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Specialization and Trade: A Re-introduction to Economics
Since the end of the second World War, economics professors and classroom textbooks have been telling us that the economy is one big machine that can be effectively regulated by economic experts and tuned by government agencies like the Federal Reserve Board. It turns out they were wrong. Their equations do not hold up. Their policies have not produced the promised results. Their interpretations of economic events -- as reported by the media -- are often of-the-mark, and unconvincing.
A key alternative to the one big machine mindset is to recognize how the economy is instead an evolutionary system, with constantly-changing patterns of specialization and trade. This book introduces you to this powerful approach for understanding economic performance. By putting specialization at the center of economic analysis, Arnold Kling provides you with new ways to think about issues like sustainability, financial instability, job creation, and inflation. In short, he removes stiff, narrow perspectives and instead provides a full, multi-dimensional perspective on a continually evolving system.
A key alternative to the one big machine mindset is to recognize how the economy is instead an evolutionary system, with constantly-changing patterns of specialization and trade. This book introduces you to this powerful approach for understanding economic performance. By putting specialization at the center of economic analysis, Arnold Kling provides you with new ways to think about issues like sustainability, financial instability, job creation, and inflation. In short, he removes stiff, narrow perspectives and instead provides a full, multi-dimensional perspective on a continually evolving system.
95 pages, Kindle Edition
First published July 1, 2016
About the author
Arnold Kling
16 books34 followersAmerican economist, scholar, and blogger. He is an Adjunct Scholar for the Cato Institute and a member of the Financial Markets Working Group at the Mercatus Center at George Mason University. He teaches statistics and economics at the Berman Hebrew Academy in Rockville, Maryland.
Kling received his Ph.D. in economics from the Massachusetts Institute of Technology in 1980. He was an economist on the staff of the Board of Governors of the Federal Reserve System from 1980-1986. He was a senior economist at Freddie Mac from 1986-1994.
Kling received his Ph.D. in economics from the Massachusetts Institute of Technology in 1980. He was an economist on the staff of the Board of Governors of the Federal Reserve System from 1980-1986. He was a senior economist at Freddie Mac from 1986-1994.
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Displaying 1 - 14 of 14 reviews
January 2, 2017
Disclaimer: This review is from the perspective of a machine learning specialist with a basic undergraduate knowledge of economics.
My jargony and perhaps extreme take on the book's thesis: there is a dual problem to the common macroeconomic optimization problem. In this dual we (as an economy, a mass of particles in a "labor-space") continually rearrange ourselves into new patterns of specialization, attempting to maximize our own individual profits. We can view economic growth as a local search problem in this labor-space.
The past centuries have seen extraordinary amounts of labor specialization, to the extent that most humans today produce few or zero goods that are actually directly consumable. We can imagine this specialization physically as an explosive movement in labor-space.
Kling stresses several times that this is a humanizing view of economic activity. Rather than viewing an economy as a machine which is powered by interest rates and price levels, we see it as a fizzing mass of specialized human activity which constantly rearranges itself into new patterns.
This is not just a cute analogy. One of the key ways that this dual can improve over a macro-econ 101 picture is in its capacity to explain "dynamic adjustment" — i.e., the creation of new jobs in the face of structural changes, as opposed to a simple re-matching of jobs and workers. In the physical analogy above, we can see dynamic adjustment as a string of particles wandering into unexplored patches of labor-space. If the new specialization patterns are discovered to be profitable, these patches become basins of attraction. The monolithic "GDP-factory" (Kling's term) view of the macroeconomy does not account for these dynamic adjustments.
While I find the thesis (or at least my reading of it!) very attractive, I was pretty disappointed with the book as a whole. As you can expect from Kling, it's very well written and manages to explain complicated things to an econ-dummy like me. But I think the book tries to do far too much. The majority of the book is a rehashing of GMU-style Econ 101, with a mention of the phrase "patterns of specialization and trade" thrown in every 5 pages or so. As someone who has gotten plenty of GMU-style Econ 101 from Russ Roberts and Arnold Kling already, I found it tedious to page through all of this just to figure out which parts exactly were the novel ones related to the book's thesis.
I was caught off-guard when my Kindle told me that I had finished the book. There was altogether too much content which was either introductory ("here's how the economy works") or negative ("here's why the MIT guys were wrong") which distracted from the new ideas that I really wanted to understand.
I would very much like to see a separate work (a paper, perhaps!) introducing this impressive thesis apart from the "re-introduction" to economics. Would it be antithetical to ask for some mathematical models? A simulation? Some discussion of how all this talk quantitatively fits real-world data?
5 stars for original thinking.
3 stars for delivery (YMMV — I may not be the intended audience.)
Overall 4 stars.
Useful resources:
If you'd like to try the book out, you can find it in digital version for free at libertarianism.org. But do pay the author if you think it's worth it!
EconTalk (2 May 2016): Arnold Kling on Specialization and Trade
EconTalk (7 February 2011): Arnold Kling on Patterns of Sustainable Specialization and Trade
My jargony and perhaps extreme take on the book's thesis: there is a dual problem to the common macroeconomic optimization problem. In this dual we (as an economy, a mass of particles in a "labor-space") continually rearrange ourselves into new patterns of specialization, attempting to maximize our own individual profits. We can view economic growth as a local search problem in this labor-space.
The past centuries have seen extraordinary amounts of labor specialization, to the extent that most humans today produce few or zero goods that are actually directly consumable. We can imagine this specialization physically as an explosive movement in labor-space.
Kling stresses several times that this is a humanizing view of economic activity. Rather than viewing an economy as a machine which is powered by interest rates and price levels, we see it as a fizzing mass of specialized human activity which constantly rearranges itself into new patterns.
This is not just a cute analogy. One of the key ways that this dual can improve over a macro-econ 101 picture is in its capacity to explain "dynamic adjustment" — i.e., the creation of new jobs in the face of structural changes, as opposed to a simple re-matching of jobs and workers. In the physical analogy above, we can see dynamic adjustment as a string of particles wandering into unexplored patches of labor-space. If the new specialization patterns are discovered to be profitable, these patches become basins of attraction. The monolithic "GDP-factory" (Kling's term) view of the macroeconomy does not account for these dynamic adjustments.
While I find the thesis (or at least my reading of it!) very attractive, I was pretty disappointed with the book as a whole. As you can expect from Kling, it's very well written and manages to explain complicated things to an econ-dummy like me. But I think the book tries to do far too much. The majority of the book is a rehashing of GMU-style Econ 101, with a mention of the phrase "patterns of specialization and trade" thrown in every 5 pages or so. As someone who has gotten plenty of GMU-style Econ 101 from Russ Roberts and Arnold Kling already, I found it tedious to page through all of this just to figure out which parts exactly were the novel ones related to the book's thesis.
I was caught off-guard when my Kindle told me that I had finished the book. There was altogether too much content which was either introductory ("here's how the economy works") or negative ("here's why the MIT guys were wrong") which distracted from the new ideas that I really wanted to understand.
I would very much like to see a separate work (a paper, perhaps!) introducing this impressive thesis apart from the "re-introduction" to economics. Would it be antithetical to ask for some mathematical models? A simulation? Some discussion of how all this talk quantitatively fits real-world data?
5 stars for original thinking.
3 stars for delivery (YMMV — I may not be the intended audience.)
Overall 4 stars.
Useful resources:
If you'd like to try the book out, you can find it in digital version for free at libertarianism.org. But do pay the author if you think it's worth it!
EconTalk (2 May 2016): Arnold Kling on Specialization and Trade
EconTalk (7 February 2011): Arnold Kling on Patterns of Sustainable Specialization and Trade
June 2, 2018
Kling provides an easy to read book on the importance of specialization and trade, along with questioning the assumptions of Keynesian and Classical economics. Questioning economic theories is important in understanding more about how humans act to satisfy their desires. Don’t miss this book!
July 9, 2018
Una introducción a la Economía como ella debe ser estudiada, no como lo es usualmente. Ese es el Ofrecer una introducción a la economía, como ella debiera ser estudiada, es el objetivo de A. Kling. «Exponer y tratar de corregir importantes malas interpretaciones acerca de la especialización y el comercio, que afectan a economistas líderes y a sus libros de texto», como lo expresa él mismo. Todo comienza con la especialización y su consecuencia, mayor riqueza, lo que lleva a comercio, urbanización, complejidad, mejoras y demás.
Cada capítulo se dedica a un malentendido, iniciando con la idea de que la Economía es una ciencia que usa el método científico; para seguir con el malentendido de que la economía es algo que puede manejarse con un panel de control; luego el malentendido de que la economía puede ser planeada centralmente; el malentendido acerca del funcionamiento de los mercados y así con otras confusiones y malos entendidos acerca de la Economía.
En fin un buen libro que debería ser leído por muchos, especialmente quienes están en posiciones de poder y creen que desde su posición podrán conducir a su país a la prosperidad si sus instrucciones son obedecidas. No creo que muchos de ellos lo hagan, pero el resto de los mortales podemos disfrutar de esta fuente de sentido común.
Cada capítulo se dedica a un malentendido, iniciando con la idea de que la Economía es una ciencia que usa el método científico; para seguir con el malentendido de que la economía es algo que puede manejarse con un panel de control; luego el malentendido de que la economía puede ser planeada centralmente; el malentendido acerca del funcionamiento de los mercados y así con otras confusiones y malos entendidos acerca de la Economía.
En fin un buen libro que debería ser leído por muchos, especialmente quienes están en posiciones de poder y creen que desde su posición podrán conducir a su país a la prosperidad si sus instrucciones son obedecidas. No creo que muchos de ellos lo hagan, pero el resto de los mortales podemos disfrutar de esta fuente de sentido común.
April 2, 2017
Kling and I do have something in common: we hate our field
February 21, 2017
Specialization and Trade is the kind of economic text that the world needs more of. Kling is heterodox through and through, using whatever approach he sees as reasonable no matter how many traditions he breaks with. At the same time, he really knows how to make himself understood and his reasoning transparent. The result is a book that's both innovative and a didactic masterpiece. If I don't rate it higher, then that's mainly because Kling is all over the place, talking about various methodological issues, the influence of the Fed, the shortcomings of Keynes, the role of economics in general and the effects of the division of labor. His ideas are more loosely connected and run across across a broader range than the title of the work suggests, yet they aren't complete enough to form a whole system. Specialization and Trade felt like it wanted to deal with a very particular issue but instead ended up a kind of unfinished systematic treatise. Even then, it's a great book that stands strong against the pseudoscientific tendencies of modern economics.
July 10, 2016
This is a book that I'll recommend to students of economics who have finished grad school and just joined public policy: "Read this book. It is short but contains many useful lessons that call for much unlearning and rethinking. You will understand the ideas in this books, but not their full importance now. You will learn to appreciate them with experience."
I've been reading Kling for close to a decade now. This book is a good synthesis of his ideas.
I've been reading Kling for close to a decade now. This book is a good synthesis of his ideas.
August 1, 2016
A small but clear book on rethinking how we approach macroeconomics
A great reintroduction to macroeconomics thru a different lens than the classical macro training. Kling does a fine job appealing to armchair economists while still keeping a certain rigor to the material.
A great reintroduction to macroeconomics thru a different lens than the classical macro training. Kling does a fine job appealing to armchair economists while still keeping a certain rigor to the material.
Read
June 23, 2016Clear writing from my favorite curmudgeon. Convinced me that a lot of the science underpinning current economic thinking is bunk.
January 2, 2022
Generally strong argumentation around the importance of specialization and trade, and the problems with current mainstream economic approaches such as hydraulic economics.
However, I think Kling's reasoning around sustainability is weak. In arguing that profitability and sustainability go hand in hand, Kling assumes that the costs of a business are always paid by the same firm who reaps the profits. The issue of externalities is mentioned briefly, but not given adequate thought.
Other than that I'd highly recommend this as an introduction to a serious libertarian economics.
However, I think Kling's reasoning around sustainability is weak. In arguing that profitability and sustainability go hand in hand, Kling assumes that the costs of a business are always paid by the same firm who reaps the profits. The issue of externalities is mentioned briefly, but not given adequate thought.
Other than that I'd highly recommend this as an introduction to a serious libertarian economics.
March 17, 2017
As usual, Kling's prose is crystal clear, and his ideas are thoughtful and thought-provoking. In addition to providing an excellent case for a trade and specialization based economics, he delivers a good economics primer and a persuasive case against basing economics on mathematical models.
May 16, 2021
[Imported automatically from my blog. Some formatting there may not have translated here.]
A little book (in the "physically small" sense) from Arnold Kling, published by Cato. Impeccable credentials, there.
The book sets forth Kling's argument for a new epistemological approach to the field of economics. He calls it a new "framework of interpretation", but potayto, potahto. Either way, it's very similar to the sort of thing ("paradigm shift") Thomas Kuhn described in The Structure of Scientific Revolutions: the old ways of "doing" economics are losing explanatory power, its "expert" predictions are too often off the mark, and there's a general air of musty stagnation around the field. It's as if physicists were still building their research efforts around phlogiston and the luminiferous aether.
Kling proposes starting over with a change in the fundamentals: analysis should begin with the atomic concepts of (guess what) specialization and trade. He argues, convincingly, that without specialization, you don't even have much of an economy. And, indeed, economic history is very much the story of how individuals perform increasingly "special" tasks, none that important in themselves, trading with each other as necessary to generate general prosperity.
Kling's explanation is clear and his enthusiasm is obvious. He proceeds to apply this framework, showing its explanatory power in various areas. His criticisms of alternate frameworks, especially Keynesianism and "MIT"-ism, are compelling. (His chapter titles betray an unfortunate obsession with alliteration, but we'll forgive him that.) There is special emphasis on the 2007-8 financial crisis that "nobody saw coming".
June 11, 2017
I like Kling and probably agree with him on most things. The central thesis of this book is that macro is bunk, and that micro is not. No disagreement there. He elaborates on this over a mostly-enjoyable ten chapters, and the resulting text makes for a pleasant little read.
I didn't really get into the way that Kling approached this thesis though. He writes from a perspective that treats specialization and trade as largely extricable from the core phenomena of scarcity, preference, and comparative advantage. I take the orthodox microeconomic view that specialization and trade are the logical results of these phenomena; Kling himself sort of seems to accept this early in the introduction, but then asserts that he'll operate on the level of specialization and trade anyway. I raised an eyebrow very early on at:
I think this claim is tautologically true for firms, but the rest feel like a bit of a stretch, or at least can be explained more naturally by appealing to scarcity, preference, and comparative advantage (à la Mises, for example) or even moral philosophy (à la Huemer) in the case of property rights. In retrospect I guess that Kling wanted to use specialization as a sort of abstraction barrier to analyze macroeconomic issues, but I didn't think this was clear, or that it worked tremendously well. If specialization and trade are to be the core units of analysis, then I'm really hoping for "an economist does his best Nick Land impression". But that's not what I got.
I didn't really get into the way that Kling approached this thesis though. He writes from a perspective that treats specialization and trade as largely extricable from the core phenomena of scarcity, preference, and comparative advantage. I take the orthodox microeconomic view that specialization and trade are the logical results of these phenomena; Kling himself sort of seems to accept this early in the introduction, but then asserts that he'll operate on the level of specialization and trade anyway. I raised an eyebrow very early on at:
The phenomenon of specialization helps explain why we observe markets, firms, property rights, money, and finance.
I think this claim is tautologically true for firms, but the rest feel like a bit of a stretch, or at least can be explained more naturally by appealing to scarcity, preference, and comparative advantage (à la Mises, for example) or even moral philosophy (à la Huemer) in the case of property rights. In retrospect I guess that Kling wanted to use specialization as a sort of abstraction barrier to analyze macroeconomic issues, but I didn't think this was clear, or that it worked tremendously well. If specialization and trade are to be the core units of analysis, then I'm really hoping for "an economist does his best Nick Land impression". But that's not what I got.
April 27, 2017
This book was fine I guess. Kling is a libertarian-leaning economist pushing back against the theory that the economy is one big "GDP machine" that experts can fiddle around with until they get inflation and unemployment figures just right. His most interesting points address how firms "right-size" their employment through constant adjustment and innovation; this has a bigger effect on the economy than nearly anything else. He plays down the role of the Fed, describing it as basically a big bank that can influence growth in some ways but isn't near as potent as some will claim.
He also spends a good deal of time discussing the housing crisis and resultant recession of 2008. It is clear that the issue was poor risk assessment of bundled loans, as well as the the government's preference for originate-to-transfer vs. originate-to-service mortgages. The strengths of homeownership in general were also overstated.
So the book was interesting most of the time, although I'm not sure why it received so much hype. I guess because common sense is so rare these days that a book full of it comes as a breath of fresh air.
He also spends a good deal of time discussing the housing crisis and resultant recession of 2008. It is clear that the issue was poor risk assessment of bundled loans, as well as the the government's preference for originate-to-transfer vs. originate-to-service mortgages. The strengths of homeownership in general were also overstated.
So the book was interesting most of the time, although I'm not sure why it received so much hype. I guess because common sense is so rare these days that a book full of it comes as a breath of fresh air.
Displaying 1 - 14 of 14 reviews