Book Review: Economics Explained
This strange love lay dormant in me for my whole childhood and high school career, because I incorrectly assumed I was born to be an Engineer – meaning I assumed that taking optional economics classes in high school would be a distraction.
But in university, one of the compulsory classes was Economics 1A06 with an enthusiastically smiley grey-bearded man named Dr. Martin Dooley. He was a fantastic professor, but even better was this magical subject he was teaching me. The study of money! I had no idea you could get actual course credits just for learning about such an interesting topic. It was completely the opposite of calculus, a subject irrelevant to any form of modern work, which I had to force-feed into my brain even to obtain a reasonable grade.
So for the entire year of Economics 1A6, I attended every lecture and sat in the front row soaking up the beautiful words. Interest Rates. GDP. Investing. Debt. Supply and Demand. What the Good Doctor said each day made such perfect sense to me that I didn’t even need to open the textbook for the entire year. The weekly assignment questions all seemed just entertaining discussions and I answered them all and wished there had been more. The exams felt like board games and eventually, sadly, the course ended and I looked at my 98% score in the course and wished I could do it all over.
I wish I had realized I had this bizarre attraction and aptitude earlier in life, because I could have reached Early Retirement a few years earlier if I had gotten some sort of business/commerce/finance degree and become a Wall Street Weasel instead of plodding along for almost ten years as a tech-company nerd. But oh well, at least Economics is here for me now, providing poorly-written books on incredibly interesting material for my bedtime reading. Without being forced to, I’ve read books on both exotic and boring forms of stock market investing, economic history and futuristic predictions, successful and unsuccessful companies, marketing, investors and inventors, and people and company management. They have all had great things to say, but almost all of them could benefit from being put on a 75%-off diet to strip out all the fat of flowery, overly-serious language and repetition. If you’re writing something other than a nice exciting novel, you should really be able to make your point in 200 pages or less, don’t you think*?
But today, I just finished reading a very well-written book on economics. So I thought I’d share it with you. I’ve been hoping to find a compact all-in-one book on the subject for a while, both to polish up on the basics myself, and to have a good one to recommend to other people who want to go from Zero to Hero on the subject with just one book. In only 228 pages!
When you understand the basics of economics, the modern world is entirely less scary to you. In fact, it becomes somewhat predictable and amusing!
Is the current level of unemployment in the US an amazing and unprecedented hardship as the politicians suggest, or is it just a normal part of the always-exciting business cycle? Is the current level of the national deficit and debt a crushing precursor to the end of capitalism and a return to homesteading with a wary eye and a loaded shotgun? Or just a few trillion pounds of extra fat that need to be worked off? Why have interest rates been at record lows for years now, with at least two more years of them promised, when they were up around 20 percent as recently as the 1980s? Why do the richest people keep getting richer so quickly? Is the Federal Reserve a collection of smart people with an advanced understanding of economic theory and practice, or a bunch of bank-owned bandits that should be fired for corruption?
When you read or watch the news, the politicians on both sides universally vastly misstate even the most basic and non-controversial principles of economics, yet the journalists don’t bother to correct them or point out their errors. I think it’s because the politicians and the reporters don’t understand the subject themselves. With one very notable exception of the UK magazine called The Economist.
And oh, the Electorate! The poor non-Mustachian folks of our country have some incredible arguments based on little chunks of information they pick up from television shows and political blogs. They argue on talk shows, and they argue in comment threads after each online newspaper article. And they are often arguing two equally wrong sides of a perhaps-irrelevant economic issue!
But YOU, as a future rich person who will be living off of your investments, might find it very reassuring to brush up your own economic understanding if you haven’t already done so. And the reason I can recommend this particular book is that it reads like a chatty, general-purpose version of The Economist magazine.
Starting with an explanation of the basic (surprisingly) non-capitalist economies that existed in Europe in ancient times, the book explains how the Industrial Revolution really got the ball rolling towards the money system we see today. Then it explains the conflicts between the ways of two of the most famous early economists – Adam Smith (the “Invisible Hand” of the free market) and John Maynard Keynes (who came along later and suggested government actions should be used to balance some of the most extreme effects of capitalism as seen during and after the Great Depression). Then it rushes through progressively more advanced topics until you are side-by-side with the Fed, issuing treasury securities and expanding/contracting the money supply. And beyond to globalization and international trade and currencies (“hey, why IS the US dollar not falling more if we supposedly have such a crushing debt?”, is a question you might try to answer for yourself while reading the book).
The only flaw is that the latest edition of the book available is from 1998. Before the real dot-com boom and bust, or the ensuing recession, or the housing bubble and recent great financial crash. But in a way, that makes the book even more interesting, because the basic principles explained by the book seem even more valid in that they still hold just as true when applied to what happened in these more recent years! In my own mind, economics makes a great deal of sense and is actually quite predictable. It is only the increasingly volatile behavior of the people involved that throw temporary monkey wrenches into the system – as the system grows more complex due to this surprisingly new thing we have called globalization.
Economics is often a politically-charged subject. But this book manages to steer mostly clear of personal opinions and describe both sides of every argument, often presenting controversial aspects as questions rather than statements. The authors admit to having a liberal personal bias, but yet the book reads just like The Economist, which admits to having the opposite bias. I think this is a sign that they are both doing a good job at presenting economics objectively.
The book Economics Explained is by authors Robert Heilbroner and Lester Thurow.
* The Little Book that Beats the Market by Joel Greenblatt is a nice exception to this rule.
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