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Book Review: Economics Explained

I have an irrational love for the subject of Economics.

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.

  • Peter September 12, 2011, 8:23 am

    Amazon link (non-affiliate) for those who are lazy like me and looking for a quick link:
    http://www.amazon.com/Economics-Explained-Everything-About-Economy/dp/0684846411/ref=sr_1_1?ie=UTF8&qid=1315837361&sr=8-1

    Reply
    • Peter September 12, 2011, 8:49 am

      It’s also interesting that the 1-star reviews for this book on Amazon are mostly “SOCIALIST PROPANGANDA!” Though there is one review from a 15 year old complaining he was forced to read the book for school.

      Reply
      • MMM September 12, 2011, 9:03 am

        Very interesting! I hadn’t read those one-star reviews before, but I just checked them out. I am somewhat confused, since the complaints mentioned do not seem to be part of this edition of the book. However, I DID read that one of the authors had pretty socialist views when writing the earlier editions of the book (the project started way back in the 1970s). Then after the collapse of communism he radically shifted his views towards the capitalist side and came to appreciate how well our system works.

        So it’s possible that this 1998 edition is quite a shift from earlier editions. That might also be why the language seems so carefully crafted not to be opinionated in this edition. As I said myself, the explanations in this book are much closer to those of The Economist magazine (as opposed to, say, Harper’s magazine), so I’d have a hard time describing it as socialist propaganda. Then again, the 1-star-reviewer guy might be one of those folks who learned economics from talk radio (?).

        My own bias in economics is certainly on the capitalist rather than the socialist side. Probably because I like efficiency and numbers and I don’t like hearing complaints. But to try to understand economics without understanding how it interacts with different portions of society would be an overly simplistic view that would leave a reader confused as to what politicians are currently arguing about.

        Perhaps the reviewers who hated this book felt that is was missing some of the cheerleading for capitalism – for example, explaining repeatedly that when you outsource manufacturing jobs to another country, your own country benefits because more design and management jobs are created. This book does clearly point things like that out – it just goes on to briefly mention the fact that the manufacturing workers have move on to find new jobs. It doesn’t mourn their fate like a Michael Moore movie. It just explains why manufacturing workers have sometimes complained when their companies shift production overseas, even while I personally benefited because even more engineering jobs popped up here and raised salaries to ridiculous levels.

        Reply
        • LH September 13, 2011, 4:05 am

          I am a “Wall Street Weasel”, yet I am running a very mustachian 90% (of after-tax income) savings rate over my brief working history (5 years since college).

          I already have 1MM+ employees, but with a family, two kids and another one coming, I am still busy toiling away, saving up for college as early as I possibly can. (I can think of a few schools for which I would pay full fare, if they get in. Otherwise they had better get merit / athletic scholarships or go to community college!)

          PS: Love the blog!!

          Reply
          • LH September 13, 2011, 4:07 am

            PPS: I majored in electrical engineering / computer science myself, but had the fortune to also double major in management / finance, which taught me just enough interviewing / soft skills to get in the door. Cheers to econ!

            Reply
          • MMM September 13, 2011, 10:12 am

            Great story, LH! I am impressed to hear there are Mustachian Investment Bankers out there in the Financial District. I had assumed that everyone would get addicted to the cashflow and just adjust their lifestyles upwards with $600 dinners a few times a week and $42 million houses in the Hamptons.

            But Wall Street is probably the most efficient way to hit an early retirement – since it’s one of the only places where a recent graduate can make several hundred thousand per year.. even if you have to pay $6000/month in rent, the surplus income is still so high that you just save it up to $1 or $2 million, then move out of the city immediately so your cost of living drops by 75%.

            Reply
          • LH September 13, 2011, 7:35 pm

            Thanks for the reply MMM!

            Personally my rented apartment is less than $2000/month! The place is old, ugly and utterly inadequate compared to my co-worker’s flats, but the size and niceness of rented accomodation is not how we measure my life. I also eschew car ownership as there’s just no point driving in the city. My main luxury? My wife and I (same age, we married in our early 20s) have 2 kids, with another on the way!

            Luckily she is even more frugal than I am (and yes! I have learned to accept her spending veto power with “great humility, respect and gratitude”). Our ‘stash greatly reduces my stress at work (my company needs me more than I need this job, how bad-ass can you get?), especially in these turbulent markets.

            PPS: I have been fortunate enough to attend a talk by Lester Thurow last year. He’s not young anymore, but still captivated his audience. Thank you!

            Reply
      • Mr. Frugal Toque September 12, 2011, 1:47 pm

        It’s hard to say without reading the book because 4 of the 5 negative reviewers don’t give any examples of what they find so biased.

        The fifth reviewer calls it a lie to say that the “rich are getting richer and the poor getting poorer”. But the reviewer immediately acknowledges that this is almost true: the bottom 20% have stayed the same. Depending on the years you pick, this might or might not be true.
        http://en.wikipedia.org/wiki/File:BeforetaxfamilyincomemeanUS1989-2004.gif

        The reviewer adds that lost blue collar jobs have been made up for with high tech jobs. Well, if the bottom 20% have stayed the same, or lost a bit, then the high tech jobs haven’t made up for the blue collar jobs, have they? All of the increase in productivity is going to the people at the top, which that graph clearly shows.

        I suspect – and this is based not on the book but on my estimation of similar complaints from right wing people I talk to – that anyone who even partially measures the effectiveness of a system by how its poorest people do is a “Un-American Socialist Marxist Leftie Pinko.”

        Reply
  • shanoboy September 12, 2011, 12:00 pm

    I can’t wait to read this! I’ll get to it right after I finish Atlus Shrugged. :-)

    Thanks for the recommendation.

    Reply
  • Mr. Frugal Toque September 12, 2011, 2:06 pm

    It’s available at my library. A little outside my normal genres of aliens, dragons, spaceships etc, but I’ll give it a shot.

    Reply
    • Jess September 12, 2011, 9:29 pm

      Ha! That’s my section at the library, too :-)

      Reply
      • Geek March 9, 2012, 7:17 am

        Heck yeah.

        Reply
  • AlexK September 12, 2011, 2:36 pm

    Hey I’m an engineer too and I love economics, very similar experiences (I sold back my econ textbook still shrinkwrapped and got an A in the class). I read a book a few years ago called Naked Economics that was very well written. Thanks for the book review and of course the great blog that keeps me on track for my goals.

    Reply
  • the Neva river cheapskate September 13, 2011, 10:50 am

    Thanks for the review, will definitely check the book out, although buying Amazon books from Russia is neither cheap nor convenient.

    Please share more economics-related books you like, if there are any.

    The last one I read on the subject was Undercover Economist by Tim Harford, it was both entertaining and enlightening :)

    Reply
  • rjack September 15, 2011, 6:09 am

    I got the book from the Library and started reading it. It is a great book! I really like the conciseness.

    Reply
  • stewart October 14, 2011, 2:26 pm

    Here’s a good book for you. Economics in One Lesson

    http://www.fee.org/library/books/economics-in-one-lesson/

    To learn about inflation, books by Uncle Eric

    http://www.bluestockingpress.com/maybury_interview.htm

    Reply
  • James January 9, 2012, 8:31 am

    “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*?”

    Yes! Yes! Yes! A thousand times yes! I’m reading a book about the Stoics right now, can’t believe how wordy it is! Just. Get. To. The. Point.! But like you are saying, if the topic is interesting enough it’s worth all those extra words…

    Reply
  • jlcollinsnh March 9, 2012, 6:32 am

    Economics Explained is now on my reading list. Thanks for the tip. I’ll be watching for those single star complaints as I go thru it.

    It is worth noting Heilbroner also wrote “Marxism, for and against” so that might be what people are picking up on in EE.

    Thanks for the tip!

    Reply
  • janti December 18, 2012, 6:02 pm

    MMM, you should head down to the Colorado School of Mines and audit the “Engineering Economics” class taught by John Stermole. Probably the most popular class on campus taught by the best prof on campus. All about time value of money. Your love of economics & your stash coupled with your engineering mindset will be in heaven.

    Reply
  • Chris S February 12, 2013, 9:28 am

    I love the blog and am grateful for your taking the time to write it. I’ve learned a lot. So thank you.

    But I must contradict something you wrote in this entry. Economics is NOT “the study of money.” Economics is the study of the allocation of scarce resources. Money is a placeholder for those resources, but it is not a resource itself. That is, you can have an economy and economics without having money. There’s a more obscure word – chrematistics – used to describe study of money itself (and of the acquisition of material wealth).

    Reply
    • Pat March 1, 2013, 5:20 pm

      I’m basically an ecologist: ecology = eco + logos = study of our home (i.e. the planet
      eco + nomos = management of the home Hope I got the Greek roots right

      I think management of the home fits right in with MMM’s money philosophy

      I also aced Introductory Macroeconomics, but Biology was much more fun/interesting. (Gross at times, but fun)

      Reply
  • Penelope March 12, 2013, 2:04 pm

    Whenever you label anything simply “good” or “bad” you are missing a whole lot of nuance. Socialism isn’t bad in its totality. Capitalism isn’t good in its totality. There are certainly major problems with each, as they are typically practiced in our world. There are large problems with capitalism and its violation of true democracy, so I guess it’s an opinion based on what you value most in life, rather than labels that are true or false.

    Reply
  • Kelley hurst May 3, 2013, 6:57 am

    I realize I am late to this party, but loving your blog (I am reading the entries in order, with an occasional foray out of chron order).

    I was lucky enough to have Robert Heilbroner as a professor for a grad class in Economics at The New School. He brought economic principles to life with home-life examples. One of the best profs ever.

    One of his books I would highly recommend is The Worldly Philosophers. An interesting read, though not as practical as some of your other choices. Thanks for reviewing EE- I will have to check it out.

    Reply
  • Kevin Poff May 6, 2013, 11:16 am

    You might also want to check out economics in one lesson:

    http://www.amazon.com/Economics-One-Lesson-Shortest-Understand/dp/0517548232/ref=sr_1_1?ie=UTF8&qid=1367860547&sr=8-1&keywords=economics+in+one+lesson

    It explains the Austrian approach to economics.

    Reply
  • Gina January 22, 2014, 4:48 pm

    Ahhhhhhgggghhhh! I love this blog! I feel like I’m *finally* in a community where I belong! (Although I’ve been living a non-mustachian life thus far –not too bad mind you — but I’m getting back on track. I married a man who is SO unmustachian and his family is even worse! Way over spenders, they show off by using money & “things” owning 3 – 3!!!!!- timeshares in Hawaii at one point before they *realized* that they couldn’t afford even 1! They have a giant SUV (SUV has a huge and heavy built in Tool box in the back so its comepltely un-useful) and a ridiculous convertible. They even bought a $30,000 12’x15′ wall art piece “painted with aircraft enamel” (WTF!!??) and they have no emergency fund or retirement (that I know of). A few years ago they had to file bankruptcy (And they’re still going gang-buster to keep up appearances.) I don’t get it.

    At this point i do have to say they are super nice people, very goodhearted, just “living the life” and not really getting it. So getting my husband on board is proving difficult because he’s got to re-wire his brain and he’s not really ever been someone who looks or plans for the future. Anyway, I’m taking on the challenge so–game fucking on! Woohoo!
    Funny thing is early in life I LOVED Econ classes. Should have taken that as a sign.

    Reply

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