Economics: Making Sense of the Modern Economy (2nd ed)
Simon Cox, (ed), The Economist/Profile Books, 2006, x + 326 pages, £20.00 (Paper £10.99).

A large black file sits in my study at home filled with yellowing flimsy pages. In the not so long ago days before The Economist became available online, I used to tear out the weekly Economics Brief and many of the special surveys. These articles always contained such a good mix of sound applied economic analysis that they were an invaluable reference. The file got several outings over the last couple of years as my daughter discovered all sorts of useful essay material for her A Level Economics course.

A number of these articles have also been included in this new collection from The Economist, easy to read as we expect from The Economist writers, but equally authoritative and challenging.

The book is divided into four sections, the first of which examines the great globalisation debate from a number of angles. The common thread, however, is The Economist’s defence of the markets – this is economic theory with attitude and is an entertaining read.

The second section of the book looks in turn at the imbalances in the US economy, the rise of China and their co-dependency – ‘America buys China’s goods; China buys America’s debts’. This includes a controversial piece that argues that recession might not be such a bad thing for America. It then analyses what it calls the ‘underachievers’ - Japan and Germany – concluding that both are poised to become protagonists in the world economy again, Germany as part of the increasingly-powerful eurozone. Surprisingly there is no chapter on the emerging economic powers including India, Mexico and Brazil.

The Economist writers admit in the third section ‘The Arteries of Capitalism’ that the flow of capital is one area where markets cannot be given complete freedom because of the problems that this has caused in some developing countries. This section has some useful analysis of the role of financial markets in the modern economy.

However, the most readable part of the book is undoubtedly the final section which looks at the application of economics to a range of situations from global warming to Mugabe’s Zimbabwean economic model, as well as an interesting piece on the flaws of cost-benefit analysis. And finally whatever happened to the bright young economists of 1988 and who are the new young economist stars of 2006? You will have to read the book to find out.

This is a highly-readable collection, with an excellent introduction to each section. As with most economic analysis, it is stronger on analysing the present than predicting the future but is an invaluable reference for students and practising economists.

Philip McDonagh
PricewaterhouseCoopers