Review: Economics for Life

Trevor Thomas reviews Professor Ian Harper's book on economics for modern life.

Professor Ian Harper is one of Australia’s most visible economists. He was the founding Chair of the Australian Fair Pay Commission (AFPC) established by the Howard Government, a member of the Wallis Committee that investigated the Australian Banking system in the mid-1990s, worked at the Reserve Bank, and has taught at ANU, Melbourne University and the Melbourne Business School. He is currently the Melbourne based director of Access Economics and a regular commentator on economic matters in the press.

When named Chair of the AFPC he was accused of being a “Conservative, right wing, religious zealot”, by unnamed colleagues in the national media.

This book allows him to respond to these charges. In it he seeks to define the role of economics and the economist in modern life; to illustrate how applied economics can help foster a better world; and to reflect on questions of transcendence and truth that are beyond the scope of most contemporary economic writing.

It is sometimes said that musicians grow to physically resemble their instruments over time. Perhaps the same could be said for this economists’ writing style – embodying the traits of his profession. Not a word is wasted, a parsimony that belies the fact the book covers a great deal of territory. Harper’s arguments are martialled carefully and explained in clear and simple terms. This book is very easy to read and carefully avoids jargon or language that would alienate the non-specialist. 

The first of three sections identifies the economist as a scientist. Just as the physicist works on hypotheses and mathematical models to understand the behavior of matter in the universe, so the economist uses these same tools to understand human interactions in the production and distribution of goods and services.

Harper argues that the role of the economist is to be a pragmatist – not to view economic challenges through the lens of personal values but to analyse the interplay of different variables so as to understand what combination of factors will produce the most efficient outcomes that promote the highest good.

He makes a strong argument in favour of market based approaches, but not without emphasising that the pre-conditions for effective markets are a strong sense of mutual trust and a regulatory framework that ensures that socially desirable outcomes are not undermined by unfettered competition. Harper also highlights that markets can have a dark side, and that, “by exalting individual preferences and achievement, markets can corrode a sense of responsibility for or belonging to one's community, fuelling social alienation.”

While it is true that there have been important areas in which consensus has grown in the economics profession over the past 30 years, Economics for Life underplays the significant areas of debate that remain. Harper would have us believe that such debate results principally from the elevation of personal values above scientific analysis, but the reality is more complicated. There are divergent schools of economic thought that emphasise the importance of different factors that shape questions of resource allocation, efficiency, production and exchange. The book would be richer for locating the neo-classical consensus and “positive economics” on the broader map of economic thought.

Similarly while behavioral economics, the impact of asymmetrical information on markets and game theory are all given some prominence, their disruptive impact on the profession is understated by the narrative arc of synthesis and consensus.

The second section of the book deals with questions of application drawn from Professor Harper’s unique vantage point – one foot in the academy and the other in the marketplace, with a third (!) in some of the most significant public policy and review roles of the past 25 years.

The section starts with a brilliant overview of the economic history of Australia that every senior high school student should read. Clear and concise it highlights key turning points, accidents of history and geography and policy decisions that have profoundly shaped the modern Australian economy.

Equally engrossing and clearly written are his account of the short life of the AFPC and an overview of the Global Financial Crisis of 2008/09 – drawing interesting parallels and contrasts to Australia’s experience during the Great Depressions of the 1890s and 1930s.

It is clear through these discussions that Professor Harper is neither an ideologue or a zealot – he sees the importance of equity and has a broad understanding of ethics. His discussion of the limitations of markets and the challenges facing policy makers is illustrated with contemporary examples.

It is however, in the third section that Harper most fully expresses his conviction that economics is a good servant but a poor master. He tells the story of his own realisation in mid-professional life that he had elevated economics above its station – it had become his only lens through which to view the world and from which to derive meaning.

Through a series of connections and circumstances (and nudged by his wife) he finds himself confronting absolute claims about life and meaning from a most unlikely source – fellow economists who were also Christians. Harper begins reading his Bible and meeting with a Christian minister who had also trained as an economist. He is stunned by how little he had paid attention to the person and claims of Jesus and how compelling it was to assess these things with serious intent.

Coming to faith allows Harper to re-evaluate and understand that as a vocation, being an economist gives him a great vantage point from which to serve people, and a robust value system that informs his concerns to see sustainable economic growth lift more and more people from poverty, allowing them to fulfill their God given potential, while also caring for the natural environment that sustains us all.

The concluding chapters draw on the recent “Economics of Happiness” literature to emphasise the point that greater material wealth does not correspond with a greater sense of contentment – and that meaning and life derive from relationships, community and security, issues for the author that are bound inextricably to faith.

Perhaps Professor Harper’s review of Christian ethics, wealth and the temptations of riches could have paid more attention to some of Jesus’ warnings in the gospel of Luke and injunctions to all his followers to sell possessions and help the poor – but his conclusions about generous living and working for the greatest common good are fully Christian in their reach and challenge.

A right wing, religious zealot? Certainly not. Conservative – maybe not quite so much as the caricatures would have it. Read Professor Harper’s book and make up your own mind – you will definitely be surprised at how much about economics and life he fits into 168 crisply written pages.

Trevor Thomas is the Managing Director of ‘Ethinvest’.