Book Review: Macroeconomics: An Introduction by Alex M. Thomas

In Macroeconomics: An Introduction, Alex M. Thomas offers new insight into the development of macroeconomics, combining concepts with real-life examples drawn from the Indian economy. By linking economic ideas to real-life problems, Thomas succeeds in his goal of enabling readers to grasp the daily life of macroeconomics, writing Kaibalyapati Mishra.

Macroeconomics: An Introduction. Alex M. Thomas. Cambridge University Press. 2021.

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Macroeconomics: An introduction by Alex M. Thomas is a great attempt to make his readers aware of the evolution and application of economics happening around them, frames headlines and shapes table gossip, combining concepts with a specific reference to the Indian context. Drawing on the dimensions introduced into the field of economic thought by scholars over a long period of time through classical and modern textbooks, Thomas establishes economics as a discipline dealing with the management of individual, historical and political needs. of the masses through the formation, accumulation and distribution of wealth.

The emergence of the economy dates back to the time of Ibn Khaldoun, Kautilya and Confucius, with its modern existence as a discipline of political economy unraveled in The Wealth of Nations by Adam Smith. Economics, a field of multidisciplinary importance, has demonstrated its political implications and the role of the state through works such as General theory of employment, interest and money by John Maynard Keynes, while continuing to address the different contours of classical economics presented by scholars such as Thomas Malthus, JS Mill, Alfred Marshall and others.

After the Age of Discovery in the 18th century, the main developments in economics in the 20th century were monetarism, institutionalism, and game theory. Thomas also points to Piero Sraffa’s critique of marginalist economic principles and the cultural teaching manual in economics contributed by Paul Samuelson, seeing them as important developments that have spawned several new chapters in economics and its dissemination. popular.

The two partially divergent currents of political economy relating to levels of production and employment have been termed the marginalist school and the Keynesian school. Borrowing from the reflections of JB. Say, Marshall and Arthur Pigou, the first school focused on the marginal productivity theory of income distribution, while the second drew on the work of Michał Kalecki and Keynes. Although both schools studied competitive economics under the assumption of a given level of productivity, the differences were manifold. The Keynesian explanation of production and employment was demand-based, while the supply dominated the marginalist school, which believed that “supply creates its own demand”.

Considering dynamic macroeconomics, where investment plays the dual role of being a component of demand (aggregate demand) and an addition to productive capacity, the book classifies theories of economic growth into groups of theories of supply and demand. The supply side, with the aggregate production function as its focus, gained prominence as the foundation of the models of economic growth developed by Robert Solow and Sir Roy Harrod. The popular neoclassical theories of Paul Romer then developed technology as an internal component of economic growth. On the other hand, by bringing together the classical and Keynesian versions of value, Pierangelo Garegnani developed the fundamental synthesis of the theories of the growth of demand.

Thomas demonstrates the need for clarity in modeling economic problems. The book believes that mathematics adds clarity to economic models as well as logical restrictions. For example, the infinitesimal calculus (a workhorse for the mathematical foundations of marginalist economics) adds to the potential change of several economic values, including cost, revenue, and productivity. The importance of an appropriate and adequate number of variables is also evident, since policies based on underfitted models with fewer variables than necessary can yield inefficient results.

The opposing views of methodological individualism or holism (deriving from the results of observing individuals or groups), supported by marginalist and Keynesian theories respectively, have raised the question of “right” and “wrong” theories. “. Here, Thomas explicitly aligns himself with the holistic approach, like Keynes himself, who felt that methodological individualism yields erroneous results in understanding macroeconomics.

While the book describes economics as a science of wealth that presents a macro picture, Thomas identifies the embryonic creation of national accounts statistics (NAS) in the work of William Petty. This was later followed by the United Nations mandated System of National Accounts (SNA) regulations. The Indianized version of the SNA, indigenized by Dadabhai Naoroji, VKRV Rao and PC Mahalanobis, still suffers from neglecting women’s contributions and the ecological costs of wealth generation. The book also discusses the classification of different sectors of the economy and the relationships between them, as well as sectoral fund flows. This represents the ideas of interdependence and circulation of wealth in the economy.

The strength of this work over existing textbooks on macroeconomics lies in its examples drawn from the real world, both from India and around the world. Rao, among India’s leading economists, brought Keynesian theories within the framework of development economies. Together with AK Dasgupta, he established that the Keynesian framework still has limited applicability to India, given the supply-side constraints of inadequate physical and social infrastructure and discrimination in the labor market. Given the government’s current emphasis on self-sufficiency (Atmanirbhar), Thomas underscores the need for India to produce products at lower cost than the rest of the world, thereby reducing reliance stemming from export markets and bilateral trade agreements.

Thomas clearly describes India’s growth trajectory in terms of historical inequality, sectoral performance, job creation and ecological impacts. The distribution of land ownership in India is exemplary of historical inequalities. The percentage of households with large land holdings is only 0.24% (against 75.42% of marginal farmers); however, the average land ownership of these households is 14.4 hectares (compared to 0.234 hectares for marginal farming households). Once the backbone, but now the backward sector of the Indian economy, agriculture makes a minimal contribution to total national output, being vastly overtaken by manufacturing, but of all services it still seems to dominate .

Contextualizing the structural aspects of the Indian economy, Thomas therefore argues that any discussion of Indian macroeconomics has two main segments: first, the importance of agriculture; and second, the presence of an informal sector. Unlike developed countries, Indian agriculture is characterized by features of village economies that suffer greatly from spatial inequalities and are rarely explained by economic theories. Societal constraints of caste, gender and race affect the regional distribution of natural resources and land ownership – essentially every element of policy formulation. The presence of informality also adds to the precariousness of inequalities in village economies.

India’s GDP growth has excelled; however, the inertia in job creation is evident from the split employment growth. The ecological view of the growth of the country is observed from the CO₂ emissions and carbon footprint of India, where huge inequalities prevail. The individuals and organizations that benefit the most from these emissions pay the least, and the poor seem to bear the heavy environmental burden.

The book rightly discusses the two major issues of employment and inflation in India as they lead the agenda on national economic policy prescriptions. Resolutely divide the macroeconomic question of employment into quality and quantity, Thomas presents the need to address these two dimensions for an ambitious level of full employment. Moreover, regular household chores usually performed by women are not part of the national accounts because they are not yet considered as “work”. The recently released India Time Use Survey made a rudimentary attempt to incorporate women’s work into the National Income Accounts (NIA) framework; however, he did not give an economic evaluation to this work. In terms of quantity, the labor force participation rate (LFPR) was found to be influenced by social and cultural factors (such as caste, class, gender, etc.), rather than factors alone economic. Likewise, the quality of employment is crucial given its enormous non-monetary and psychological effects. This discussion establishes that simply considering the unemployment rate is not enough to capture the true picture.

The other flaw that any real economy tries to avoid is the inflationary tendency of prices. In India, the wholesale and consumer price indices (WPI and CPI) are the indicators of inflation, which is characterized by irrational and unexpected increases in prices. The reference year for these calculations is still 2011-2012, which does not take into account all the significant changes that have occurred since this period. Additionally, stakeholders in the calculation of WPI and CPI should review their assigned weighting and include more products for better representation. Although Thomas does not address the structural problems of these indexes, he does highlight several generic policy recommendations for dealing with unemployment and inflation.

The advantage of this book over several other excellent macroeconomics textbooks (see, for example, Brian Snowdon and Howard R. Vane) is that it links basic economic concepts to real-life problems. Thomas does justice to the concepts and contexts that govern everyday macroeconomics. Drawing on the words of the father of the marginalist school, Adam Smith, this book demonstrates that “individual ambition serves the common good” as Thomas succeeds in his goal of enabling readers to grasp the daily life of macroeconomics..

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Note: This article gives the point of view of the author, and not the position of the USAPP – American Politics and Policy, nor of the London School of Economics.

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About the Examiner

Kaibalyapati Mishra – Institute for Social and Economic Change
Kaibalyapati Mishra is a PhD researcher at the Center for Economic Studies and Policy, Institute for Social and Economic Change, Bangalore, India. My main research interests are market design, information structures and behavioral economics. I can be contacted at [email protected]