Cogs and Monsters: What Economics Is, and What It Should Be By Diane Coyle (2021) Princeton University Press

Book Note by: Chandrahas Deshpande
Professor of Economics, Welingkar Institute of Management

In Cogs and Monsters, Diane Coyle delivers a bold, intellectually rigorous, and deeply relevant critique of contemporary economics. With clarity and conviction, she challenges the adequacy of the field’s dominant models rooted in rational, mechanistic assumptions to make sense of the evolving realities of digital transformation, behavioural complexity, and institutional change.

At its core, the book urges economists to move beyond the metaphor of the economy as a machine made up of predictable "cogs." Instead, Coyle introduces the metaphor of "monsters" - the dynamic, unpredictable, and often messy phenomena shaping 21st-century economies, from artificial intelligence and digital platforms to behavioural biases and political polarisation.

Drawing on her experience as both a practitioner and academic, Coyle explores the limitations of traditional economic frameworks and outlines a path for renewal. She advocates for an economics that is more interdisciplinary, more ethically aware, and more responsive to social and technological developments.

Key Themes and Highlights

• Economics as a Public Responsibility:
  The longstanding critique of economics - particularly its dependence on rationality assumptions still holds weight, though it was more pronounced in earlier decades. As both a discipline and a practice, economics has influenced the behaviour and expectations of agents within the economy it studies. In today’s tech-driven world, financial markets often outpace regulation, raising concerns about effective oversight. While markets act as coordinators and discovery tools, the growing influence of behavioural economics has shifted focus toward real-world decision-making. Yet, policy analysts frequently neglect behavioural responses and practical implementation. The complex relationship between economics and politics highlights the need for a stronger political economy perspective, especially in balancing technocracy with populism. Advances in data and computational tools have made applied microeconomics a powerful lens for analysing decisions, while behavioural insights offer valuable guidance for competition and regulatory policy. Nonetheless, rent-seeking, special interests, and a lack of consensus on macroeconomic functioning continue to challenge effective policy design.
• Economist as an Outsider:
  Coyle critiques the continued dominance of the 'rational economic man' and calls for greater incorporation of behavioural insights - acknowledging motivations such as altruism, identity, and social norms. Change in economics goes beyond revising curricula or research agendas, it requires a shift in how economists engage with policy impact and public consultation. Many failures in the field stem from overreliance on overly simplified models, where evidence is sacrificed for theoretical neatness. While the discipline has increasingly embraced behavioural insights, it must also account for broader human motivations like altruism, identity, and duty. The limitations of the rational economic man and the maximisation principle are evident, even as tools like Randomised Controlled Trials (RCTs) offer psychologically realistic and empirically robust evidence. Still, the challenges of interpreting data, handling counterfactuals, and working with uncertain aggregates remain substantial. Macroeconomic analysis often relies on abstract concepts, and strong claims about the whole economy can be misleading without recognising institutional shifts and innovation. Economists must accept that social responses are dynamic and unpredictable, and that context matters deeply. Embracing ad hoc theories, narratives, and qualitative methods from other social sciences can enhance realism. The gap between idealism and practical policymaking has fed public cynicism, yet behavioural economics continues to show promise in areas like consumer protection and social policy.
• Behaviour Economics and AI:
  Applied economics increasingly incorporates behavioural insights and alternatives to the rational economic man, recognising that individual choices are shaped by social and environmental contexts. Decisions are influenced by scarcity, cooperation costs, and institutional settings, making it essential to understand the broader conditions behind market outcomes. The longstanding divide between positive and normative economics is narrowing, with growing attention to ethics, value judgements, and welfare considerations. In today’s economy, marked by increasing returns, externalities, and non-rival goods - market and government failures often stem from the same divergence between private and collective interests. Digital transformation has further exposed the interdependence of individuals, challenging the assumption of separability. As such, public policy analysis can no longer be purely technocratic; it must engage with complex, diverse interactions and institutional dynamics. Recent interest in measures that go beyond GDP reflects a wider push to revisit welfare economics and address distributional outcomes. Ultimately, economics must move beyond the artificial divide between what is and what ought to be, especially as technology concentrates wealth and reshapes economic geography.
• Cogs and Monsters:
  Public policy must now grapple with how different approaches - what Diane Coyle refers to as "Cogs Policy" and "Monster Policy", can improve societal outcomes, though measuring such impact remains a challenge. Earlier models based on mechanical relationships gave way to approaches that account for uncertainty, expectations, and behavioural biases. Digital transformation raises fundamental questions about the kind of society we aim to build and how to design effective policy in a non-linear, complex world where causal explanations are elusive. As digital and platform technologies reshape behaviour and economic structures, traditional classifications and measures like GDP appear increasingly inadequate. Economic statistics often reflect outdated philosophical frameworks that overlook social change, innovation, and nature, underscoring the need for new indicators of progress, such as those incorporating social capital and institutional quality. Structural shifts, including deglobalisation, climate change, and automation, pose further challenges, exposing the limits of current economic tools in capturing the complexity and indeterminate outcomes of today’s global economy.
• Changing Technology, Changing Economics:
  Digital transformation is reshaping not just economic activity but economic thinking itself, with general-purpose technologies (GPTs) driving profound structural change - seen, for example, in falling tech service prices and the rise of cloud computing, which has replaced large capital investments. However, disintermediation and shifts in production, such as supply chain fragmentation and cloud-based services, are poorly captured by traditional measures like GDP, calling for a new conceptual framework for growth. The dominance of tech giants (GAFAM) reflects the unique nature of digital markets, where platforms match supply and demand through network effects, with consumers paying little and suppliers bearing platform costs. These dynamics, along with online competition, changing consumer behaviour, and the non-rival, high-fixed-cost nature of digital goods; challenge conventional economic models. A paradigm shift is needed to account for interdependence, spillovers, and increasing returns that define today’s digital economy. Updating competition policy is essential to ensure digital markets serve the public good, while political economy must reclaim its place in guiding regulation, rather than leaving such issues solely to technocratic authority.
• Twenty-first Century Economic Policy:
  In the digital age, economic policy must adapt to the realities of increasing returns, platform dominance, and structural shifts in production and consumption. Traditional models based on central planning or free markets no longer suffice, as both face limitations in addressing today’s complex, data-driven economy. The rise of AI, global value chains, and digital platforms has transformed firms from hierarchical structures to networked and multisided models, blurring lines between markets and redefining competition. Assumptions about price, quantity, and stable preferences are outdated, as digital services reshape both supply and demand. Competition policy must now account for concentrated power in digital markets, where a few tech giants operate across multiple sectors, requiring a shift from competition in the market to competition for the market. Industrial policy, too, must evolve, as strategic public investments increasingly shape regional outcomes. Yet, economic policy still lacks a settled framework for evaluating welfare in non-convex, innovation-heavy contexts. Economists must move beyond one-size-fits-all models, embracing the “Events-Ideas-Actions” dynamic of political economy, and provide context-specific guidance for policy in a system shaped by increasing returns, uneven growth, and institutional diversity.

The Upshot

Cogs and Monsters serves as both a critique and a vision. It argues that for economics to remain relevant and effective, it must reinvent itself:

1. Economics must evolve to remain a meaningful contributor to public policy.
2. Economists have yet to fully address the complexities of the modern, fast-changing economy.
3. Focus must shift from policy tools alone to shaping the broader climate of ideas.
4. The divide between 'is' and 'ought' is artificial - normative questions matter.
5. Policy must consider not just what works, but what is better and for whom.
6. The welfare state must be re-examined in the context of the digital economy.
7. A renewed policy approach should blend political economy with technocratic expertise.
8. A new mainstream paradigm is emerging, driven by digital transformation and global shifts.
9. Political economy is reawakening and can play a constructive role in this transition.
10. Greater diversity and inclusion within the discipline are urgently needed.
11. Economics must collaborate more with the social sciences, humanities, and technology fields.

References

Coyle, D., 2021. Cogs and Monsters: what economics is, and what it should be. Princeton University Press.