Businomics Blog

Another Good Economics Book: The Price of Everything

I've been hard put to recommend an economics book aimed at the layman, because I don't read many of them myself.  However, here's a wholehearted recommendation: Russ Roberts's The Price of Everything.  The book is written as a novel, though with lots of didactic conversations.  The book conveys very well how the economy really works. 

I confess that as a young professor, I emphasized the analytical tools that were complicated and neat.  Those would allow the student to eventually understand how prices coordinate production.  Roberts gets right to the heart of the matter, without the graphs and equations that I used to love to teach.  What's more, he adds the insights of Hayek, Nobel-winning insights that turn out to be far more important than the technical parts of economics.  Along the way, Roberts weaves in an interesting little mystery with interesting characters.

I bought the book as a birthday present for Mrs. Businomics, who has picked up a lot of economics through proximity, but has asked for a basic read on the topic.  After she finished it, I picked it up and really enjoyed it.

The other good economics books I've written about:

Don Boudreaux's 10 favorite economics books.

Greg Mankiw's reading list, with a few of my comments thrown in.

My comments on two books that appeared on Mankiw's reading list.

If you want to connect the dots between economics and your business decisions, also check out Businomics: From the Headlines to Your Bottom Line--How to Profit in Any Economic Cycle.

Businomics Now on the Kindle: If You Need to Connect the Dots Between the Economy and Business Planning

Businomics is now available for the Kindle from Amazon.  This is the book that helps business leaders understand how to manage their companies in a changing economic environment.  For you hard copy folks, more information here.

Controversy in Economic Theory: Keynes, Friedman and the Austrians

My post about good economics books has led to a lively discussion about economic theory, Austrian economics, Keynes and Friedman over at Seeking Alpha.  If you have an interest in the theoretical, check out the discussion (but skip the algebraic nonsense) and note my response near the bottom.

Good Economics Books

Prompted by Greg Mankiw's reading list, which I blogged about earlier this week, I did some serious browsing through two of the books.

Nariman Behravesh's Spin-Free Economics is THE book I'll recommend when I'm asked to recommend a book for the layman.  It's not too technical, but it covers all the key elements involved in modern discussions of economics. In contrast to many other books I've browsed, this book is written in clear English.  If you wonder how a Ph.D. can do that, there's a simple explanation:  Behravesh has been working outside academia for decades.

The book's title makes it sound like a Fox News product, but that's terribly misleading.  It's broadly mainstream.   I agree with almost all of it.  Where I disagree,  Behravesh is presenting a more mainstream view than I take.  But about 95 percent of his content is I heartily endorse.  Who said we economists never agree?  (In fact, Behravesh has a chapter about what we economists agree on--it's surprisingly more than you might think.)

An interesting book--which I recommend only for people who have fully internalized Behravesh's book--is George Akerloff and Robert Shiller's Animal Spirits.  They look at how we humans are fallible and prone to errors, a topic in which both authors have contributed academic research.  They are challenging the mainstream view described by Behravesh--but only around the edges.  Unfortunately, they emphasize those edges, rather than the core of economics which works tremendously well.

For instance, back in the late 1960s two economists (Milton Friedman and Edmund Phelps) figured out that there is no long-term tradeoff between inflation and unemployment.  Bringing inflation down permanently requires only a temporary price in higher unemployment.  Later research found that low inflation tends to be steady inflation, which is very favorable to long-term economic growth.  The conclusion: keep inflation low, and don't try to fight unemployment with higher inflation.

Akerloff and Shiller challenge the basis for this conclusion when the inflation rate is in the neighborhood of zero.  And they are probably right.   However, huge economic damage has come from policymakers who tried to use inflation to reduce unemployment, triggering the boom-bust cycles of the 1970s.  Akerloff and Shiller say that Canada's effort to bring inflation from two percent to zero percent may have caused unemployment to be 1.5 percentage points higher than it otherwise would be.  However, they don't mention that when the basic lesson was ignored in the U.S., we had unemployment rise to nine percent in 1975 and well over ten percent in 1982.  I would prefer that the general public around the world learn the basic lesson, even if that means occassional errors through lack of understanding the advanced lesson.

If you're headed to a Ph.D. program in economics, read this book.  If you just want to understand general economics, which works almost all of the time, stick with Behravesh.

Good Readings in Economics

Harvard Professor Greg Mankiw has posted his reading list of economics books for a freshman seminar. (Hat tip to Cafe Hayek.)  Here it is:

• The Worldly Philosophers, by Robert Heilbroner
• Spin-Free Economics, by Nariman Behravesh
• Capitalism and Freedom, by Milton Friedman
• Equality and Efficiency: The Big Tradeoff, by Arthur Okun
• Nudge, by Richard Thaler and Cass Sunstein
• The Return of Depression Economics, by Paul Krugman
• Animal Spirits, by George Akerlof and Robert Shiller
• The Myth of the Rational Voter, by Bryan Caplan
• Economic Gangsters, by Raymond Fisman and Edward Miguel
• The Price of Everything, by Russell Roberts

I confess that I have not read all of these; I tend to do little reading of economics aimed at a general audience.  (Most of the ideas in these books I saw in the economics journals before the books came out.) 

Capitalism and Freedom:  I'll always remember how thrilled I was reading this my freshman year of college.  Highly recommended.  Some topics are a bit dated, but you'll learn a lot from them nonetheless.  And some of the topics are as timely today as they were in the 1970s.
The Worldly Philsophers: A good book, which helped reinforce my decision to study economics.
Spin-Free Economics: I haven't seen this book, but I was surprised by the Amazon reviews which said it was right-wing. I've known Nariman for years, during which time we've mostly discussed the short-term economic outlook.  I always thought he was an excellent mainstream economist, perhaps too Keynesian for my tastes, but first-rate all the way.

If Mankiw's class were focused on economics for business leaders, I'm sure he would assign Businomics.

Free: The Economics of Zero Prices

Chris Anderson's new book, Free, is actually subtitled, "The Future of a Radical Price," but he does a great job of explaining the economic concepts related to Free.  And he does not sound like a dry economics textbook while he's doing it (at least not to me).

The Free concept at its best is shown by Google, which gives away search but learned to sell ads alongside the search results.  This is a very old concept, actually.  Radio, and then television, gave away content but sold ads.  Some of the new tools, such as YouTube and Twitter, have mastered the free part, but are still struggling with the pay part.

Here are a few of the gems from this book:

"... it doesn't take a PhD to understand why Free works so well online.  You just have to ignore the first ten chapters or so of your economics textbook."

If I ever go back to teaching, I'll use Free to teach about complementary goods, in about chapter 3.

"The way to compete with Free is to move past the abundance to find the adjacent scarcity.  If software is free, sell support.  If phone calls are free, sell distant labor and talent that can be reached by those free calls (the Indian outsourcing model in a nutshell).  If your skills are being turned into a commodity that can be done by software (hello, travel agents, stockbrokers, and realtors), then move upstream to more complicated problems that still require the human touch."

"... Free is not enough.  It also has to be matched with Paid.  Just as King Gillette's free razors only made business sense paired with expensive blades, so will today's Web entrepreneurs have to invent not just products that people love but also those that they will pay for.  Free may be the best price, but it can't be the only one."

I recommend this book highly.  For listeners, there's a free abridged audio file available here.

Groundswell: Social Networks for Business, but With a Broad Value to Business Leaders

Groundswell: Winning in a World Transformed by Social Technologies is an unusual thing: a great business book.

First, it contains valuable insights that are not obvious.

Second, it has information for all parts of the business world: sales and marketing, production, finance, R&D.

Third, it give realistic advice rather than encouraging everyone to do more and more in the authors' pet areas.

The book is about social media, which is obviously of interest to modern marketers.  The authors also explain how the new tools can be used for internal collaboration and productivity improvement.  They see these new tools as just that: tools.  They don't tell every executive to Twitter and blog, but they do explain the strengths and appropriate uses of all the new techniques.

One of my popular speeches is about "The 20-Teens," what business leaders should be doing today to get ready for the next decade.  I've been talking about using LinkedIn and Wikis.  Now I'll add Groundswell as a highly recommended resource for more information.

Malcolm Gladwell's Outliers

Maybe the book will be disappointing, but this extract, published in the Guardian, is fascinating.  It explains a lot of success.  I like to think that it explains why I'm a pretty good economist and why I'm not a very good Laser sailor. 

 

(I say the book may be disappointing because many books are good articles expanded into a book, becoming tedious.  This is done, I suspect, because there's a lot more fame and prestige associated with a book than an article, even if the article has 99% of the substance and can be read quickly.  Why don't we reward people who write short books? )

Some comments for after you read the article:

1) People like Bill Gates may be the product of their time, but don't forget that there will millions of people who were in his age group who chose not to spend thousands of hours programming.  Some were smart enough that they could have been him, but they chose to drink beer, have a social life, and have hobbies other than programming.  So Gates deserves some respect for his effort.

2) The people who tried to be Bill Gates but were not in exactly the right circumstances: I bet they have been terrifically successful, even if not in Gates's league.  Ending up with millions of dollars may seem to pale in comparison to Gates's billions, but it's not shabbby.

The Encore Effect: Interview with Mark Sanborn

The latest edition of the Businomics Audio Magazine has an interview with Mark Sanborn about his latest book, The Encore Effect.  We talk about how ordinary people can give extraordinary performances, even in routine jobs.  Listen here.  Or learn more about The Encore Effect.

Businomics Translated into Spanish !

If you are more comfortable reading Spanish, this is good news for you.  For more information on the Spanish edition, click here.  It's priced at 18.5 euros, which makes the American edition look like a bargain.  There's also a UK version.  For more information about the plain-old American edition, click here.