A book to save economics

Paul Ormerod. 2012. Positive Linking: How networks can revolutionise the world. Faber. $12 on Kindle

By Peter Hulm

For my money Paul Ormerod is the best post-Keynesian economist writing in the U.K. today. He’s a pioneer of new economic theory, challenging the fundamental orthodoxes of his field. For over 20 years he has been a specialist enthused about applying to economics the lessons we can learn from other sciences. especially biology, network theory and behavioural studies.

His latest book takes on preference theory, the assumption of rational choice, and the built-in, misleading presumption that individuals make their economic decisions in isolation from each other.

That’s not the way we act in real life, and you may not find the counter-argument surprising: the choices we make are directly and indirectly affected by other people in the absence of perfect information.

In our age of instant communication this can put economic policy seriously out of whack. The Lehman Brothers collapse was so dangerous because none of the safeguards in place or economic policy advisers had considered the network effect.

But Ormerod is not just knocking down old statues. His book sets out to show us how understanding network processes in economics can overcome the current challenges and lead to more effective policymaking.

As always, his writing is a model of clarity. He asks you to look at the economic theory behind the martyrdom of Protestant reformers in 1555 and English soccer riots in Sardinia in 1990, as well as the strange appeal of Marmite to a section of the British population to argue: “We need a new theory of rational behaviour.” You can find that theory in this book.

10 December 2012