Game Theory and International Trade

One of the most enjoyable moments while teaching Principles of Economics is the “aha!” moment that inevitably materializes when students “get” the concept of the Prisoner’s Dilemma. I rely upon a clip from “Golden Balls”, a UK game show that made use of PD games, along with the game The Evolution of Trust while teaching game theory for the first time, and also refer to Games Indians Play.

But an area in which I could get better is in showing students how game theory is used outside of these applications that are of an introductory nature. Dixit and Nalebuff’s book is of great help in this regard, and should be read by everybody regardless of whether or not you have a background in economics.

In today’s post I want to cover a chapter in a recent book that also does a good job in this regard. The book is titled “Rebuilding the Post-Pandemic Economy” and the name of the chapter is “America and International Trade Cooperation”


Consider the workhorse economic model of international trade agreements. Trade agreements are valuable because they solve what is known, in game theoretic terms, as the prisoner’s dilemma.
In such a game, each player has two choices—“cooperate” or “do not cooperate.” (The values in each box are the payoffs to each player if that is where they jointly end up.) To start, suppose there is no coordination between the players, so that each chooses its best response. The equilibrium outcome will be that each chooses “do not cooperate,” and the payoff to each is 1. But the problem with this outcome is obvious. Even though neither of them has a unilateral incentive to change its behavior, if they
both agreed to, each can be made better off and receive a payoff of 3.

Bown, Chad P., “America and International Trade Cooperation” in Rebuilding the Post-Pandemic
Economy, ed. Melissa S. Kearney and Amy Ganz (Washington D.C.: Aspen Institute Press, 2021).
Available at https://www.economicstrategygroup.org/publication/bown/
Source: From the chapter referred to above

If you have learnt game theory, it should be easy for you to understand why (1,1) is the Nash Equilibrium. If you have not learnt game theory, now’s a good time to start!


What Chad is getting at is this: “Broadly speaking, these prisoner’s dilemma models can be used to characterize the WTO and its core rules.” Countries that choose to not cooperate are boxing themselves into a corner (if you’ll excuse the pun), whereas countries that choose to cooperate and enter into a trade agreement are likely to see much better outcomes.

Ah, but hang on. Two very tricky questions arise. One, better for whom, exactly? And two, what if a country signs a trade agreement but then reneges? Let’s deal with both of these in turn.


Better for whom, exactly? This isn’t a superficial, rhetorical question, and nor is it a question that is even trying to imply that international trade is “bad”. It is a question that has had an impact on US Presidential elections (and political outcomes with real repercussions elsewhere in the world), and it is also a therefore a question that has engaged the minds of some of the best economists out there in recent years. See, for example, this article, or if you’re up for it, read this paper.

Globalization hasn’t reduced inequality, it may have increased it. As with all contentious issues, so also with this one – you’ll have passionate people arguing both sides of this story, armed to the teeth with data, models and theories. My own position is that there is, alas, at least an inconvenient iota of truth to the story. (Bonus points if you got the reference)

Listen to this podcast if you want more background information, and this symposium if you want a take by four different economists.

And read this if you want to understand how policymakers, in at least the United States of America are responding to the evolution of our understanding of this issue: better for whom, exactly? Note that you don’t need to agree that the US government has done, is doing or will do enough – all I am saying is that policies such as these are an acknowledgment of sorts that the perception on the ground is that trade hasn’t helped everybody.


And now back to game theory: what if a country signs a trade agreement but then reneges?

Historically, the United States has pushed for relatively low tariffs, applied on a nondiscriminatory basis to all members of the WTO. One interpretation of the Trump administration’s tariff war is the following. Even nearly two decades after its 2001 WTO accession, China had refused to engage in additional tariff liberalization. It was deploying other policies in ways symptomatic of noncooperative play,
imposing costly externalities on trading partners. Thus, the United States imposed trade war tariffs as its best response; as a result, each country is now imposing its noncooperative policy on the other. (Both are economically worse off than if they agreed to cooperate—see again Figure 1—but the United States may now be better than off than it was when it was cooperating but China was not.)

Bown, Chad P., “America and International Trade Cooperation” in Rebuilding the Post-Pandemic
Economy, ed. Melissa S. Kearney and Amy Ganz (Washington D.C.: Aspen Institute Press, 2021).
Available at https://www.economicstrategygroup.org/publication/bown/

As Chad suggests, go back to that first diagram shared above. What Chad is saying is that we need to understand that China agreed to play nice, as did America. And so we’re in (3,3), the upper left cell of the diagram. And this is obviously better than (1,1), the lower right cell.

But what if China said it would play nice, but then went ahead and played “dirty”? Then we’re in (0,5) upper right territory, and that is not a nice place to be in at all. How then should America respond? Please play The Evolution of Trust Game if you haven’t, by the way, and ask yourself which character most closely resembles China.

And then ask yourself how USA should respond, and then read the rest of this excellent chapter.


Also read the Twitter thread that Chad Bown but up about this chapter, and if you don’t listen in already, do listen to Trade Talks. Finally, here is Chad Bown’s Google Scholar page, and here is his PIIE website.

The Economist on How To Compile an Index

I had blogged recently about a Tim Harford column. In that column, he had spoken about the controversy surrounding the Ease of Doing Business rankings, and ruminated about why the controversy was, in a sense, inevitable.

Alex Selby-Boothroyd, the head of data journalism at The Economist magazine, has a section in one of their newsletters titled “How to compile an index”:

In any ranking of our Daily charts, it is no small irony that some of the most viewed articles will be those that use indices to rank countries or cities. The cost-of-living index from the EIU that we published last week is a case in point. It was the most popular article on our website for much of the week. Readers came to find out not just which city was the world’s most expensive, but also where their own cities were placed. The popularity of such lists is unsurprising: most people take pride in where they live and want to see how it compares with other places, and there’s also a desire to “locate yourself within the data”. But how are these rankings created?

Source: Off The Charts Newsletter From The Economist

Alex makes the same point that Tim did in his column – rankings just tend to be more viral. What that says about us as a society is a genuinely interesting question, but we won’t go down that path today. We will learn instead the concepts behind the creation of an index.

There are, as the newsletter mentions, two different kinds of indices you want to think about. One is relatively speaking simpler to work with, because it is quantitative. Now, if you are just about beginning your journey into the dark arts of stats and math, you might struggle to wrap your head around the fact that making something quantitative makes it simpler. And trust me, I know the feeling. And I’ll get to why qualitative data is actually harder in just a couple of paragraphs.

But for the moment, let’s focus on the cost-of-living index that the excerpt was referring to:

EIU correspondents visit shops in 173 cities around the world and collect multiple prices for each item in a globally comparable basket of goods and services. These prices are averaged and weighted and then converted from local currency into US dollars at the prevailing exchange rate. The overall value is then indexed relative to New York City’s basket, the cost of which is set at 100.

Source: Off The Charts Newsletter From The Economist

Here are some questions you should be thinking about for having read the paragraph:

  • Why these 173 cities and no other? Has the list changed over time? Whether yes or no, why?
  • How does one decide upon a “globally comparable basket of goods and services”. No such list can ever be perfect, so how does one decide when it is “good enough”?
  • How are these prices averaged and weighted? Weighted by what?
  • Why does The Economist magazine not use the purchasing power parity adjust exchanged rate?
  • Why New York City’s basket? Why no other city?

I do not for a minute mean to suggest that these should be your only questions – see if you can come up with more, and try and bug your friends and stats professor with these questions. Even better, see if you can do this as an in-class exercise!


Not all indices are so straightforward. Sometimes they are used to measure something more subjective. The EIU has another index that ranks cities by the quality of life they provide. For this, in-country experts assess more than 30 indicators such as the prevalence of petty crime, the quality of public transport or the discomfort of the climate for travellers. Each indicator is assigned a qualitative score: acceptable, tolerable, uncomfortable, undesirable or intolerable. These words are assigned a numerical value and a ranking begins to emerge. The scoring system is fine-tuned by giving different weightings to each category (the EIU weights the “stability” indicators slightly higher than the “infrastructure” questions, for example). Further tweaking of the weights might be required, such as when the availability of health care becomes more important during a pandemic.

Source: Off The Charts Newsletter From The Economist

You see why qualitative data is more problematic? Just who, exactly, are in-country experts? Experts on what basis? As decided by whom?

I should be clear – this is in no way a criticism of the methodology used by The Economist. In fact, in the very next paragraph, the newsletter explains the problems with a qualitative index. And in much the same vein, I am simply trying to explain to you why a qualitative index is so problematic, regardless of who tries to build one.

But the problem is a real one! Expertise in matters such as these is all but impossible to assess accurately, and the inherent biases of these experts are also going to get baked into these assessments. And not just biases, their moods and state of mind are also going to be baked into these assessments. Again, this is not a criticism, it is inevitable.


And the biggest problem of them all: the subjectivity of not the experts, but rather the scale itself!

Qualitative rankings are built on subjective measures. Perhaps “tolerable” means almost the same to someone as “uncomfortable”—whereas “intolerable” might feel twice as bad as “undesirable”? On ordinal scales the distance between these measures is subjective—and yet they have to be assigned a numerical score for the ranking to work.

Source: Off The Charts Newsletter From The Economist

Statistical analysis of qualitative data is problematic, and I cannot begin to tell you how often statistical tools are misapplied in this regard. If you are learning statistics for the first time, take it from me: spend hours understanding the nature of the data you are working with. It will save you hours of rework later.

And finally, have fun exploring some of The Economist’s own indices (if these happen to behind a paywall, my apologies!):

Masayasu Uchida’s Landscapes

I’d recommend watching these in full screen mode on a laptop/desktop rather than your phone

On Talks of a Shorter Duration

I had the occasion to give two talks recently, both of a rather short duration. One was to last for about fifteen minutes, and the other for about seven minutes. Both were related to some academic work that I have been a part of, and I’m sad to report that in both cases I could have done much better.

My profession entails talking for long periods at a time, and I have no problems speaking off the cuff for an hour at a stretch, and even longer is in some sense preferable. I prefer to talk without having any notes or (where possible) a presentation. This allows me to speak about the topic at hand, but also go down rabbit holes of thought depending upon either how my own memory is jogged while I’m speaking, or in response to a question that a student might ask.

I have no clue if this is efficient or “best”, but it is the way I have enjoyed being taught, and it is the way I enjoy teaching.

But alas, this method (efficient or not), doesn’t serve me well when it comes to talks of a shorter duration.

It is not as if I did a very bad job – at least, I hope not. I know I got across most of the points that I wanted to, and was able to respond to all questions that were asked – but I also know that I could have done a much better job.

So where did I go wrong?

  1. I made the mistake of assuming that a shorter talk is like a longer talk, just, well, shorter. I’ve done my share of presentations back when I used to work in the corporate world, and I should have known better. A short talk is not like a classroom lecture at all!
  2. In what way is a shorter talk different? First, assume that you will need a minute to provide context, and at least two minutes per “core argument”. Add in a minute to sum up, and you’re already past your scheduled time if you have three key points to make.
  3. Which means two things. One, try to keep your core arguments down to two, at most three. Second, you will need an outline for a talk such as this, if not an actual script. My mistake was to not do the second of these things, and just try to go with the flow, and wait for inspiration to strike while speaking. Rookie mistake! I had an outline, but the mistake with my outline was that I had tried to cram in too much for both talks. For shorter talks, minimize your key points, no matter how painful this is.
  4. It’s not as if I don’t have an outline in my head when I begin a lecture in class, of course I do. It’s just that the outline is rather vague. That’s a deliberate choice, as a lecturer – vague because I can repurpose it on the fly on the basis of what questions I get, the feedback as I speak from the students, and whatever tangential connections I can make in response to both of these things. In a longer talk, I have the ability to course correct, reflect, back-up, or circle back to an earlier point. In a seven minute talk, no such luxuries are possible.
  5. My very first manager back when I was in the corporate world made me sit in an empty meeting room and deliver dry-runs of what was to be my first “big” presentation to the walls of that meeting room. I did that (I’m not exaggerating) five times, and felt like a fool for doing so. But hey, come the time of the presentation, I felt and was ready.
  6. And I forgot all about this! I should have done the same thing to prepare for both of these presentations, but neglected to. I can and should do better: lesson learnt.
  7. But hey, there’s a lesson in this if you’re a student prepping for interviews and group discussions. Dry runs really do help! Make on outline of the key points you absolutely need to make, and practice making these points. Have your bedroom’s wall interview you, if you cannot find a real, live “volunteer”. But trust me, it’ll help. It is certainly infinitely preferable to leaving the talk/interview and realizing that you ended up not saying a couple of things that you really wanted to.
  8. And finally, if you ever happen to see me talking loudly and excitedly to nobody, worry not. I probably have a short talk coming up 🙂

Samanth Subramanian on Out of Print Cricket Books

…and much more besides (including a lovely excerpt on Sachin’s batting)

Say It Ain’t So, Fed, Say It Ain’t So

The Federal Reserve broke my heart recently.

Now you might think that today’s post is about something to do with monetary policy, or the taper, or something high falutin’ like that.

Nope. It’s about a game. The Fed Chairman game, to be specific. And I’m heartbroken because the Federal Reserve took it down:

Thank you for your interest in the monetary policy game, Chair the Fed. The game has been a useful and fun tool to learn more about monetary policy. However, the Fed has updated its approach to monetary policy, and the changes are not readily accommodated within the existing structure of the game. As of June 1, 2021, the game is no longer available.
You can learn more about the Fed’s policy updates here. Be sure to also check out FOMC Rewind, a texting video series that summarizes the FOMC’s meeting statements.
In the meantime, we encourage you to connect with us on Twitter, Instagram, LinkedIn, and Facebook.

https://www.sffed-education.org/chairthefed/default

So what was the game all about? Well, you got the chance to “be” the Fed Chairperson for sixteen quarters, or four years. You had to “react” to events that took place in the economy by raising or lowering interest rates, in order to meet two objectives. First, you had to make sure that inflation was as close to possible to 2% over the duration of your term, and second, you had to make sure that unemployment was as close as possible to 5% over the duration of your term.

The game was designed with some sort of a payoff between inflation and unemployment, and the reason I use the phrase “some sort of” is because I do not know quite what the functional form was. If you played the game long enough, you figured out pretty quickly that there would be a “crisis” at the end of your fourth quarter in charge. And the remaining 12 quarters were essentially an exercise in firefighting.

Inflation in the game had a way of getting out of hand pretty quickly, and unless you were quick enough to react and adjust real interest rates quickly enough, each successive quarter would have the economy spiraling quickly out of control. Of course, if you knew your monetary theory well enough you could figure out how to “win”.

Here’s a screenshot of the game layout:

Source: The Hill

And here’s an example of how quickly things could get out of hand:

Sourcehttps://i.ytimg.com/vi/5PAJtUjikis/maxresdefault.jpg

The last sentence from the previous version bears repetition: Of course, if you knew your monetary theory well enough you could figure out how to “win”.

That’s the point!

And that’s why I wish the Fed would reinstate the game. Because playing the game was a great way to get students to learn what monetary policy looks like in action. Sure, you can have students read Mishkin, or any other monetary text. And sure you can have them go through as many PDF’s released by both the Federal Reserve and the RBI. But nothing beats having the class split up into two teams, and playing three rounds each of this game.

After that, explaining the monetary transmission mechanism, or the Philips curve, or inflation expectations, or what “dovish/hawkish” means was child’s play. Because you see, they’d seen the effects for themselves.

So, dear whoever-is-in-charge-of-this-at-the-Federal-Reserve, I completely agree with you when you say that “the Fed has updated its approach to monetary policy, and the changes are not readily accommodated within the existing structure of the game”. No game could (or should) have envisioned the last eighteen months, and its ramifications on monetary policy.

But the game still served as such a magnificent jumping-off point for discussions about what transpired in the last eighteen months. “So now you’ve understood how monetary policy works under usual circumstances and most crises”, you could say at the end of the session. “But what about what the world went through in the last eighteen months? Would these tools be enough? Why or why not? What other tools does the Fed have in its arsenal? Which are most appropriate to use under these circumstances? Why?”

My point is that it was, and it still remains, a great way to introduce the subject to anybody, and especially those of us who’re learning about monetary policy for the first time. And there’s, in my case, about twelve years of students who I subjected to this game – and I’m pretty sure they would all agree with the request I’m about to make.

Please, dear ol’ Federal Reserve. Pretty please, with a cherry on top. Please bring the game back. It’s a great teaching tool, and classrooms are more boring without it.

The Delhi Walla: The Library Category

Via the excellent Divyanshu Dembi. He spent an hour on this category, as per his tweet, but I’m going to end up spending way more. What a lovely, lovely website for a relaxed Sunday morning!

https://www.thedelhiwalla.com/2020/02/22/city-library-shakespearean-jonathan-gil-harriss-books-hauz-khas/ Credit: Mayank Austen Soofi

Divyanshu tweeted about the category titled library on this magnificent website, but the other sections are worth a look too.

Soccernomics, Literally

The book is a great read, but the title of today’s blogpost relates to, well, this:

Industrial Policy, South Korea and Learning by Doing

Amol Agarwal points us to an excellent paper, the title of which is “The Long Term Effects of Industrial Policy“. Here is the abstract:

This paper provides causal evidence of the impact of industrial policy on firms’ long-term performance and quantifies industrial policy’s long-term welfare effects. Using a natural experiment and unique historical data during the Heavy and Chemical Industry (HCI) Drive in South Korea, we find large and persistent effects of firm-level subsidies on firm size. Subsidized firms are larger than those never subsidized even 30 years after subsidies ended. Motivated by this empirical finding, we build a quantitative heterogeneous firm model that rationalizes these persistent effects through a combination of learning-by-doing (LBD) and financial frictions that hinder firms from internalizing LBD. The model is calibrated to firm-level micro data, and its key parameters are disciplined with the econometric estimates. Counterfactual analysis implies that the industrial policy generated larger benefits than costs. If the industrial policy had not been implemented, South Korea’s welfare would have been 22-31% lower, depending on how long lived are the productivity benefits of LBD. Between one-half and two-thirds of the total welfare difference comes from the long-term effects of the policy.

https://www.nber.org/papers/w29263

Why should you read this paper if you are a student of the Indian economy?

Because industrial policy has been, i,s and will be critical for long run growth in India, and South Korea is an excellent example of getting industrial policy “right”. The reason I put “right” in inverted quotes is because there is still debate about whether South Korea really got it right or not.

If you are interested in reading more about this, part of footnote 4 from the paper is worth reading in greater detail (And the papers that are cited there, naturally):

However, many economists have been skeptical of the effectiveness of industrial policy (e.g. Baldwin, 1969; Lederman and Maloney, 2012). Lee (1996) did not find a positive correlation between sectoral TFP growth and tariff rates in South Korea during the 1970s and interpreted the correlation as the ineffectiveness of industrial policy.

https://www.nber.org/system/files/working_papers/w29263/w29263.pdf, footnote 4, page 5

Me, I’m very Studwellian in my outlook, and am therefore a sucker for papers such as these. And even if the paper were to show that industrial policy had not worked, that in itself is also a lesson worth learning, no? But if you ask me, something worked in South Korea at that point of time, and while causality is tricky, Industrial Policy (IP) certainly seems to have been at least partially at play:

Between 1973 and 1979, the average annual real GDP growth rate of South Korea was 10.3%, and the average export growth rate was around 28%. The HCI sectors increased their share of manufacturing output from 40% to 56% and their share of total exports from 12.9% to 37%.

https://www.nber.org/system/files/working_papers/w29263/w29263.pdf pp 6

The paper does three things, in my opinion:

  1. Establishes that Industrial Policy did too have a role to play in South Korea’s development
  2. That role has had effects that have persisted well beyond the years in which that specific industrial policy was “in play”
  3. Makes the case for how South Korea’s welfare would have been lower had this policy not been implemented

Your mileage may vary with regards to point 3, no matter how careful the econometric modeling (and it’s pretty careful, if you ask me). But this paper is worth reading because it reinforces my opinion that industrial policy, when done well, can have meaningful impacts upon the development of a nation.


There is a citation in this paper that is worth reading in its entirety (if you go in for that sort of thing). The citation is that of a chapter in The Handbook of Development Economics, Vol. 5. The title of the chapter is “Trade, Foreign Investment, and Industrial Policy for Developing Countries

I really do mean the “if you go in for that sort of thing”, because this is assuredly not light reading. Why, the section titled “Concluding Comments” takes up a solid four and a half pages! But I’ll speak here about three things that I found especially relevant from that section alone. Note that this is my paraphrasing, not a direct quote.

  1. The infant industry argument is, on the whole, overrated.
  2. In general industrial policy that promotes more exposure to international trade is likelier to be more successful
  3. The authors say that more work is urgently needed to understand, as they put it, “the human cost of adjustment to trade and FDI reforms”. Maskin and Kremer’s work is worth reading in this regard.

Finally, “Learning By Doing“. What does it mean, exactly? The classic paper to read is by Lucas, titled “On the Mechanics of Economic Development“, and the classic-er (est?) paper is, of course, “The Economic Implications of Learning by Doing“. But simply put, it is this:

Learning-by-doing is a concept in economic theory by which productivity is achieved through practice, self-perfection and minor innovations. An example is a factory that increases output by learning how to use equipment better without adding workers or investing significant amounts of capital.

https://en.wikipedia.org/wiki/Learning-by-doing_(economics)

It remains underrated at all levels of economic organization, if you ask me.

A Review of Macroeconomics: An Introduction, by Alex M Thomas

I’m not a fan of recommending a particular textbook to my students in any course that I teach. I’m not a fan of textbooks in general, but that’s a story for another day.

The reason I am against the idea that you should read “a” textbook for a course is because I find the idea that you can learn a subject by reading just one book to be a deeply repugnant one. I’m happy to recommend ten, or more. And students should learn by dipping into all of them!


But if you were to put a gun to my head and tell me that I must absolutely recommend just one macro text for Indian students who are learning macro for the first time, A Review of Macroeconomics: An Introduction, by Alex M Thomas would be it.

Why? For the following reasons:

Rare is the textbook that begins with a disclaimer to the effect that the author did not want to write a textbook. Rarer still is the preface that goes on to say that other textbooks (and more besides!) should also be read. If you are an econ prof, you must have read multiple prefaces by now that dispense advice about how chapters such-to-such, followed by chapters these-to-those ought to be included in an introductory course, but on the other hand chapters extra-but-still-necessary only need be included in an intermediate course.

The preface to this book does no such thing. Read the whole book, it says, and read more besides.

But the second most important part of the preface, and the part that got me hooked to the whole book is that includes a reference to a novel. That in itself is, well, novel. Second, it is an Indian novel. Third, it is a novel that has nothing to do with macroeconomic theory. This is a book that teaches you that macroeconomic theory – that after all, is the job of a textbook – but it is also a book that teaches you what to do with that theory. It teaches you to apply that theory to get a handle on the society that you need to study, and it helps you understand that this society is so much more than the abstractions of economic theory. Use this book to appreciate life better, it seems to say. Or, in the language of us economists, Alex Thomas has written the book as a complement to everything else that you will read and learn about Indian society. Not as a substitute. That is a rare old achievement, and one well worth celebrating.

The most important part?

Finally, this book adopts a problem-setting approach rather than a problem-solving one, as is the case with most economics textbooks. To put it more clearly, this text helps you to identify, conceptualize and discipline a macroeconomic problem. Therefore, this book does not contain exercises in problem solving, but it contains discussions and questions that make you think about the nature of assumptions, the logic of the theory, the limits of the theory, the interface between theory and policy, a little about the gaps between theory and data, and occasionally, the nature of past and present economic thought.

Preface, pp xvi, Macroeconomics An Introduction

There are nine chapters in the book, and I hope Alex Thomas won’t mind me listing them out over here:

  1. What is economics?
  2. Conceptualising the macroeconomy
  3. Money and interest rates
  4. Output and employment levels
  5. Economic growth
  6. Why economic theory matters
  7. The policy objectives of full employment
  8. The policy objective of low inflation
  9. Towards good economics

Say you want to teach a course in macroeconomics to students who have not studied the subject before. Conceptually speaking, here are the questions I would want to answer as an instructor:

What are we studying here, exactly? What are we abstracting from all of reality and of those abstractions, which features matter more than the others? Why are we studying whatever it is that we’re studying? If we (students and the prof) agree on the answers to the first few questions, how do we go about defining and measuring “success”? Why put the word success in inverted quotes?

Chapter 1 | Chapters 2,3,4 | Chapters 5 and 6 | Chapters 7 and 8 | Chapter 9 is how I interpret the layout of the book, in line with the questions above. Personally, I would have wanted to put chapters 5 and 6 right after chapter 1, but after having read the book, I can understand why the book was structured the way it has been. In particular, the four sections of the sixth chapter can only become truly comprehensible after you’ve gone through chapters 2,3,4. If I were to be teaching a course on macro, I would still be tempted to jump from 1 to at least the spirit of chapters 5 and 6, but that’s just my personal preference at play. Growth matters, and helping students appreciate why growth matters can be hugely motivating.


This book deserves a separate section of the review dedicated exclusively to the richness of the text. I challenge you to find me another textbook, from anywhere in the world that can go from talking about Tony Aspromourgo’s chapter on Piero Sraffa on pp 100, to talking about a Telugu novella on pp 102 (Kesava Reddy’s Moogavani Pillanagrovi: Ballad of Ontillu, 2013) to talking about Shrilal Shukla’s Raag Darbari on pp 103! To be clear, the challenge isn’t finding another textbook that talks of these three sources specifically (I can guarantee you that there isn’t another one!), but one that manages to traverse such breadth. Breathtaking stuff, and I never imagined I would use that phrase while reviewing a macro text.

But it’s not just that one series of excerpts. Every chapter is liberally sprinkled with a list of reading recommendations that stand out for their sheer breadth. All of them have been listed out between pages 200-208 in the text, and just these eight pages alone are worth the price of admission. Well, these eight pages and the two that precede it. In those two pages, Alex Thomas lists out all the data sources that have been used in the case of each table from each chapter.

In particular, this book deserves to be praised for raising repeatedly issues of caste, gender and ecology at various points through the text. Growth, but at what cost? Land as a factor of production, sure, but rooted in which society, and with therefore what consequences?

Consider this excerpt from pp 128, for example:

A village economy cannot be understood as a simple departure from the competitive macroeconomy we have discussed thus far. It requires us to understand how village space is divided and demarcated (typically on the basis of caste). The spatial inequality present in a village economy is captured very well by Kota Neelima in her depiction of a poor and indebted farmer’s house in Death of a Moneylender (2016).

The very next paragraph touches upon aspects of religion and its linkages to labor mobility. As always reasonable people can and should argue about how much of an impact these aspects (and other aspects of Indian society) have on the cold austere ivory tower approach that most macroeconomic textbooks adopt. I think it is a very significant impact, and you may not – and that is, of course, absolutely fine. But we are debating the quantum of significance and relevance, not questioning its very existence – and that is very, very welcome indeed.

Indeed, this is a book that ends with an exhortation: if you take one thing away from this book, Alex Thomas seems to be saying, take away an appreciation for the pluralistic approach (pp 196):

If you are a student of economics, you will soon study “statistics for economists’ and ‘mathematics for economists’. In both these methods of economics, there exist multiple concepts, theories and approaches, just like in macroeconomics and microeconomics; pay attention to the fact that these ‘methods of economics themselves both originated and are used within a social context. Moreover, a pluralistic approach to economics by itself is not sufficient when employing economics in the service of public policy; it is important to keep in mind the collective wishes of people as Xaxa’s poem in Section 1.4 pointed out.
I end this book with the hope that you take pluralism as a friend, sometimes a difficult one, in your journey of learning.


The pluralistic approach isn’t just restricted to moving across (and beyond) the social sciences. Even within the domain of macroeconomic theory, Alex Thomas takes the time and trouble to make sure that all views about the macroeconomy are fairly represented. The fifth chapter in particular is notable for this, but that should be taken to be especial praise for that chapter, not a faint damning of the others!

What could have been done better? If this book is intended for people learning about macroeconomics for the first time, I think this books errs on the side of doing a little bit too much. Some sections might be a little bit too involved for a reader who still has to cultivate a taste for macroeconomic theory (and god knows it is very much an acquired taste). And some first time readers might also not appreciate some of the macroeconomic controversies and the role they have played in pushing the field further.

This should beg the obvious question: well, what, exactly, should be cut? Well, not cut exactly, but some of the more involved explanations can be turned into, say, accompanying YouTube explainers (about which more below).

There are also some notable names missing from an introductory text of macroeconomics, but I’m all but certain that this is a case of conscious choice rather than inadvertent omission.

A tip to the students reading this review: help Alex out by coming up with videos that will act as accompaniments to the text. That is, if you are doing the hard work of reading through the text and understanding it, help others by creating content that will act as a complement to the reading of the text. Many students should do this, and in many languages! As Alex says, embrace plurality, both in terms of approach and understanding, but also linguistically speaking.


My biggest problem with the book is a bit of a meta-problem, and I hope I turn out to be wrong in what I am about to say. The biggest requirement, I think, of this book is a teacher who will do it justice. I honestly do not think that this book can be read by a first-time student of macroeconomics without some sort of mentoring and guidance. To be clear, this is not about the book being difficult or inaccessible – I am of the opinion that macroeconomics just is that hard.

But if what I’m saying is correct, then the success of the book is as dependent on the guide/mentor/professor as it is upon both the book and the reader. And that brings me to my answer to whether or not I would recommend that you read this book. It is not, I think, for everybody. But that’s not a criticism of the book, or its contents or the author. It is an acknowledgment of just how hard macroeconomics really is. In fact, Alex Thomas himself says that a year of undergrad studies in economics is recommended before you tackle this book.

But hey, hopefully I turn out to be wrong! Hopefully you can and will read this book and understand it.

And if you are already a serious student of economics (whether formally enrolled in a university or otherwise), then I absolutely and unreservedly recommend this book to you. As a student of Indian macroeconomics, you simply couldn’t do better. Period.


P.S. Alex Thomas will be speaking about his book to the students from the Gokhale Institute on the 17th of September. I don’t think livestreaming is possible, alas, but we will be putting up the recording on our YouTube channel for sure. If you have questions you’d like to ask Alex Thomas, pass them along here in the comments. We’ll try to work them in!