Naked Economics: Undressing the Dismal Science

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Summary: A Better World Through a Better Understanding of Economics
Review: After reading economic books by Milton Friedman and Thomas Sowell, I find Naked Economics to be a more balanced explaination of economics. Though I believe good economic sense are more relevant to the conservative viewpoint. This book makes you ponder as too how much we as a society are willing to let the 'creative destruction' victims fall behind in the name of progress.

I really hope more people would read into economics, because in the long run, it's the greater poor population will benefit more through capatilistic methods. Though it will be harsh for some groups who loses their jobs. Whether it's through replacing human hands with robotics or outsourcing for cheaper labor, it ultimately advances our productivity.

This book answers a lot of questions very relevant to today's current events. All the outcry about US outsourcing jobs. The author puts forward a great question, "Whould it be better for the US if trade weren't allow across the Mississippi River?" I think you could even go further on that question, "Would it be better if each state weren't allow to trade across it's border?" Many would realize the answer is no, but yet, there is such an outcry on outsourcing? It's call lobbying by special interest.

Great book, and very easy read.

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Summary: Wheelan turned econ. concepts into a book for the beach
Review: As an undergraduate, I used to find topics for potential areas for research papers from the Economist's Economics Focus section. For those uninitiated, the once-a-week, one page explinations the repetitive column provides are excellent, cursory introductions to complex economic topics, usually spawned from new research in the dismal science.

That said, Wheelan has taken that concept and spread it out over a fast-reading, entertaining 236 page book. Basic economic concepts and more complex and modern research are explained with vigor and enthusiasm. The book features no charts, functions, formulas or graphs. Nonetheless, it would prove a much better textbook for a High School or undergraduate Intro to Economics course. Better yet, it serves as an excellent review for those already initiated to the field.

Highly reccomended!

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Summary: A fantastic read.
Review: Both informative and interesting. I went from clueless to well-informed in one week.

I highly recommend to anyone who never took an Economics class, yet would like to know what it's all about.

My apologies for sounding like a bad infomercial, but the book is that good!

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Summary: I Loved This Book
Review: By reading this book independently instead of taking an introductory economics course, I learned enough that my current advanced economics teacher has become concerned I am too far ahead of the class. I highly reccomend it to anyone anywhere, and have passed it along to several friends already.

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Summary: Thought Provoking
Review: Charles Wheelan has driven home the point that economics is just a way of thinking. The book is very well written, and offers insight to economists and non-economists alike about the pervasiveness of economics in daily life.

You will find this book immensely thought provoking.

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Summary: Lively Economics!
Review: Economics is a point of view to see society and life, rather than just figures and graphs. This book illustrates most basic principle of economics in a lively way, from micro to macro. Updated examples throughout the book, is a great introduction for people who first read economics. It's also a good refresh for those who study economics in school and forget most of it already.

As a foreigner, I would say some examples are in local American life style, which is a bit difficult for me to found familiarity.

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Summary: Excellent introduction
Review: Economics is yet another field in which everyone has an opinion, and like (well, you know). But there is a substantial body of knowledge out there, and there is no reason for us (especially, us as voters) to be ignorant of it.

This could be read in every intro to econ class.

If you're a reader of Krugman's articles and books, but you feel like sometimes you don't really understand what he says, this will be a great book for you. Or if you just don't know about economics, this will be a great book for you.

(But after you read this book, I also recommend Krugman's writing. This book is the bird's eye view of economics, while Krugman looks at a few things in more detail.)

How does the Fed target interest rates and control money supply? I'd wondered this for quite a while, and here I got a straight answer to it.

It's recommended by several economics nobel prize winners, so its content must be solid.

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Summary: Readable and enjoyable intro
Review: Finding good, politically unbiased and balanced econ books for the general reader and beginner isn't easy these days, since so many of the issues have become so polarized, but Wheelen keeps the political cant and rant to a minimum, so this is a good place to start. His explanations are clear and concise, well written, and often humorous.

I have a special interest in monetary theory and also international economics, which is the area where many economists think that economics puts its best foot forward, because of the theory of comparative advantage, and I enjoyed the discussions of these areas. In fact, since we're on the subject, I thought I'd discuss the monetary issues a bit more here, since they can be puzzling, although some of what I include here is info not specifically from the book, but perhaps it'll be useful, since if you understand the following, you'll actually have most of the important ideas on this interesting and important and often paradoxical economic area.

Basically, the question is what really is the value of money in a country's economy, and how do fluctuations in the value of the currency and the amount of the currency in circulation affect the overall economy? That might seem simple at first, but consider the following.

You may know the story of the hyperinflation that occurred in Germany in the post-WWII years. Germany was saddled with some serious war debts and reparations, and so the government started printing money in order to pay them off. There's even some suspicion that they did this deliberately in order to pay them off faster with inflated dollars, which royally annoyed the French, who were basically getting stiffed. Very sneaky, if true. And clever--if you can make it work. However, it's also very risky, because there are few things more ruinously inflationary than the government printing money, and eventually those pigeons usually come home to roost, which they did in the case of the German economy with a vengeance. So the situation got out of control, and soon it almost took wheelbarrows full of money to buy a loaf of bread.

However, the most interesting thing is how the German monetary authorities stopped the hyperinflation and got things back to normal. What they did was start buying back the worthless paper Deutschemarks with gold. This reduced the supply of Marks, and when people saw that they could get real gold for the paper money, they cashed in in droves. Eventually, the German Deutsche Bank, basically their Federal Reserve, pulled enough money out of circulation to get the inflation under control.

This brings up the interesting question of whether one needs gold backing for your currency. Well, in the modern world, it's no longer necessary, since countries like Japan have very little gold backing for their currency, and yet the Yen is one of the so-called "hard currencies." Contrast that with the former Soviet Union, which at least in the past had a lot of gold backing for their currency, and yet it wasn't worth much. What really determines the value of your currency in the modern international economy is it's value on the international monetary exchanges, which is basically what people will pay to buy it in order to buy your goods and exports and so on, and to do business with you, not how much gold backing it has.

But getting back to the German situation, something very similar happened here back in the early 80s when the prime interest rate hit 21%, because the government was printing money due to the Vietnam war and the deficit spending of the late 60's and 70's. With that level of inflation per year, funny things start happening. For example, it's in the interest of capital-intensive industries or businesses requiring large on-hand inventories--such as retail stores or firms selling big-ticket equipment items and so on--to buy as much inventory as possible on credit, and then to pay the debt off with increasingly inflated dollars, which reduces your overall cost--essentially, not so different from what the Germans were doing.

This might sound strange since you're talking about the "price" or cost of money and how inflation affects it, but inflation has the interesting effect of making future money payments less expensive to the borrower, so they have a vested interest in loading up on goods on credit and then paying it off over time. The longer the horizon or loan term the better they make out as long as inflation continues.

In other words, with inflation running at 21%, in two years, the business paying back the loan gets a 42% discount on their cost of capital, assuming the interest rate is fixed, which is usually the case in business loans or at least businesses with good credit. Of course, lenders such as banks and savings and loans know about these tricks but surprisingly, there's very little they can do to hedge and protect themselves. This is one reason so many savings and loans went out of business back in the 80's.

Now all of this might make inflation sound like the ultimate economic evil, but actually, and here's another odd fact about monetary economics--the reverse situation is actually worse--which is known as deflation. Recessions usually don't go into serious deflation, but a real bona fide depression will. This is what is really happening in a depression.

In the case of a serious depression or deflationary spiral, the money supply contracts to the point where the total amount of money circulating isn't enough to keep the economic wheels of the country greased and operating smoothly thru what is known as the bank reserve ratio and negative multiplier effect. In other words, there is a systemic shortage of liquidity. Unfortunately, this situation is extremely difficult to correct, much more so than the inflationary situation.

That's because with interest rates falling and/or very low, no-one has any incentive to lend dollars since, as in the case during the Great Depression, banks get their money from private depositors, and with banks failing, and interest rates at almost zero, no one has any incentive to put the money in the bank if the bank might fail, or if the business that took out the loan could go bankrupt and fail, as many do during depressions. So people stuff it in the proverbial mattress. Hence, there's no money to lend, and so businesses which depend on loans and outside financing (which is about 99% of big and medium size businesses in the U.S.) can't get the money to operate and the economy grinds to a standstill. The government can even print all the money it wants, but nothing happens, since the prime lenders don't want to borrow the money at the so-called Federal Reserve Discount Window and pass it on to borrowers and risk losing it for some measly return and interest rate. In other words, the risk/reward ratio just isn't worth it.

To give you a better perspective on this, I can give you a fascinating fact. The average person tends to think of the stock market as synonymous with the overall economy, because it gets all the press and publicity, and that's true to some extent, but the truth is the bond markets operating behind the scenes which get much less press and attention (well, bonds are pretty boring compared to stocks) are actually ten times the size of the stock market and have a much greater impact than even the stock market on the overall economy. With no money to lend for loans and bonds, the economy grinds to a stop, until someone like the government "primes the pump" to restart it, the policy mechanism that the great economist, John Maynard Keynes, became famous for explaining, among other things. That's what happened back in the 1930's, but we really had to wait for the huge government spending of WWII to turn the situation around.

So during deflation, money is tight and scarce, but the value of the currency keeps going up--just the reverse of inflation. So those who have money have more than they had before. But since deflation causes serious unemployment and underemployment and poverty, most people don't have excess dollars, so they're still poor. So you just can't win. That's why economics is sometimes called "the dismal science." :-)

If this all sounds strange, just think of what happens with a resource or a commodity when there's a shortage of supply--such as with oil right now--it goes up in price, right? That's just normal supply and demand. Same thing in deflation. With a shortage in the supply of greenbacks, the value goes up just like in the case of any material good, except it's confusing to think of lots of money causing a lack of purchasing power as in the case of inflation, and a lack of money creating more purchasing power as in the case of deflation. In practical terms, the dollar's worth more--but no-one is spending them! Hence, paradoxically, money is worth more in a stagnant economy where no one has any incentive to spend it. You might wonder how something can be worth more when no one wants it, since, in most cases, what determines the value of something is the demand for it, but this is where monetary theory parts with normal intuition and common sense about how supply and demand should work, and that's just the way it is.

Anyway, that's not a bad little summary of monetary economics. If you understand that you actually have most of the important points. As you can see, it's strange stuff in some ways, but fun once you get the hang of it since it is powerful and explains some puzzling issues.

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Summary: A good explanation of a "foreign language", but...
Review: First, I'd like to say that this book MOSTLY does what author Wheelan set out to do -- to make the science of economics understandable and exciting to the average person without an advanced math degree. Wheelan does that, for the most part. He uses real-world (and recent) examples to illustrate economic principles. The first third of the book, I could not put it down.

The only thing really that bothered me (and it is throughout the book, so I had to ding it two stars) is that the author mixes political views of people and issues that I think have no business being in an economics book. For example, he mentions having caddied on the golf course, notably for George W. Bush, "before he became the mature leader he is today." I don't begrudge him his right to his opinion, but where does that comment belong in a book explaining economics? There are a number of people who question the maturity level of Bill Clinton, but I would not put that in an economics book! You would I think if Wheelan would have tried a little harder to be evenhanded -- certainly there are things to criticize on each side, but can we please leave the personal attacks out of it? -- I would have enjoyed the book more.

Still, the book is good at explaining something I have always regarded as a foreign language.

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Summary: A primer in ¿the big picture¿
Review: For those that have not yet had the chance to be exposed to or do not completely understand the fundamental principals that govern the world's economy, Naked Economics presents simply, elegantly and with numerous examples, the basic principals which can cause an economic explosion to turn into a depression or vice-versa. Though, as Wheelan states a number of times through the book, economics may not have all of the answers, it can certainly help us understand what the right questions to be asking in a particular situation are.

The book explains important economic concepts such as externalities (when a person or group does not pay fully for the economic, social, etc. costs of their actions) and resource valuation, but more importantly applies them to real-world situations (why is Bill Gates' house bigger then mine?; why do pour countries seem to get pourer?)

The book is written as a dialog between author and writer and avoids confusing matters by presenting equations and charts. Instead, concepts are explained and applied making the book accessible to those with virtually no knowledge of economics.

If you are interested in knowing more about economics and how it effects the world around you or if you need a bigger-picture overview to help with understanding specific areas of economic study, this book is for you.