The Little Book of Economics: How the Economy Works in the Real World

This review is a joint effort with F. A. B. Coutinho and W. B. TannerThis interesting pedagogical book targets a public with no background in economics, readers who missed Economics 101 in college. Broadly speaking, the text combines outstanding qualities with a weakness. On its bright side, one learns how economic cycles rise and fall and how the US government tries to regulate the economy and walk the line separating substantive inflation from recession. A number of reviews can be found on the web in praise of the clear, good-humored presentation and of the clever analogies constructed to bring the author's points home. We join previous reviewers in applause of such virtues.The weakness, which by contrast has been overlooked, is disregard for theory. The layperson may be pleased with this aspect of the book. Eager to understand how the Fed interferes with his life, he will be relieved to find no mathematical symbols between the covers. Simplicity, nevertheless, has a price: the reader is likely to end up with the false impression that theory is superfluous and that the only tool in the competent economist's chest is time-series extrapolation. To emphasize this point, we will spell out the only mathematical expression in the book, an unwritten equation discussed in Chapter 1. To write down that expression, we need a few definitions. GDP is a nation's gross domestic product. N is the number of workers, and P is the average productivity, that is, the average amount of goods that a worker produces in one year, measured in dollars. Evidently, GDP = NP, an equality that is almost a definition, easy to understand. The trouble is the complexity of the economic system, which makes N and P interdependent and bound to numerous other variables. To show how N and P depend on those other variables is the object of macroeconomic models, a goal that many textbooks describe very well. True, theories often fail, and a few tumble with thunder, but this is how science plows through the thickets of the unknown. Of course, neither the models, nor their successes or failures are hidden in the equality GDP = NP. Even the most diligent attempt to find the complexity of economics in this simple mathematical expression is bound to fail. That, however, is what Greg Ip does. Not surprisingly, he fails. The stumble may be less than obvious to the inexperienced reader, but a hint is found at the end of the section titled "A recipe for economic growth", in Chapter 1. Here, Ip concludes that if N increases by 1% and P, by 1.5%, then the GDP grows by 2.5%, an inaccuracy that will raise the attentive reader's eyebrows. To be sure, the deviation is minute: 1% over 1.5% is equivalent to 2.515%. Nonetheless, stating that the GDP grows by 2.5%, instead of saying that it grows slightly over 2.5%, proclaims that arithmetic accuracy and mathematical rigor are foreign to economics.The author belongs to the class of scholars known as Humanists or Social Scientists. Humanists differ from such hard scientists as mathematicians or physicists in the way they acquire and disseminate knowledge. Hard scientists have much to learn from humanists, just as much as the latter would profit from communication with the former. In reference to this point, see the Brazilian Journal of Physics, Volume 44, pp. 125-127 (2014), for a review of two books authored by hard scientists who strive to explain their methods to humanists. The authors will be glad to send reprints to interested readers."The Little Book on Economics" focuses on the operation of the American economic agencies and is attractive and harmless to readers with scientific training. The indifference of the text towards theoretical developments may nonetheless be detrimental to others, for it portrays the economist as a modern version of the seventeenth-century physician, a professional who had to decide between the purgative and the leech after feeling the patient's pulse, measuring her temperature, and evaluating her complexion. Controversial as Paul Krugman's writing may be, his articles in the New York Times are much more faithful to the scientific nature of economics. Ip's book merits five stars because it is delightfully clear and offers an enormous amount of information about the committees steering the economy in the US. Make no mistake, however: its fifteen chapters compose no substitute for a crash course on Economics.

I now have a much better idea of what economics is about. This book makes the dismal science interesting and understandable.

This is a book for our times: Simple, cocksure explanations for complex phenomena. The book fits Mencken's observation that for every complex problem there is an answer that is clear, simple, and wrong. The author also answers President Kennedy's prayer for one-handed economists - with Greg Ip there is no more "on the one hand this, on the other hand that."Which would all be fine if the book were an opinion piece, but not if the text is larded with facts that are fictitious. Take the relation between taxes and economic growth. The author writes,"Indeed, in the 1970s and 1980s, conservatives like economist Arthur Laffer and"Congressman Jack Kemp, claimed that tax rates were so suffocating that tax cuts"would actually pay for themselves by stimulating the supply side of the economy. [...]"The supply siders were wrong. Tax revenue fell after Ronald Reagan's and"George W. Bush's tax cuts and it rose after Bill Clinton's tax increases".Bad supply-siders! Case closed.Not!! Greg Ip is entitled to his own opinions but not to his own facts. According to the Tax Policy Center (a daughter organization of the Brookings Institution, the latter not known as a hotbed of supply-side economics) individual income tax revenue (more precisely, "total tax liability" in IRS lingo) rose after Reagan's Tax Reform Act of 1986 by $3 billion in 1987 and $46 billion more in 1988. Bush's Jobs and Growth Tax Relief Reconciliation Act of 2003 saw individual income tax revenue rise by $86 billion in 2004 and $106 billion more in 2005, the latter still an all-time record, even for years that tax rates rose, Clinton and all.Back to the lack of wonderment and humility about the many things in our economic behavior that we cannot yet explain or predict with a high degree of certainty. An investigation into that incapability, the limits of what we know today for (relatively) sure, and the major controversies in economics could fill a wonderful, enlightening book. The Little Book of Economics does not have it.

Hard to read boring after a while

I first read one of the author's articles in the WSJ, and when I found that he had written this little, short and simple book on the fundamentals of economics, I bought it. I took a basic course in econ in college and frankly, I learned more from this little book than a whole semester of reading and studying the required textbook. I may be wrong, but I think I read where the author was trained as a journalist, but had a keen interest in economics starting early on. For sure, he is no professor, he gets to the nitty-gritty where it is understandable in a very short time.

So, you want to understand what "the economics" is about, but all the opaque jargon - not to mention the partisan inanities of late - keep throwing you off. The solution?This little book!Greg Ip is about as clear and common sensical as you can get. Everything is explained with clear, logical constructs based on everyday examples that elucidate many things you thought you'd never understand. Things like- why deflation is more dangerous than inflation- why employment data is such good fodder for partisan crap- why exchange rates are useful info in the long run and useles in the short run- how the US can keep a terrible deficit without suffering the consequencesand so on and so forth.If you want to sound smart in your next party without having to get a college degree in the meantime, buy this book. And read it too, of course.

Greg Ip's purpose in writing the Little Book of Economics has been to provide a practical, plain language guide to the concepts 'non-economists encounter in our daily lives: growth; unemployment;business cycles; Recession and Depression; inflation / deflation; asset bubbles; deficits; debt, globalization and the Federal Reserve.This little book does all of that and more, using our recent economic history of the "Crash of 2007", the steps that got us there, and the actions taken to remedy that situation, giving us the essential information which leads us from "darkness to light".We deal daily, directly and indirectly, with economic issues. Now we can more readily understand what is happening, and what we can do about it. Nevertheless, while a bit of self- defense may save you once or twice, a solid comprehension of the subject requires practice which can only come with a regular and prolonged diet of economic history, philosophy and all sorts of really interesting topics. Forget the novels. Books dealing with economic issues are far more interesting, entertaining and informative.

It is just the type of economics book that I was looking for. With a well written and very understandable languge it covers the topics that are important to understand the economic news and analysis on the media. Broad coverage of important subjects with some historical background.Even though it is written for the american public, the concepts explained are, in most part, applied to other mature economies.

I had very little knowledge about most economics and finance concepts I hear about in the news every day, and this book was a very concise and easy-to-understand introduction to many of those concepts. You get a better appreciation for the financial institutions and mechanisms around you.

Good basic book about economics.

I found the book to be a easy read and very helpful if you are just starting to take an interest in economics.