think of. I give you Mary Poppins, I give you the Simpsons, or at least Ned Flanders, my favorite Simpsons character. I give you My Fair Lady, I give you Gone with the Wind, you name it. I try. But being accessible doesn't mean that I'm trying to give my readers baby version of economics or dummy's guide to economics. 5 things you need to know about inflation, 3 things that you have to know about the Chinese economy. No I don't do that. I take my readers very seriously and talk about all kinds of serious issues. What is economics? Can it be a science? Can economics and politics be separated? What are the ethical implications of economic discussions and so on? So in this book who's got another reincarnation in the form of the Pelican paperback edition which actually came out a few months earlier in Britain, the book basically tries to offer something completely different as Monty Python used to say. It is really different because as you can see from this table of contents I talk about a lot of things that you don't normally find in economics books these days, especially in introductory economics books. So chapter one has a discussion on what is economics. Chapter two and chapter three are basically history of capitalism. Chapter four different approaches or different schools of economics. Chapter five discusses economic actors. In this standard economics textbook they'll say well there are the households and companies and governments but I actually go into greater detail trying to show you that not all companies are the same. There are cooperatives. There are individuals whose souls are made of not just stand alone individuals but individuals who have their roots in society who sometimes get organized as unions. Some of the companies are cooperative rather than corporations and so on and so on. There are quite different stuff there and also in terms of the topics I talk about things like production which are curiously ignored in economics today and I'll talk about at least some of them later so let me move on. And then my book introduces people to lots of what I call real life numbers. Economics can be a number subject and indeed if you open an economic books that you will find lots of numbers except that economists really do not know these numbers. If you have anyone who has graduated with an economics degree, grab him or her and ask do you know what the national output of the United States of America is? Many of them will not know it. Even few of them will know how big the world economy is. Very few of them will know what proportion of that is produced by the US or China and so on. Because these numbers are not taught. Of course at one level why do you need to know any of these numbers? You need to know only one thing, Google. But even to know what to look for you need to know these numbers. Also unless you have some feel about these numbers you can come to a very distorted view of the world. Let me give you a beautiful example which is mentioned in the book but not for this purpose. In the days of the so-called Eurozone crisis the problem economy was Greece. Which was subject to this narrative which mainly came out of Germany saying that Greece's economic problem is because the Greek people are lazy. They don't work hard and then they expect to live like Germans. So they need to shape up. And then the focus was all about belt tightening and living within the means. Actually these people might have thought twice if they looked up the statistics before they formed the view. Because if you go to the OECD website which provides information on annual average working hours of citizens of different member countries you will find that the Greeks work 30% longer than the Germans. And 40% longer than the Dutch who are officially the laziest people in the world. Don't get me wrong, I like it. Why should we work all the time? The Dutch have the right to approach the life. But they work basically only half the time that the Greeks work. So whatever problem Greece might have is not a problem of work ethic. The Greek people work really hard. They're the longest working hour in Europe. Their problem is productivity. So the discussion should have been about investment, innovation, research and development, education skills, infrastructure, not about you are lazy, please work harder kind of moralistic lecture. Well, Americans also should know that Mexicans are the favorite whipping boy when it comes to preaching people to work harder. Mexicans actually work 25% longer than the Americans. Actually they work the longest hours in the OECD. Even longer than my fellow South Koreans who are supposed to be mindless worker ants. The Mexicans took us over a few years ago. Because we started becoming lazy. It's just one small example, but you see what I'm getting at. Unless you have some feel about these numbers, you can develop very strange notions about the world, and then you become very susceptible to outrageous theories and policies. I keep providing many real life numbers, but I also warn my readers that these numbers need to be treated with due skepticism. People who have studied economics probably know, but even basic numbers like GDP, gross domestic product, construction is actually complicated, but very roughly is the total output that an economy produces within a given period. But it doesn't include unpaid household work and care work which is mostly done by women. This leads to a gross undervaluation of women's contribution to the economy. Many estimates this amount to about 30% of our economy. You don't include it. The standard excuse is it's not transacted in the market. How do you know the value of mothers cooking for the child? You can to an extent estimate it by looking at the price of similar services done by higher domestic workers. Of course that domestic worker doesn't provide tender loving care, so that cannot be monetized, but at least you can try to monetize it to an extent. And indeed the statisticians are collecting this data to a great length to well, in technical words, impute market value to other activities that are not transacted in the market. For example, if you live in your house that you own there is no market transaction, but that doesn't mean that you are not consuming housing service. So these statisticians say, okay, I mean that this house is lived by the owner. What would he have had to pay if he didn't own it and went to the market to rent it? You can estimate that. And they added. So why do we not add household work? Okay, the point is not whether this is absolutely right or wrong, but these numbers are constructed on the basis of very particular theories, very particular political and ethical assumptions. This is why Johann Wolfgang von Goethe, the German writer and scientist said everything factual is already a theory. Okay, let's talk about some of these issues in some depth. First, let's talk about the definition of economics. If you ask non-economists, what is economics? People normally say, oh, it must be the study of the economy. Chemistry is the study of chemicals. Biology is the study of living things. Sociology is the study of society. So economics must be the study of the economy. Unfortunately, they'll be wrong. At least according to some of these books, the most popular economics books over time, according to them, economics is the science of everything. At least one person is a bit modest. Professor Robert Frank of Cornell University doesn't quite say everything. He says almost everything. Yeah, when they hear this, the usual reaction from non-economists is, oh, this guy is megalomaniac. They bungled up their own job. They couldn't explain the economy as proven by 2008 financial crisis and then they claim that they can explain everything. They must be megalomaniac. Well, I think there's a touch of that. But actually, it's not because they are megalomaniac that they make this claim. It's because of this very particular way in which the dominant neoclassical school has defined economics and it goes back to this definition given by Lionel Robbins who was the professor at the London School of Economics in the early 20th century. And his definition is basically the science of choice in the presence of scarcity. Once you define the subject like that it doesn't have to be applied to the economy. So a lot of economists started writing about applying so-called economic logic that is rational choice behavior to non-economic things and the culmination is free economics. If you look at free economics there's hardly anything that has anything to do with the economy. It's about Japanese sumo wrestlers colluding with each other. It's American school teachers cheating about their student marks. It's about British people being horrible to each other in quiz shows. There's nothing about the economy. So in this definition, economics is defined by this analytical methodology that is rational choice theory rather than its objective investigation that is the economy. But when you think about it, this is a very peculiar definition because all other subjects, astronomy, physics, chemistry, they are defined by the area of investigation not by research methodology. So think about the biology department. You go to the biology department there are people studying living organisms using all sorts of research methodologies. So there are people doing DNA analysis, others doing anatomy, people studying bone structure almost as if they are structure engineers. There are people doing nasty experiment with rats people building mathematical models of animal behavior. And there are even people who fly to the jungles of Rwanda, sit with mounting gorillas there all day and record what they do. Yeah, but they are all called biologists. I haven't met the biologists who say, oh, you know, biology can only be done by DNA analysis. That's the fundamental building blocks of life and any other method is wrong. But this is effectively what economists are doing today. Actually, as Mike mentioned earlier the perverse thing is that in this vision of what economics should be, this notion that the less relate to the real world it is, the better it is. So if you are the cleverest in an economics department these days you do not study the real world. You will do mathematical models of the most obscure things which might be related to reality by, I don't know, seven removes, but not immediately like the Turing machine or information cascade and so on. If you are a bit less clever you do econometrics which is analysis of economic data through sophisticated statistical means. If you are less clever than that you do development economics like I do. But if you can't even do that you become economic historian. And if you are by any chance going around factories managing sorry, serving the managers trying to understand how real life production is organized you are considered an idiot. No, I'm exaggerating of course, but that strange notion because for most economists today what you study is not what you make an economist. It's how you study it. It's a very purpose thing. So my condition is that economics should become like all other subjects. It should be defined in terms of this area of inquiry. Not most non-economists might say, gosh, that's so obvious. You're wasting time on saying these things. But believe me, this is a heresy in economics development. And unless you break that peculiar view of what economics should be, we will never have what Mike describes as real world economics being taught and learned in university. Now one important consequence of this perspective, the definition of economics is to make neoclassical economists believe that there's only one right way of doing economics or at least one most correct way of doing economics. But in the book I try to explain that there are actually no less than nine major schools of economics. Several more if you divide them up differently or if you include some smaller schools or if you divide the bigger schools into smaller ones so please don't think that this is some scientific taxonomy. But there are nine different approaches and the interesting thing is that there are no less than three different ways of defending the free market. Classical, neoclassical, Austrian. Really, I mean if economics is a science there can't be three correct theories. So they all defend the free market but they are all doing it in very different ways. Classical economists, Adam Smith, David Ricardo, John Stuart Mayer these people theorized the economy in a completely different way from today's neoclassical economists because in neoclassical economics there are only individuals. The classical economists talked about classes, capitalists, workers, landlords. They are completely different theories. I mean there are more differences I cannot go into that. Neoclassical school, of course I remember this, is not the same as free market economics. This is a common misconception. No it's not. Neoclassical economics contains the theory called free market failure and therefore you can justify quite a wide range of government intervention. This is why you have left-leaning neoclassical economists like Joe Stiglis and Paul Krugman while you also have people like Bob Lucas and Robert Barrow who are very gong-ho free market economists. So not all neoclassical economists are free market economists but as far as it defends the free market is defense is and I'm grossly exaggerating their defense is that people are rational. People know what they are doing. So just leave them alone. The Austrian defense represented by Friedrich von Hayek in America sometimes called libertarian economics, their defense is completely different. Their defense is no one including the individuals really know what's going on. So how dare you, the government, think you can tell other people what to do. Because the Austrians very much emphasize that the world is complex uncertain and our rationality is very limited. Yeah actually personally I find that defense of free market much more convincing than neoclassical. Maybe just to relearn this totally unrealistic assumption that we can calculate anything, predict everything and so on. But that's not the point. I mean the point is that there are these distinctive ways of theorizing about the economy and kind of defending the particular policy conclusion. We saw that with reference to free market policy but you can do it with all the others. So my contention is that we need all these diverse approaches to economics together because the world is really complex and they do not learn, the world doesn't lend itself easily to explanation by any one single theory. And to illustrate this point I often talk about what I call the Singapore problem or life is a stranger than fiction. Singapore is a highly successful economy and it's that poor capital income today is even higher than that of the United States and it's praised by many people but when you read about it in the standard sources I don't know the Wall Street Journal, the Economics magazine standard textbooks on international economics or development economics, you will only hear about this free trade policy and its welcoming attitude towards foreign investors which it has. But you will never be told that 90% of land in Singapore is owned by the government 85% of housing supplied by government owned housing corporation, most of them subsidized and a staggering 22% is produced by state owned enterprise state owned enterprises including the famous Singapore airline. So I put it to my student, give me one economic theory, it doesn't matter what it is at the New York classical Marxist, Keynesian, they can single handedly explain Singapore there isn't such a theory because it combines features of some extreme free market capitalism and extreme socialism it's just an extreme example but there are other examples Sweden, people think Sweden's some kind of social democratic paradise where everything is equal and no one owns much more than another but did you know that there's one family in Sweden, the Wallenberg family it's spelled Wallenberg but apparently you have to read it as Wallenberg this family owns directly and through a foundation controlling stakes, namely shares more than 20-30% which basically allows the dominant shareholder to control the destiny of the enterprise this family owns controlling stakes in companies whose collective market capitalization is depending on the year between one third and one half of Stockholm exchange do you have any family like that in America? I can keep giving you this kind of example but basically the reality is far too complex to be explained by just one theory so in this book I argue that we should let 100 flowers bloom, let different theories coexist and prosper this is an expression that Chairman Mao Zedong once used to encourage debate in China, of course he had an ulterior motive he wanted all the flowers to bloom so that he can cut the ones that he didn't like I don't have that intention, I don't have the power but genuine plea for economic pluralism I actually go one step further I say that these different theories should be cross-fertilized I mean I cannot go into the details but there are actually surprisingly large scopes for cross-fertilization between different schools which sometimes regard each other as mortal enemies so my advice is that you should try not to be a man or a woman with a hammer well this saying that he who has a hammer sees everything as a nail, often attributed to Mark Twain but I think it's not certain I mean it's the kind of thing that he might have said but you know anyway, so the saying when people acquire one theoretical tool they begin to apply it everywhere sometimes it's applied to the right context for the right purpose but in other times it's not so if you have a hammer and start banging everything it would be great if you are banging a nail it might just about work if you are banging a screw it might be a fracture if you are banging a jelly and it will be a disaster if you bang an egg so we need, as I say here, a Swiss army knife with a range of tools, of course you need the senses to judge what tool to apply when and these senses have to be acquired through the study of, not just economics institutions, ethics and so on okay let me cut out a bit for the sake of time and then in terms of the subject matters I mentioned that I talk about a lot of things that other books do not talk about like production and work, let me just talk about work work is a very interesting subject in economics because it's mainly mentioned only when it is absent on employment and we don't really think about the work itself but when you think about it most of us spend at least half of our waking hours in work unless you are Dutch because they don't work and we definitely spend the majority of working hours if you count in the commuting hours which can be up to six hours if you are some unlucky black guy stuck in one of these far-flung townships that the apartheid regime built and didn't provide any public transportation for these people have to rely on these things called taxes which are really mini buses run by these criminal gangsters totally unreliable so it's overcharging, roads are bad many of these people spend three hours just getting into work three hours to get out they hardly have time to sleep it's not just the simple hours that we are spending a lot of workers in developing countries are engaged in dangerous work the death rate from workplace accident in India is higher than in the United States these people are literally risking their lives to go to work we can find the work really boring like Charlie Chaplin did in modern times we can find it interesting and become more fulfilled it may even form our identity I mean I go into the details in the book basically the point is that the work affects us in so many ways and very often, very fundamentally down to the level of our identity but in today's economics is more or less ignored because the dominant neoclassical theory conceptualizes people basically as consumers so our aim in life is to consume goods and services and work is the convenience or this utility as it is called in the theory that people have to put up with so that they can earn some income with which they can buy those goods and services so basically our work is not a natural concern for this the economists yeah so you know in a lot of countries a good example in the last couple of decades work has become more stressful because work intensity has been cranked up, there's more psychological pressure jobs are more insecure and so on so a lot of people feel less happy but then economists come along and say oh no you guys should be really feeling happy because compared to 20 years ago your income is 20% higher why aren't you happy? but we should know because we are not happy in our work anyway throughout the book I emphasize that economics is a political subject, of course this is another heresy, economists say oh economics is a science New York Times frequently publishes articles written by professors from Harvard and so on trying to tell you why economics is a science and they say oh you know economics does its best not to make a political judgment yeah and this has been a century long project for neoclassical economics because economics in the beginning was called political economy Adam Smith wrote about political economy not economics and in the late 19th early 20th century when the neoclassical school came into being they said no no politics is not subject to scientific analysis we have to get rid of this so they changed the name first of all from political economy to economics and they introduced this allegedly a political criteria to judge what is a better economic outcome and the most important of it those is the political Pareto criterion it's named after Wilfredo Pareto who was a half Italian half French economist who lived in totally in Switzerland Pareto came up with this principle which says that you cannot call a social change an improvement unless it hurts no one while making at least some people better off this is a very serious principle because he was trying to defend individuals against tyranny of the majority and you know to explain this I give you the one finger story which isn't in the book so you at least get something for coming to these talks yeah so the story that I made up is that you know someone knocks on my door tomorrow morning and says oh Dr. Chang we found this wonderful technology that will solve climate change problem overnight and I say wow that's great and they say the machine's been built it's primed up it's ready to go but we need one tiny input which we need to start that machine and we want you to have the honor of providing that input and I say what is it and they say we need one live human finger you know I'll run into my kitchen before they finish the sentence and chop my little finger off and give it to them you know I'm saving the world but what if it's one arm I think I should do it but what if it's my life life of my whole family life of all 49 million South Koreans you know where do you stop it's an important principle however the flip side of this is that once again extreme example self if you suppose one country where one guy has a lot of money and everyone else is starving and you ask this guy will you pay some taxes equivalent to I don't know the 5% of your income so that everyone else can actually don't have to suffer from malnutrition after a guy says no then that's it according to Pareto Craterion you cannot push this guy further because it hurts one person I'm not saying that the answer to this dilemma is easy you know if you push it to the extreme both become really barbarous principles that I'm trying to make is that whether you like it or not Pareto Craterion Pareto principle is a political doctrine it's not neutral it's not apolitical it makes a particular stand it basically accepts the status quo as given and then within that you try to find a way to improve things without hurting anyone which in practice is often impossible I actually argued that the political nature of economics goes even deeper so in my previous book 23 things they don't tell you about capitalism I made this point at some length in the first chapter called there's no such thing as a free market and to discuss that I discussed the example of child labor in the 19th century when some social reformers were agitating for regulation of child labor most free market economies were up in arms this is going to undermine the very foundation of a free economy namely the freedom of contract these children want to work these people want to employ them what is your problem it's not like these factory owners kidnap these children and use them as slave labor it's a voluntary contract and who are you the government to say they shouldn't do it so at the time a lot of respectable people were totally in favor of child labor because it was consistent with this view that freedom of contract is the most important thing fast forward 200 years later I really haven't met anyone who says we need to bring back child labor to the United States to make it a truly free market economy one person almost said it didn't he some of you are laughing probably you know Newt Gingrich who in 2012 presidential election campaign said poor children should work as janitors in their schools apart from him I don't know anyone who makes this kind of point today and this change has happened not because economic history has changed but our political and ethical standards have changed as simple as that so when the very boundary of the market when the very boundary of the economy is drawn through politics how can you say the economy cannot or should not at least be entangled with politics okay let me move to the conclusion well my book is not just an explanation of economic theories and facts it's also about the role of economics in public life and in that regard I have about three sets of observations to make the first one never trust an economist and that includes me now this creates the kind of paradox that the ancient greek philosophers used to love because if you don't trust any economist how can you trust this economist don't trust any economist well I'll let the Greeks worry about it you know they are not my ancestors the point I'm trying to make is that professional economists do not have a monopoly of the truth and it is entirely possible for people who are not professional economists to have sound judgments on economic issues and indeed sometimes their judgments may be even better in reality and they may have a less narrow perspective now I'm not saying that they are necessarily better but there could be more importantly I would argue that the willingness on the part of ordinary citizens to challenge professional economists and other experts is really a foundation of democracy when you think about it all you have to do is to hire the most technocrat I don't know the economist with the phd from MIT the Oxford or wherever what's the point of having democracy the whole point of having democracy is that ordinary people can challenge these people and for that reason I would even argue that we all have the ability to learn some economics of course we are busy with other things so we cannot learn much but at least some economics so that you can have an opinion about these things and sometimes if necessary challenge the experts the next point is I'm not even going to pretend that I can read Latin so just look at it Gouda the Dutch city famous for cheese making I don't know how they managed to come up with this power of wisdom in the middle of all that cheese making but somehow they managed and I think it's a great sentence I'm not saying that we shouldn't have an opinion no no we all should have an opinion we all should have a position but in the end we have to have the humility to accept that all theories are partial including my favorite one probably you believe in it because you think it's less partial than others but it's still partial and the world is complex and I could be wrong or maybe my theory was right when I adopted it but then things have changed so much that now I have to revise my opinion or whatever and finally throughout the book even while I constantly make reform proposals I emphasize how difficult it is to change the economic reality sometimes the difficulty is due to the active attempts by those who benefit from the current arrangements lobbying, bribing, media propaganda, even violence we all know this the status quo gets defended sometimes even without some people being actively evil you don't need Dr. Evil sitting in the Starbucks tower for the world to be evil because the world is built in such a way that the status quo gets naturally defended one reason is that in the capitalist economies where markets are not the only economic institutions of capitalism but the most prominent institutions markets run on the basis of the principle of one dollar, one vote so this drastically reduces the ability of people with less money to turn down undesirable options so a lot of poor Indian workers voluntarily choose to work in a toxic factory but what is this choice you will accept the choice only when you think the underlying socio-economic order is A just and B cannot be changed in this context that I'm always reminded of things that was said by this Brazilian Bishop Helder Kamara who was one of the leaders of the left wing Catholic theology that was popular in Latin America in the 50s, 60s and 70s called Liberation Theology and Helder Kamara said when I give food to poor people people call me a saint but when I ask why these people do not have enough to eat they call me a communist and in that sense we should all become a bit of a communist so if you are making choices that you would not make you have to ask why are they making those choices and then you will find out why by looking at the underlying distribution of income power and wealth and then you may still conclude that this is why they are doing it but realistically speaking this is not going to change, we can never change this is even worse or whatever but without that deliberation you will accept anything that the status quo throws at you of course like Ronald Reagan said these people choose to sleep on the street it's a lifestyle choice, if they want to sleep on the street let them be like some people want to have a pink green phones and lime green phones and so on another reason why the status quo gets more easily defended is that people are susceptible to beliefs that go against their own interests, this used to be known especially among Marxists that the false consciousness after the 1999 movie call it the matrix I'll give you a perfect example from this country following the debate on so-called Obamacare, I saw this incredible footage of some people demonstrating against Obamacare there were a lot of those photos but it's not the demonstration itself in which there are two old, a couple, pensioners were demonstrating with this placard that said government hands off my Medicare isn't Medicare a government program these people are so brainwashed by the insurance industry that government programs never work that they thought because Medicare works this can't be a government program so the government is talking about some health care reform they must be trying to rate Medicare and destroy it let's go out and demonstrate against it when you have that level of false consciousness it becomes very easy to defend this status quo anyway I thought I made you too pessimistic while the difficulties involved in changing this status quo we should not give up the fight to create a better economy and better society yes changes are difficult in the long run when enough people fight for them many impossible things happen 200 years ago if someone advocated the abolition of slavery in this country the best description that the person who they've got is unrealistic unrealistic in the sense that at the time the U.S. economy was totally dependent on the export of tobacco and cotton to Europe which was produced by slave man plantations in the south 100 years ago Britain and many other countries put women in jail for asking for vote actually at the time a lot of women themselves said we don't need votes why do we need votes when we have our husbands and fathers and brothers who can represent our views but today no serious country that says only men should have voted 56 years ago most of the founding fathers of post-World War II nations including Israel were hunted down by the British and the French as terrorists but now we have all these countries that have become independent and these people are reviewed as founding fathers so these things have happened and these kind of things will keep happening if enough people fight for their causes and this is why I called Antonio Gramsci the Italian Marxist political thinker that we need to have pessimism of the intellect but optimism of the will you have to be realistic about the power of status quo and the scope of changes that you can make in your own time but in the long run a lot of changes can be made and I'm going to give you from Nelson Mandela to describe that when he said it always seems impossible until it is done. Thank you. Let me begin by recommending the previous book among Dr. Chong's many books this one he did mention kicking away the ladder which is an excellent history of how industrial countries like the United States, Germany, Japan actually developed it was largely by flouting what modern development economics says you should do one of the basic themes I drew from your presentation was that instead of being a single methodology with everything as its subject matter economics should be a defined area of investigation which is studied through various different methodologies let me just press you a bit further on that even if you define it that way I think most people would say well economics is the study of markets in modern industrial societies like the United States which are called capitalist countries on average between 40 and 50% of GDP is the government sector. In the United States we pretend that it's a little above 30% of GDP but that leaves out tax expenditures of tax breaks you know which most economists think are subsidies through the tax code once you add them in we're up there with Germany and France it's above 40% so just by my own rough calculations you then add the non-profit sector of which things like the New America Foundation are a few percent of GDP there's home production which you mentioned so that leaves you by my guess I've never seen a calculation of this the actual private sector which is not non-profit and non-government is a minority of economic activity even in so-called capitalist countries you can then divide the private sector at least three ways you have regular price regulated public utilities like PEPCO which are not free market they're privately owned but they're not free market there are industries with increasing returns to scale monopolies or oligopolies you know Google or Boeing or whatever and they're not truly competitive markets in the way that you're taught Ecom 101 so my guess is not having done the math and you haven't counted cooperatives cooperatives that's right so that adds a couple of percent so you end up with maybe 15 or 20% of the economy which is actually a free competitive market with lots of small firms which are price takers not price makers and so on so that just I just want you to respond to how weird this is so instead of having a textbook which spends half of its pages on the public sector and then maybe 15 or 20% on competitive markets it's all about competitive markets yeah no you're absolutely right first of all you have to remember that the economy is not the same as the market market is only a small portion of the economy the father of behavior economics and father of artificial intelligence and father of operation research I mean he has so many children he once estimated that only about 20% of the US economy actually is organized through the market there's a lot of sorry the rest of it is either government or command within cooperation when companies run their affairs I mean yeah they buy and sell from each other but a lot of time what they do is to Toyota headquarters in Japan tells this engine factory in Thailand to sell X number of engine to his car factory in Pakistan that's not a market transaction Toyota decides how many will be sold at what price but John Kenneth Galbraith described corporations as islands of socialism and a sea of capital oh absolutely yeah so the way you put it is another way of putting it government is huge many private sector companies are either regulated or monopolized or cooperative or non-professed and then really the kind of market economy populated by little consumers and little companies that you see in economic textbooks is 10, 15, maximum 20% of the economy so yes I mean this is a very important point I mean you should remember that and then I partly talk about it in chapter five where I discuss who are the real economic actors you have to realize how the economy is really organized as opposed to organizing this fairy tale that you see in the standard economic sex world and let me also give you another example that we also get to see by names quite easily so I mean the United States has hardly any state-owned enterprise as we normally classify but I would say that it has a state-owned enterprise that has been the most successful in human history that is the military yeah I mean without the US military we will not have the information age the computer the semiconductor the internet they were all developed through military research and Americans think that they don't have a state-owned enterprise and they don't have industrial policies so that the real nature of the economy is vastly different from the one you see but this changed in our lifetime I remember even in the 60s and 70s when I was young it was commonplace to describe the US and Western Europe as mixed economies there was a blend of capitalism socialism utilities and then after Reagan and Thatcher and then Clinton and Blair suddenly we became market economies mixed economy was not just a description but a philosophy which was developed during the New Deal and post-war reconstruction the world that neither pure capitalism nor pure socialism is good you need different elements deliberately mixed to have a more balanced society of course the exact balance will differ across countries because they have different political values and the moral codes and culture and so on but everyone agreed that we have to mix these things and then yes in the 1980s Reagan Thatcher revolution we were told that we have to become as pure as possible a market economy we'll take some questions do we have someone with a microphone back there if not just we'll start in the front row please speak up here comes Robert Schroeder with international investor thanks for your talk and I look forward to reading the book I want to get to this point of I think one of the benefits of what you're doing and others who ask these questions is by comparing nations around the world perhaps we should all be picking up better ideas of how to run our own affairs should we be doing more to make those comparisons more vivid in terms of the reality on the ground for most people and let me get to my specific question here we have what seems to to us at least an obsession with GDP growth constant and it's not just in the US but World Bank and IMF everybody seems to are there better measures that translate more to what's really best for most people yeah on the first point yes I mean that strangely we have lost this ability to or even the desire to learn from real life experiences and we all try to learn from some textbook which doesn't even half correctly reflect the complexity and nuances of the reality so you know I mean just to give you a random example I just remembered in the early 20th century when the US small farms in the United States were really getting destroyed and suffering the government that tried to improve farmers access to credit and in order to do that they actually repeatedly send missions to Germany and Sweden and so on to find out how those countries are actually doing this thing but now I mean that you look up some textbook written by some professor somewhere and you think that's the reality so yes I am a great fan of us learning about the real economy and you keep finding shocking things I already gave you Singapore and Sweden but I can give you many more examples where the Khumbesha economic theories that turned upside down and what you thought was a regularity turns out to be a regularity and so on so I really encourage you to learn about the real world economies now as for GDP yes I mean probably if someone presses me I would say that despite all these problems GDP that is income is still the single best measure of our welfare but then why should we use just one measure so actually now a lot of people are advocating using multiple measures for example if you go to the OECD website that is an interesting initiative called Better Life Index try to look at 48 different things work like balance, income, quality of education, crime, to judge how different nations are doing and I think messy as it is that's the only way that you can make a balance judgment because if you pick just one thing I mean it just that makes your whole perspective look sided and lead to wrong policies. At one point in relation to your first question there's a very well-developed scholarly literature about comparative capitalism it's called The Varieties of Capitalism School and it looks at the Anglo-American model at the Scandinavian social democracies at the corporatist Franco-German model it is written by political scientists not by economists right here third row Norman Kerland from the Center for Economic and Social Justice and my question relates to the system that fails to produce enough so that we have poverty, the tax system particularly central banking and the credit system and the inheritance system but these systems are all created by people and therefore can be recreated by the people and what I am not hearing is the fact that we need new capital formation we add roughly two to three trillion dollars of new capital formation every year in both the public sector and the private sector and the issue what seems to me to be missing is who's going to own it, why can't it be owned by the people, why can't there be equal opportunity to own and some of the laws are moving in that direction and that was for workers in this country it is possible to become owners of companies without putting up your own money, borrowed money paid for out of future savings should I collect a few questions a gentleman in yellow shirt my name is John Sturzak and I'm a retired patent examiner so my formal background is in science and engineering and I think part of the big part of the problem is there's been a number of economists who are trying to set forth the idea that economics is a science much like physics and chemistry and what they say is correct now two examples I would give is if it were say thermodynamics was like economics you could pick up eight different thermodynamic books that would say fundamentally different things but of course you pick up any thermodynamics book and they basically say the exact same thing and similarly you know there's been much talk about GDP as if it's like similar to voltage or amperage it's farther from the truth there's no thing GDP meter when I weigh something on a balance if I say I've got a hundred milligrams of something I've got a hundred milligrams in my opinion GDP they have the theoretical but GDP is really just the numbers that they add up and they could be wrong they could be further from the truth we'll take one more question about the policy council I would like to ask about something that I think is central to economics employment and unemployment and in doing so might like to push back and defend South Koreans contrary to what you suggested that is when you compare South Koreans to the more industrious Mexicans you seem to conflate hours at a place of work and so in terms of trying to assess employment and unemployment I would like your views about how economists should go about doing that for four groups of people the very wealthy Mitt Romney, Bill Clinton, Bill Gates intellectuals, academics and non-academics entrepreneurs who are innovating and people who work for family firms how do we figure out whether they're employed or unemployed and is there any difference between South Korea and England in these four categories well on the first point yes I completely agree with you that all these economic rules, institutions laws I mean they are human creations and they can be and should be and have been changed the only thing I want to add is that you don't necessarily need ownership to be able to influence for example your enterprise different countries have found different means so in Germany they have so called core determination system where they have two layers of board one is managerial board which is same as other countries board of directors and the other supervisory board and in supervisory board workers have that kind of representation I'm not saying that that's not necessarily the correct model for everyone but so in that way they exercise influence on enterprise management in Japan they don't even have that kind of formal representation but they have developed these customs at least full time workers have some influence in the management of the company so yes I mean there are lots of different ways we can do this and of course not to forget about trade unions so let's explore these diverse possibilities yes you know I often joke that numbers in economics are like societies you don't know what's going into them you don't want to know what's going into them so yes I mean if you ask businesses they'll say even they are not 100% objective but in physics you can calculate things down to 17th decimal point you know in economics you just can't do that because the data itself are generated in a very dubious way now yeah implement and unemployment well I keep I would just mention that yes measuring productivities actually a very difficult thing especially when so much of our economic activities are done in a collective way if one person is I don't know making a chair it's pretty easy to see how productive or unproductive that person is but we are living in a world where a lot of production is done in a very complex factory with minor division of labor so how do you really know that this guy who I don't know designed the door handle for General Motors made exact contribution equivalent to the salary he got paid you know you cannot know so a lot of economic productivity and therefore compensation are results of social arrangements rather than pure physical productivity so all those categories that you pointed out that these are especially difficult categories because I mean entrepreneurs how can we exactly calculate the contribution of a steep job you know it's impossible so let me just leave it at that well on that point the classical economists tended to be quite hostile to capitalists who were passive investors John Stuart Mill described such people as people who make money while they sleep that was not intended as a compliment and Cain spoke about the euthanasia of the Brontier which wasn't very friendly let's get some from the back Bruce first both of you Bruce do you have a question? Well we've got 10 gazillion studies correlating with GDP with all kinds of things such as interest rates and the money supply and various other things that we know are more or less true so whatever GDP measures is a useful measure for a lot of things and I think you know coming up with all these critiques that have been around you know ever since the idea came up I mean I was just mentioning to Pete Oscar Morgenstern's great book The Accuracy of Economic Observations you know made many of these art points ages ago so it's not new stuff and I just feel like it's a little bit like beating up somebody who's you know not there to defend themselves oh okay yeah Piketty I haven't read him so I'm not willing to comment on him but you know I mean I think from the things I've read about him I think this is a position that he would probably accept himself you know people don't often realize that inequality can be changed hugely through public intervention so if you go to the OECD website you will find two sets of income inequality data genicoefficient data one is before tax and transfer and the other is after and from there you will find that many European countries Sweden Germany Belgium not every year but in many years will have higher income inequality than the United States before tax and transfer so these people do a lot of things to change that and of course I mean even in those countries that those with policies have become a bit weaker and so on but you know it's not a foregone conclusion that you have to accept whatever market throws at you in terms of income inequality because there are a lot of things you can do to change that as for my comment on GDP yeah of course it's not new you know I didn't claim that it is new but you know that sometimes people don't know these things and please don't forget that this was written for people who have very little knowledge of economics but I kept saying that I said earlier that GDP is probably the single best measure still so I'm not rejecting it's used please read the book if you're interested in finding out exactly what I think about it we've got time for one more round of a few questions Steven Schafferman with the Basic Income Guarantee Network and I'd just like hear your comments about the idea of basic income which is getting a lot of attention now in England and Switzerland and even in the US mainstream media updating the negative income tax guaranteed income debates from the 60s and one more right here in general do you think that bailout of the banks in 2008 and 2009 was actually worth the effort or not yeah one one does okay you want one more there's one more I noticed on your list of economics different styles of economics there was no mention of energy economics or biophysical economics or some of the other names that that has the thrust of which is running out of fossil fuels and we're going to be a whole lot more when we do yeah all right thank you yeah basic income well I my view is that you know actually all countries with some degree of welfare state and some degree of labor regulation actually have an implicit basic income I mean only that you're not allowed to take it in cash so you could say that on average British person gets X amount of health benefit through the nationalized national health system X amount of education benefit through the nationalized school system and so on and you could turn it into cash and give it to people and make it basic income that's one approach but you know some people who might agree the notion of basic income might say that however there are certain things that we all agree that should be consumed by everyone to an extent and you know there's always a danger that if you give people things in cash that they might be spending it in the wrong things so I'm not taking any side in this but I think we need to carefully think about it I think that this idea that we need to give people things only in kind is too paternalistic on the other hand giving it all in cash that you know when you give that to vulnerable people they might expose to you know loan sharks and so I don't know I mean I want to think about it a bit more carefully bank bailout yes I do wonder whether we should have done that I think given the circumstances I think that was inevitable but then I think what we should have done is to put a lot of conditions on this bank it's quite amazing when you are giving tiny bit of money to the poor people for welfare you put all kinds of conditions when you are giving billions to a bank there's no condition yeah this is why Gore Vidal once famously said that American economic system is socialism for the rich and capitalism for the poor so I think that's what went wrong because at that time if you didn't bail out these banks probably the whole system would have collapsed the American government the British government they went out on a limb to deny public any say in this so for example American government when it bailed out General Motors it took preferred stock meaning that you get a higher dividend but you have no voting rights I think that this was a serious dereliction of duty on the part of Obama administration billions of your money to this company and voluntarily chose not to exercise any control you've been swindled British government when it poured in billions of pounds into banks decided that these banks will be controlled by this semi-public company managed arms length from the government thereby diluting its ability to control its affairs that's that same example well the reason why I didn't mention ecological economics and biophysical economics and those things I mean I was just trying to explain the main ones I mean the main ones do not necessarily mean they are more important or better but from a professional view there are these things that have appeared more frequently in economics than others and I didn't get to include those because they were less prominent so I mean I am happy to get criticized for that but I do have a little bit of discussion on the issues of climate change and environment in the chapter I discussed production because a lot of people think that we are basically running on the planet and how can we then reconcile with the economic growth and I have something to say about that if you're interested you can look at that the book is economics the user's guide by Ha-Jong Chung you can buy copies outside after you join me in thanking Dr. Chung