FiveBooks: Paul Krugman

August 03, 2011
Hume! Keynes! Asimov! Paul Krugman on inspiration for a liberal economist
Hume! Keynes! Asimov! Paul Krugman on inspiration for a liberal economist
A leading thinker chooses five books about his or her field of interest. This month Paul Krugman chooses five books that provide inspiration for a liberal economist. Read the full interview here

FoundationIsaac Asimov

This is a very unusual set of novels from Isaac Asimov, but a classic. It’s not about gadgets. Although it’s supposed to be about a galactic civilisation, the technology is virtually invisible. It’s not about space battles or anything like that. The story is about psycho-historians, who are mathematical social scientists and have a theory about how society works. The theory tells them that the galactic empire is failing, and they then use that knowledge to save civilisation. It’s a great image. I was probably 16 when I read it and I thought, “I want to be one of those guys!” Unfortunately we don’t have anything like that and economics is the closest I could get.

Obviously I try to do straight economics and I do it as well as I can. But this is for a purpose. That purpose is not to find better ways of making money—although I have no problem with people doing that. The purpose is actually to make a better world. I do feel that I am trying to do something that goes beyond just the analysis.

An Enquiry Concerning Human UnderstandingDavid Hume

I read this at that stage—college sophomore or thereabouts—when you’re searching around looking for belief systems. I think it’s a point when you’re quite vulnerable, because you are looking for someone who is going to offer you all the answers. Some people turn to religious orthodoxy, other people turn to Ayn Rand. One of my favourite lines—I haven’t been able to find out who came up with it—is, “There’s an age when boys read one of two books. Either they read Ayn Rand or they read Tolkien’s Lord of the Rings. One of these books leaves you with no grasp on reality and a deeply warped sense of fantasy in place of real life. The other one is about hobbits and orcs.”

Then I read Hume’s Enquiry, this wonderful, humane book saying that nobody has all the answers. What we know is what we have evidence for. We do the best we can, but anybody who claims to be able to deduce or have revelation about The Truth—with both Ts capitalised—is wrong. It doesn’t work that way. The only reasonable way to approach life is with an attitude of humane scepticism. I felt that a great weight had been lifted from my shoulders when I read that book. You look at people who are very certain, and have these beliefs of one form or another and you think, “Maybe they really know something!” What Hume says is, “Actually, no. They don’t.”

The General Theory of Employment, Interest and MoneyJohn Maynard Keynes

This is a difficult book, because it’s the first book that tries to figure this stuff out. You don’t teach Keynesian economics from Keynes anymore. Keynes was actually working on The General Theory before the Great Depression, but obviously the Great Depression gave it urgency. It’s a first stab, one hell of a first stab, but because it is a first stab it’s got all the awkwardnesses that goes with that. He goes off on tangents that seemed important to him at the time, but don’t seem so important now.

It’s a book to be read when you’re a practising economist with a fair bit of research of your own under your belt. Because then, as you read it, you can see the incredible process he’s going through, of freeing himself from the preconceptions of the economic analysis of his time. You can see him saying, “Hey, wait, maybe that’s not right. How can I think this through, how can I make this a story that actually fits the world I see around me?” It’s really breathtaking and inspirational.

Essays in PersuasionJohn Maynard Keynes

His predictions about us becoming so rich that people would stop caring about consuming turn out not to be true. About enough time has passed for that blissful state to have arrived according to him, and somehow greed always finds a way. But his comments on the Treaty of Versailles are amazing.

We probably could say that Keynes was what we could call a liberal in America now, or a moderate social democrat in Europe. I’m more pro-trade union than Keynes was, partly because I’ve got an additional 75 years of US political economy to look back at. I’m a bit uncertain about the strictly economic role of trade unions, but the political importance of having a counterweight to big business is just overwhelming.

Essays in EconomicsJames Tobin

I took introductory economics with Jim Tobin. He was a great economist and I learned an enormous amount from him. This is a collection of his best papers, which I read, admittedly, a long, long time ago. But when I go back to it, I realise how much I’ve internalised Tobin’s approach. Some way into this crisis I realised how I was relying on his way of thinking about how financial markets work. It was an approach that was pragmatic and yet model-based. It went very much out of fashion as we shifted towards thinking of everything in terms of efficient markets, perfect use of information et cetera. And unjustly so, because that turns out to be no help at all in thinking about things like, “What does Ben Bernanke’s latest policy actually do to the economy?”

The book is like The General Theory—Tobin is a much clearer writer than Keynes, though a little less stylish. Again, he’s pragmatic. We’ve got tools of economic modelling, but we need to apply them in a way that deals with the world as we find it. Politically Tobin was very much a free-market, welfare-state Keynesian, as I am. We appreciate markets, we understand them, we don’t hate rich people, but we want a social safety net. You do need government intervention to avoid what we are going through right now.

Interview by Sophie Roell

This interview first appeared in The Browser, as part of the FiveBooks series. Previous contributors include Woody Allen and Ian McEwan. For a daily selection of new article suggestions and FiveBooks interviews, check out follow @TheBrowser on Twitter.