Macroeconomics: An Introduction by Alex M. Thomas, Cambridge University Press, 2021.
This recently published introductory Macroeconomics textbook written by Alex M. Thomas provides a refreshingly novel approach to teaching Macroeconomics to undergraduate students. As the author points out in the Preface, this textbook offers a “problem-setting approach rather than a problem-solving one, as is the case with most economics textbooks” (Page xvi, emphasis mine). The textbook has nine chapters, and the chapters have enough material to whet the appetite of a broad audience – Chapters 1,2,6 and 9 deal with the history and philosophy of Macroeconomics, Chapters 3-5 deal with the core economic theory of money and interest rates, output and employment levels and economic growth and Chapters 7 and 8 talk about the macroeconomic policy of achieving full employment and tackling inflation. In this review, I would focus on four issues – the commitment of the book towards enhancing pluralism in Macroeconomics, the importance given to studying macroeconomic theory, the idea of relating macroeconomic concepts to the context which is being studied and an explicit concern to make Macroeconomics accessible to an undergraduate audience residing in underdeveloped parts of the world.
The chapters dealing with the broader philosophy of Macroeconomics in this book make the case for budding macroeconomists to be widely read and be able to utilize all sources of information at hand – textbooks, classic papers, newspapers, government reports, historical accounts and even works of fiction to make sense of the context. The picture that best conveys the imagery of a such a well-grounded economist is on Page 3 of Chapter 1 just preceding John Maynard Keynes’ famous description of “the kind of skills an economist ought to possess”(Page 3). The picture depicts a young economics student who has four hands – one hand holding a history textbook, one hand engaging with graphs discussing macroeconomic equilibrium, the third hand holds the picture of the Indian Parliament and the fourth hand is held by the student on her chin – as if wondering in awe about the varied inputs that are required to make sense of the mammoth creature under consideration. This depiction of Macroeconomics made me recall former US President Harry Truman’s who was widely credited with saying “Give me a one-handed economist!”. Clearly, as the author’s depiction shows, we need to train many-handed economists who would be able to bring in various perspectives while deliberating on issues of policy importance. This might frustrate the policy makers looking for quick actions but would ensure that the policy advise that is being given is well-thought out and has engaged with contradictory pulls and pushes and diverse realities facing our contemporary societies. The readers would be able to better appreciate the book’s commitment to pluralism by looking at the references section and also suggestions for further reading after each chapter.
This book has a firm commitment to ensuring that undergraduate students in their first course on Macroeconomics learn to appreciate the insights and rigor of economic theory. Economic theory readily gets associated with abstraction for its own sake and tends to earn a bad name especially in today’s times when the economics profession is taking a turn towards data-driven approaches (interested readers can look at Chapter 6: Why Economic Theory Matters for a detailed discussion). The book uses “an economy with free mobility of capital and labor” as the object of analysis at the first level (Page 13). This is not to say that aspects of the “actual” world like immobility of labor in a developing country context like India that happens due to caste, gender and community do not exist. Using the competitive economy as the “standard of reference” is only a first level of analysis abstracting from the myriad considerations of the real world to enable “precise” statements to be made about the “economic phenomena under study” (Page 14). Even if the theoretical framework employed does not speak to the actual world as a one-to-one mapping, the thought experiment at the first level of analysis greatly enhances the rigor and sharpens the thinking of a budding economist. Talking of economic theory, the author is careful to point out that he “prefers using ‘actual’ to ‘real’ as the theoretical world is also real” (Page 14). The theoretical framework, in turn, creates demand for observables – accounting and data that are needed for analysis. Though economists like Richard Stone working in the middle of the 20th century on developing national income accounting systems were well aware of the need for theory in empirical measurement (pointed out by the author in Chapter 6), the lesson seems to have been lost on the current fad among economists to only look at big data and rely on data-driven solutions to offer policy advice. The author has a nice quote from Albert Einstein in chapter 6 highlighting the need for theory – Einstein after attending Werner Heisenberg’s talk on quantum mechanics in 1926 had this to say, “Whether you can observe a thing or not depends on the theory which you use. It is the theory which decides what can be observed” (Page 133).
The plea to give due space to theory in economic analysis does not mean that one should ignore the immediate context in which economies are functioning. Chapter 1 of the book distinguishes between different levels of analysis – macro, meso and micro. The macro approach is what the textbook mostly deals with but is also complemented by meso (a study of different sectors within an economy) and also at times with micro approaches (the way an individual makes economic decisions). While staying true to the core conceptual core of Macroeconomics, the book tends to move away from the narrow compartmentalization of the subject as is found in many conventional macroeconomics textbooks. Even while the student is immersed in learning a Macroeconomic concept, it is not wise to lose sight of the end goal of the study of this subject. As the author points out, “it is important to remember that most of us are studying economics not only to understand our economic surroundings but also to better them for all” (Page 16). The task of bettering lives for all cannot be complete unless trained macroeconomists are sensitive to the context in question. This sensitivity to the immediate macroeconomic context is visible in this book in the discussion of the policy application of macroeconomic theories to the Indian context (Chapters 7 and 8). Chapters 4 and 7 raises the issue of the applicability of the Keynesian demand multiplier to the post-independence Indian economy. VKRV Rao, an Indian economist (also a student of John Maynard Keynes at the University of Cambridge) and founder of many great institutions of learning in post-independence India, wrote an article in 1952 in the Indian Economic Review talking about the limited applicability of Keynesian ideas to the Indian context because of the extensive informal sector in Indian economy where wage determination did not take place as in the developed countries and extensive supply-side constraints that the newly independent country faced. Clearly, this indicates a tension between the concept and its application depending on the context and as the author rightly argues, “good policymaking needs to take cognizance of both concept and context” (Page 158).
Another major contribution of this book is its accessibility and relatability to the undergraduate audience in developing countries (in the case of this book, the undergraduates in India). The study of Economics, in my view, has faced two major problems. First, most Eurocentric theories have been privileged over the voices from the Global South. Second, even if you accept the argument that students across the world need to be well-versed with Economics as taught in the West, there are barriers of language and privilege that have allowed only a select few – a representative sample of elite students from the developing countries, as it were, to be able to partake of this Western discourse. Every chapter in this book offers some citations from works of fiction immersed in the milieu of the Indian sub-continent. The author makes this objective clear in the Preface where he mentions that he has tried to infuse the Indian context into “our non-Indian economic contexts” by engaging with fiction pertaining to the themes of “caste, ecology, gender or land” (Page xvi). The very first chapter of this book where the history of economics is discussed points out towards the development of economic thought in non-European contexts. This is important so that undergraduates do not leave the classroom thinking that whatever happened in Economics happened in a faraway Western land and their job is just to diligently replicate those theories irrespective of the context they operate in. Closely tied in with this objective of infusing the Indian context into a Macroeconomic context is the concern for making the readings and textbooks available to Indian students who do not have access to “well-stocked” libraries (page xv). In an earlier paragraph I had supported the author’s view that economics students should be well-read and be able to utilize different sources of information. The author realizes that this normative claim has to be tempered with the harsh material realities of differential access to education in developing countries. Often in the past have I received requests from friends in India looking for books and journal articles which their libraries do not have access to. The author has clearly taken cognizance of this fact and in every chapter where he offers suggestions for further reading, he suggests multiple sources of the same reading material so that accessing it does not become impossible for the less privileged undergraduate student willing to learn Macroeconomics.
When I was taught Macroeconomics as an undergraduate, my course instruction primarily relied on conventional Macroeconomic textbooks written by North American authors with the US context in mind. I knew more about how the Federal Reserve functions after my Principles of Economics course than I knew about the Reserve Bank of India. I certainly learnt the macroeconomic concepts very well but was seldom left thinking how this related to what the local newspaper was reporting about the policies of my own central bank. It is only when I took a course on Money and Financial Markets in my final year that the context of Indian monetary institutions was brought in. This book is clearly different for good and I really hope that it would bring in winds of change in the pedagogy of Macroeconomics and that more such books would be written in the future offering students a holistic approach to the subject.
Mohit Arora is a PhD student in the Economics department at University of Massachusetts, Amherst.