ECONOMICS WITHOUT ILLUSIONS: DEBUNKING THE MYTHS OF MODERN CAPITALISM by Joseph Heath

Crown Business 2010. ISBN 978-0307590572

There's a saying in Swiss folklore that if you get lost in the mountains, don't try to find a new trail. Retrace your steps until you find something familiar.

The author tries to do something similar with regard economics, looking at basic assumptions rather than fishing around in current theory.

He sees a big problem in Left / Right polarization but still concludes that at a basic level they both make important contributions. The Left is correct in that a united society has to respect its sick and old, and give children from every background the best opportunities. The Right is correct in that America was founded on personal responsibility with the rejection of a bloated and dangerous central government.

In reality Heath shows that the US and most other Western countries have developed a malignant form of both ideologies. The Left has extended costly government "care" to whole sections of the adult population that like it but shouldn't receive it. The Right tries to dispense with government all together and doesn't recognize that it is a vital framework for growth. Just because it's corrupt and inefficient doesn't mean that it isn't necessary.

The author is following the theme of his excellent earlier book, "Efficient Society" where he argues that societal/economic efficiency is not a Left/Right concept and is basically non-political. Your chosen system either gives you good value health care or it doesn't.

However there are some problems with the book:

Any known trail in economics leads to Comparative Advantage which the author supports, although probably a more valid view is expressed by Harvard professor Stephen Marglin (quoted in Paul Streitz's book "America First"): "First, we don't live in Ricardo's world, where trade is determined by fixed natural resources. In this world technology and capital are immobile: You can't move Portuguese vineyards to England,  (top)		 nor can England's lush sheep pastures survive in Portugal's climate. Today, technology and capital move almost as easily across international borders as within a country."

In a world where new international competitors are quickly able to scale up technology, capital and skilled labour ,Comparative Advantage starts to look like an intellectual refuge for outsourcers. The reality is that the required average skill level for American labour is falling fast with 80% of new employment in very low paying service work.

Another obligatory stop on the trail is Keynesianism, where (in the opinion of this reviewer) he also gets it wrong. He says that Keynes has taught us that recessions/ depressions are just a glitch in the system that can now be corrected by pumping up demand. However, speaking from personal experience of a complete boom/ bust cycle covering decades in a small Spanish town, I can see a whole range of boom time businesses being tested with regards to efficiency (financing, skills, organization, costs, market adaption, technological adaption, suppliers etc.) with many failing but a core of efficient ones remaining profitable. They have raised average efficiency and will presumably do well when the good times return.

In this view, recessions force efficiency onto a free market. If a high level of demand is artificially maintained then maybe inefficiencies continue undisturbed.

Heath also states that, "Technological innovation has no tendency to generate either over production or unemployment." which is doubtful as we see the first example of cashierless checkouts, driverless cars, teacherless online schools etc. (see Martin Ford's interesting book, "The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future: 1").

But still buy the book! It includes the unbelievably radical statement that the poor are sometimes poor because of their own life choices.