This book is a loose collection of interviews the authors had with ten economists about the free market–its history, future, and contemporary intersection with modern society around the world.
At the beginning, the authors differentiate between what they call Economics 1.0 and Economics 2.0. The former is how economics has been studied for most of its history–in terms of commodities and the “scarce allocation of resources.” The latter is less about raw materials or tracking the swings in supply and demand, and more about the value of information.
Another way of looking at it is that Economics 1.0 studies the hardware in a computer, and Economics 2.0 studies the “software layer” containing the intangible things that have economic value–and the social and political institutions that are a necessary condition for this sort of value to develop. Economics 2.0 explains that when I purchase a new car today, most of the sale price is not going toward the physical materials making up the vehicle; rather, I am paying for all the knowledge and information accumulated over time that go into that vehicle: the physics required to design an aerodynamic body, the electrical components and computer systems that make a thousand minor calculations and adjustments per second as I speed onward, the insights required to design an anti-lock brake system, or airbags, or rear-view cameras, or electric engines.
The importance of the prerequisite government institutions and social stability cannot be overstated. The authors write in their introduction:
“The magnitudes of these intangible assets and invisible liabilities are staggering. [The] World Bank estimates that the average citizen in many advanced industrial countries has over $400,000 in intangible net worth. Meanwhile, the intangible net worth of people living in the poorest, most ill-governed nations of the world is actually negative. Their social and political institutions are like software that has so many bugs and viruses that you would be more productive without any computer at all.
Under a paradigm of Economics 2.0, entrepreneurs are the driving force for innovation, allocating capital to new ideas most efficiently and abandoning what doesn’t work. The economists interviewed come from a wide range of fields and areas of expertise. They hold differing views about the role of government necessary in an economy (not of whether but of how much), and their predictions for the future range from extreme pessimism to extreme optimism. But the one thing they all hold in common is that free markets–in an environment of low interference and reliable stability–are essential to growth, development, and innovation worldwide.