The Republic of Beliefs

"It’s not a way to turn a book into a bestseller, is it? To have law and economics in the subtitle. What I like about this book is that it addresses an issue that I’ve pondered a long time in thinking about economic policy, which is that policymakers often think about themselves as outside of the society that they’re trying to act upon. “It’s like a snake eating its own tail. You’ve got to complete the circle to understand how economic policy is going to operate” If you think about it in game theory terms—and Kaushik Basu is a game theorist—then the person making the laws, making the policies, isn’t part of the game. What he argues is that this makes no sense. We know that in some societies, laws and social norms operate very well, and in others, they don’t. That must be something to do with the structure of the game itself. It’s like a snake eating its own tail. You’ve got to complete the circle to understand how economic policy is going to operate. He makes the law enforcers and the lawmakers part of the ‘game’ of society, and I think that’s an incredibly important insight. It’s an egalitarian approach, if you like, because it brings the policymaker off the pedestal and puts them on the same basis as everybody else in society. It means that you think about policy and law in a different way, too. You don’t think, ‘Here I am, omniscient, figuring out the best thing to do for society.’ You think, ‘I have to figure out what I want to achieve but also what everybody else wants to achieve and how they’re going to react.’ So policy will often be about creating what game theorists call a ‘focal point’—a politician might call it a vision—that will align people towards certain common objectives. One of the big questions in economics is what distinguishes poor economies from rich ones. The answer seems to be that it’s about the institutional structures and the legal frameworks. Is there corruption or not? Can you rely on other people or not? Kaushik Basu’s approach is a way of thinking about what incentives judges and policemen in a developing country or a country like Italy have, and what it is that makes them act corruptly. When you start to think about their incentives too, you get a better handle on how you might switch from one kind of country into another. Yes, and the words game theory shouldn’t put people off, because it’s very accessible. He actually does a really good job of explaining game theory. So it’s not only a good book for policy people and general readers, but if you’re an undergraduate trying to understand game theory, it’s good book for that too. It’s as much as anybody needs on game theory. Yes, the law and economics toolset does normally get applied in that kind of context. So I think it’s really interesting to extend it to these much broader questions as he is doing in the book. Yes. When academics can write accessibly, I think those are the best economics books. Many academics are terrible writers, as you know. And there are plenty of really good, popular books about economics written by journalists. I was a journalist myself for a long time, so I don’t disparage them at all. But when you get an academic writing about the area on which they have spent years of research and thinking and they can do that in a way that the general public can understand, then that’s going to be a very powerful book."