Books of the year 2014: Economics, from Thomas Piketty to House of Debt

It was the year of the asteroid and the jewel, writes Ben Chu

Ben Chu
Thursday 04 December 2014 20:00 GMT

As far as economics books are concerned, 2014 can be summed up as the year of the asteroid and the jewel. The asteroid is Thomas Piketty's monumental Capital in the 21st Century (Harvard, £29.95). The 43-year-old Frenchman's vast work, translated beautifully by Arthur Goldhammer, came spinning out of outer space and smashed into the intellectual world with incredible force.

It ploughed its way to the top of the best-seller charts, throwing up enormous clouds of praise and controversy, which seemed, at times, to block out the sun's rays. Such was Piketty's sudden celebrity as an arch critic of capitalism that he even had journalists inspecting his washing for the stain of scandal – surely a first for an economics professor.

But beyond the media phenomenon, how much substance was there? The answer is: a considerable amount. The book is important, first and foremost, because it brings together a vast trove of research by Piketty and others on the evolution of income and wealth over two centuries. One also has to admire the way Piketty marshals the data to create a sweeping historical narrative, in a style reminiscent of the great thinkers of the 19th century.

Piketty's predictions of inexorably growing inequality as a by-product of free markets are not as compelling as his historical analysis – and many of the critiques of his theoretical framework make some solid points. But rising inequality is certainly shaping up to be one of the major challenges facing democratic societies. And there is enough of a trend in the data Piketty and his fellow researchers have assembled to put us all on our guard.

The jewel of 2014 is House of Debt (Chicago, £18) by Atif Mian and Amir Sufi, two American economics professors. While Piketty's Capital takes its time, telling its story over 577 pages, House of Debt gets straight to the point. At 187 pages, their work is more like an extended paper. Yet it manages to distil a large amount of research and there is a gem-like beauty to the core argument, which is that an excessive accumulation of household debt is the primary cause of the global financial crisis and the sluggishness of major economies ever since.

As with Capital, House of Debt rests on some first-rate empirical research. Using micro data from America, the professors show that the localities where the accumulation of debt by households was the most rapid were also the areas that cut back on spending most drastically when the bubble burst. Mian and Sufi argue that policymakers across the developed world have had the wrong focus over the past half decade. Instead of seeking to restore growth by encouraging bust banks to lend, they should have been writing down household debts. If the professors are correct – and the evidence they assemble is powerful indeed – this work will take its place in the canon of literary economic breakthroughs.

While House of Debt did not receive the same level of attention as Piketty's Capital, the welcome was still astonishingly wide. This is encouraging. Popular economics books in recent years have tended to be somewhat lightweight offerings in the Freakonomics vein. But House of Debt and Capital confront the biggest issues: serious books for serious times.

Another book about things that matters is The Summit (Little Brown, £25) by Ed Conway. Conway tells us the history of the Second World War's Bretton Woods conference, which established the International Monetary Fund and the World Bank. Bretton Woods gave us the framework that shapes international economic relations to this day. Conway brings to life the drama of the seminal conference as well as its dominant personalities, Harry Dexter White and the titanic John Maynard Keynes. The book also does a good job of explaining to a lay audience how the Gold Standard, as well as its successor, the Bretton Woods system, actually worked. A good history illuminates the present. And for those confused by talk of fixed exchange rates, fiat currencies and current account surpluses, The Summit is a decent place to start learning.

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