Specialization and Trade

A Re-introduction to Economics

[Amazon Link]

A little book (in the "physically small" sense) from Arnold Kling, published by Cato. Impeccable credentials, there.

The book sets forth Kling's argument for a new epistemological approach to the field of economics. He calls it a new "framework of interpretation", but potayto, potahto. Either way, it's very similar to the sort of thing ("paradigm shift") Thomas Kuhn described in The Structure of Scientific Revolutions: the old ways of "doing" economics are losing explanatory power, its "expert" predictions are too often off the mark, and there's a general air of musty stagnation around the field. It's as if physicists were still building their research efforts around phlogiston and the luminiferous aether.

Kling proposes starting over with a change in the fundamentals: analysis should begin with the atomic concepts of (guess what) specialization and trade. He argues, convincingly, that without specialization, you don't even have much of an economy. And, indeed, economic history is very much the story of how individuals perform increasingly "special" tasks, none that important in themselves, trading with each other as necessary to generate general prosperity.

Kling's explanation is clear and his enthusiasm is obvious. He proceeds to apply this framework, showing its explanatory power in various areas. His criticisms of alternate frameworks, especially Keynesianism and "MIT"-ism, are compelling. (His chapter titles betray an unfortunate obsession with alliteration, but we'll forgive him that.) There is special emphasis on the 2007-8 financial crisis that "nobody saw coming".