Book Review: Naked Economics
Sunday, April 20, 2008
Although the past few months have been a bit of a hiatus period for Greenback Consulting Company and this blog, I have been trying to keep up with some of the books from the reading list that I posted here last winter (sitting on airplanes and in airports presents an excellent opportunity to read, although not such a good one to follow the market). So in what will be a new addition to the Greenback Consulting blog, I’ll give my two cents on business or market related books and whether I can, in good faith, recommend them to my readers. First book up is Naked Economics by Charles Wheelan.
Ever since Steven Levitt’s Freakonomics became wildly popular and showed Average America that economics is cool, there has been a spawn of books trying to explain economics in layman’s terms. Aside from Naked Economics, I’ve read The Underground Economist by Tim Harford and think that is equally as good.
Wheelan believes that economics has some basic concepts that everyone would benefit from understanding. Unfortunately, our higher education system fails us in many regards. Many students (and I have seen this first hand) walk into Econ 101 only to find textbooks crammed with numbers, professors obsessed with graphs and charts, and exams that require more regurgitation of jargon and number crunching than understanding these basic concepts. Most students are able to cram this information in their brains for enough time to pass the final exam but take very little from the class and apply it to their lives.
The difference between books like Freakonomics and Naked Economics is that Freakonomics demonstrates how economics can be used to understand obscure phenomenon in the world, like why sumo wrestlers throw matches or why drug dealers can’t afford to live anywhere other than their parents’ basement. In fact, one of the biggest criticisms of Steven Levitt and his book is that it teaches that economics is a tool to answer meaningless questions rather than tackle some of the world’s biggest problems like poverty, hunger and inflation. Levitt has made compelling responses to these critics (although I won’t get into those here).
Naked Economics, on the other hand, focuses on what traditionalists would consider fundamental economic questions. The book opens with a discussion of how markets work and why incentives are powerful. Wheelan then goes into a discussion about why government is a necessary evil when it comes to economics and markets. The dialogue then moves into the theories of perfectly available information and why human capital matters. There are chapters on topics like financial markets, economic interest groups, the Federal Reserve, economic growth, and trade and globalization.
The result is a book that is highly educational, easy to understand, and hilarious. As it turns out, a lot of economists have great senses of humor; their thousand page textbooks usually don’t provide a great stage for it though. To anyone with a limited understanding of economics, Wheelan’s book is an excellent read and highly recommended. In fact, I believe books like Naked Economics and The Underground Economist could be great classroom tools as well. They are short and easy to read, and professors could use the examples contained therein to apply to the more technical explanations they make during the course of the semester. Even if you’re not a beginner and possess a deep understanding of economics, the book is still highly recommended for its entertainment and laugh value.
Posted by Rob Pitingolo 1:40 PM
