Table of contents

Child pages

• Amazon - Micromotives and Macrobehavior
  • Saw this in the GSB, it looked interesting.

50 economics ideas you really need to know by Edmund Conway

I actually already knew a lot of these from taking microeconomics. I'll need to type up the ones I didn't know about yet (or forgot about).

An Inquiry Into the Nature and Causes of the Wealth of Nations by Adam Smith

Wikipedia Entry (with an in-depth summary):
http://en.wikipedia.org/wiki/The_Wealth_of_Nations

In the first fire-engines, a boy was constantly employed to open and shut alternately the communication between the boiler and the cylinder, according as the piston either ascended or descended. One of those boys, who loved to play with his companions, observed that, by tying a string from the handle of the valve which opened this communication to another part of the machine, the valve would open and shut without his assistance, and leave him at liberty to divert himself with his playfellows. One of the greatest improvements that has been made upon this machine, since it was first invented, was in this manner the discovery of a boy who wanted to save his own labour.

All the improvements in machinery, however, have by no means been the inventions of those who had occasion to use the machines. Many improvements have been made by the ingenuity of the makers of the machines, when to make them became the business of a peculiar trade; and some by that of those who are called philosophers or men of speculation, whose trade it is not to do anything, but to observe everything; and who, upon that account, are often capable of combining together the powers of the most distant and dissimilar objects. In the progress of society, philosophy or speculation becomes, like every other employment, the principal or sole trade and occupation of a particular class of citizens.

Praise for the book:
 

• In a foreword to Security Analysis, Warren Buffett says that an original edition of this book is one of the 4 books he most treasures; the other three are i) an original edition of Security Analysis, ii) an original edition of The Intelligent Investor, and iii) David Dodd's personal copy of the '34 edition of Security Analysis, with lots of scribbled notes in it for the '40 edition.

Basic Economics by Thomas Sowell

Amazon: http://www.amazon.com/Basic-Economics-C ... 0465002609

1. What is Economics?
Part I: Prices and Markets
2 The Role of Prices
3. Price Controls
4. An Overview
Part II: Industry and Commerce
5. The Rise and Fall of Businesses
6. The Role of Profits--and Losses
7. Big Business and Government
8. An Overview
Part III: Work and Pay
9. Productivity and Pay
10. Controlled Labor Markets
11. An Overview
Part IV: Time and Risk
12. Investment and Speculation
13. Risks and Insurance
14. An Overview
Part V: The National Economy
15. National Output
16. Money and the Banking System
17. The Role of Government
18. An Overview
Part VI: The International Economy
19. International Trade
20. International Transfers of Wealth
21. An Overview
Part VII: Special Economic Issues
22. "Non-Economic" Values
23. Myths About Markets
24. Parting Thoughts

Economics in One Lesson by Henry Hazlitt

online copy: http://prawo.uni.wroc.pl/~kwasnicki/Eko ... Lesson.pdf

the "one lesson" mentioned in the title is that you have to look beyond the immediate consequences of whatever policies you adopt and figure out what the extended consequences will be. he then spends the whole book giving different examples of people ignoring this lesson.

even though the book focuses on economics, it seems to me that this lesson applies to lots of areas of human decision-making. anytime you see a problem and think up a solution that you think will solve it, you're in danger of ignoring other possible side-effects of your solution.

- I love the way he beats one idea into your head over and over again so that there's no possible way you'll forget it if you read the whole book. I wish more books were like that.
- I like the short chapters
- I like the way he presents the material; he always uses common real-world examples
- the writing is as colorful as the cover of the book, though

Q: So, assume a country wants to get rid of debt by raising taxes on the rich, but if you do that then the rich will try to avoid the taxes by moving their assets around etc. Is there any general method for calculating what the result will end up being? I should try to look for how simpler analogous situations could get handled (eg calculating the effect of issuing a new type of traffic ticket if people will adjust their behavior to avoid the ticket).

Contents

***Part One: The Lesson***
I. The Lesson

***Part Two: The Lesson Applied***

II. The Broken Window
III. The Blessings of Destruction
IV. Public Works Mean Taxes
V. Taxes Discourage Production
VI. Credit Diverts Production
VII. The Curse of Machinery
VIII. Spread-the-Work Schemes
IX. Disbanding Troops and Bureaucrats
X. The Fetish of Full Employment
XI. Who's "Protected" by Tariffs?
XII. The Drive for Exports
XIII. "Parity" Prices
XIV. Saving the X Industry
XV. How the Price System Works
XVI. "Stabilizing" Commodities
XVII. Government Price-Fixing
XVIII. Minimum Wage Laws
XIX. Do Unions Really Raise Wages?
XX. "Enough to Buy Back the Product"
XXI. The Function of Profits
XXII. The Mirage of Inflation
XXIII. The Assault on Saving

***Part Three: The Lesson Restated***
XXIV. The Lesson Restated
XXV. A Note on Books

Keynes: The Return of the Master by Robert Skidelsky

http://www.amazon.com/Law-Economics-5th ... 0321336348

This book is _awesome_. One of the best textbooks I've seen. Extremely readable, tons of very useful (and not-otherwise-available) information, filled with examples, no fluff. It's way, way better than any of the Wikipedia articles I've seen on these subjects (and I'm a big fan of Wikipedia). Great for anyone interested in business, politics, law, economics. I just need to figure out a way to retain the ideas in it.

*********************************
1. An Introduction to Law and Economics*********************************

I. What Is the Economic Analysis of Law?
II. Some Examples
III. The Primacy of Efficiency Over Distribution in Analyzing Private Law
IV. Why Should Lawyers Study Economics? Why Should Economists Study Law?
V. The Plan of this Book

***I. What Is the Economic Analysis of Law?***

- economics provides a behavioral theory to predict how people respond to laws; not too long ago (and really, still today) people used to try to predict the effects of laws by using intuition instead of doing it in a methodical way
- economics provides a useful normative standard for evaluating law and policy (that standard is "efficiency")
- lawyers can use economics to figure out the cheapest way to settle a dispute or identify the most profitable deals
- economics predicts the effects of policies on efficiency, profits, and the distribution of income and wealth

new terms:
Pareto efficient - when a business deal maximizes the profits of the parties to it such that you can't increase any party's profit without decreasing another party's profit


***II. Some Examples***

These examples are designed to show what L&E is all about.

Example 1:
- A commission has discovered that white-collar criminals commit crimes only when the expected gain exceeds the expected cost. Economists have convinced the commission that it would be more efficient to punish these criminals with a monetary fine rather than imprisoning them, and that more serious offenses should have higher fines. How much should the fines be?

Example 2:
- A European manufacturer has a contract with a Middle Eastern oil company to get some oil, but a war breaks out and prevents the oil company from delivering. The Euro company loses a ton of money b/c they needed the oil for their business, but this situation wasn't covered in the contract, so the Euro company sues for the amount that they lost. Whatever the judge decides will set a precedent for future cases, so the judge's decision could have a huge economic impact (b/c future companies will look at the case law and make decisions based on what the case law says). According to economic theory, the judge should assign the cost to whichever party can bear it at lower cost; because the oil company is more likely to be able to predict / account for wars in the Middle East, they would seem to be the likely candidate to be assigned more of the risk.

Example 3:
- Eddie's company emits smoke which dirties the clothing at Lucille's laundry. Eddie could install scrubbers on its stacks to reduce pollution, and Lucille could install filters on her ventilation system. Scrubbers would be more expensive than the filters. They go to court and ask the judge to decide. The judge has to decide what the economically-efficient result would be. The cheaper means of solving the problem is the efficient means, so Lucille should lose. Note, though, that if the two are allowed to bargain, they can achieve the efficient result regardless of what the court decides. In other words, if the court says Eddie has to pay to fix the problem, but Eddie can instead pay Lucille to install filters, you still get the efficient result (filters, which are cheaper).


***III. The Primacy of Efficiency Over Distribution in Analyzing Private Law***

redistributive approach to law - the idea that the law should be used to redistribute wealth. Ex: "consumers are poorer on average than investors, so liability rules should favor consumers and disfavor corporations."

The authors say the redistributive approach is usually a bad idea because it's less efficient, so everyone ends off poorer. They think it's way more efficient to use a "tax-and-transfer" system, because 1) income taxes can more-precisely target inequality, 2) it's hard to predict the extended effects of changing people's rights, 3) transaction costs of the redist appr can be high (e.g. litigation costs), 4) #4 seems like #2 again: redistr. laws will distort the economy more than taxation would b/c the people who lose out from the change can modify their behavior to escape the effects of the change. Ex: tomato growers penalized by a law can choose to stop growing tomatoes.


***IV. Why Should Lawyers Study Economics? Why Should Economists Study Law?***

The former: It helps people look at the law in a new way, e.g. looking at laws as INCENTIVES for changing behavior rather than just as "a provider of justice". [I really do think people misunderstand how laws should be used]

The latter: 1) Economists looking to develop a new country need to pay a lot of attention to its legal institutions, b/c if there isn't a strong foundation for private property or contract then the economists' reforms may not be effective. 2) Economists sometimes use legal ideas as basic building blocks for their theories (e.g. "voluntary exchange"), and can benefit from the law's sophisticated breakdown of those ideas.


***V. The Plan of this Book***



******************************
2. A Review of Microeconomic Theory
******************************

I. Overview: The Structure of Microeconomic Theory
II. Some Fundamental Concepts: Maximization, Equilibrium, and Efficiency
III. Mathematical Tools
IV. The Theory of Consumer Choice and Demand
V. The Theory of Supply
VI. Market Equilibrium
VII. Game Theory
VIII. The Theory of Asset Pricing
IX. General Equilibrium and Welfare Economics
X. Decision-Making Under Uncertainty: Risk and Insurance
XI. Profits and Growth


***I. Overview: The Structure of Microeconomic Theory***


***II. Some Fundamental Concepts: Maximization, Equilibrium, and Efficiency***


***III. Mathematical Tools***


***IV. The Theory of Consumer Choice and Demand***


***V. The Theory of Supply***


***VI. Market Equilibrium***


***VII. Game Theory***

He basically spends ~ 4 pages running through some major terms in a progression that makes it easy to follow:

strategy - a plan for acting that responds to the reactions of others
game theory - the study of any situation in which strategy is important
the prisoner's dilemma
payoff matrix / strategic form of a game
the extensive form of a game - a decision tree
dominant strategy - when a strategy is best move to make regardless of what the other person does
Nash equilibrium - when no player can do better by changing his strategy, assuming the rest of the players keep theirs the same
repeated games
games repeated a fixed number of times
games repeated an infinite number of times
the unraveling of a game - the fact that someone playing a game a fixed number of times can have his FIRST move determined by what the best FINAL move would be. You start at the end and work backwards.
tit-for-tat

His r/l example of the importance of fixed vs. infinite games: the relationship between a creditor and debtor is like an infinite game when the going is good, but when the debtor looks like he may become insolvent the situation can look like a game that will only be played a few times. Thus we see people's behaviors change in that new situation.


***VIII. The Theory of Asset Pricing***


***IX. General Equilibrium and Welfare Economics***

A. General Equilibrium and Efficiency Theorems


B. Market Failure

B1. Monopoly and Market Power
B2. Externalities
B3. Public Goods
B4. Severe Informational Asymmetries

C. Potential Pareto Improvements or Kaldor-Hicks Efficiency


***X. Decision-Making Under Uncertainty: Risk and Insurance***

A. Expected Monetary Value

B. Maximization of Expected Utility: Attitudes Toward Risk
B1. Risk Aversion
B2. Risk Neutrality
B3. Risk-Seeking or Risk-Preferring

C. The Demand for Insurance

D. The Supply of Insurance
D1. Moral Hazard - Being insured changes your behavior
D2. Adverse Selection - People who are more likely to have problems are more likely to get insurance


***XI. Profits and Growth***



**************************************
3. An Introduction to Law and Legal Institutions
**************************************

I. The Civil Law and the Common Law Traditions
II. The Institutions of the Federal and the State Court Systems in the United States
III. The Nature of a Legal Dispute
IV. How Legal Rules Evolve


***I. The Civil Law and the Common Law Traditions***


***II. The Institutions of the Federal and the State Court Systems in the United States***


***III. The Nature of a Legal Dispute***


***IV. How Legal Rules Evolve***



****************************
4. An Economic Theory of Property
****************************

I. The Legal Concept of Property
II. Bargaining Theory
II. The Origins of the Institution of Property: A Thought Experiment
IV. An Economic Theory of Property
V. How Are Property Rights Protected?
VI. What Can Be Privately Owned?--Public and Private Goods
VII. What May Owners Do With Their Property?
VIII. On Distribution
Appendix: The Philosophical Concept of Property


***I. The Legal Concept of Property***


***II. Bargaining Theory***


***II. The Origins of the Institution of Property: A Thought Experiment***


***IV. An Economic Theory of Property***


***V. How Are Property Rights Protected?***


***VI. What Can Be Privately Owned?--Public and Private Goods***


***VII. What May Owners Do With Their Property?***


***VIII. On Distribution***


Appendix: The Philosophical Concept of Property



**********************************
5. Topics in the Economics of Property Law
**********************************

I. What Can Be Privately Owned?
II. How Are Property Rights Established and Verified?
III. What May Owners Do with Their Property?
IV. What Are the Remedies for the Violation of Property Rights?

***I. What Can Be Privately Owned?***


***II. How Are Property Rights Established and Verified?***


***III. What May Owners Do with Their Property?***


***IV. What Are the Remedies for the Violation of Property Rights?***



****************************
6. An Economic Theory of Contract
****************************

I. Bargain Theory: An Introduction to Contracts
II. An Economic Theory of Contract



**********************************
7. Topics in the Economics of Contract Law [245-321]
**********************************

I. Remedies as Incentives
II. Formation Defenses and Performance Excuses
Appendix: Mathematical Appendix


****************************
8. An Economic Theory of Tort Law
****************************

I. Defining Tort Law
II. An Economic Theory of Tort Liability
Appendix: Liability and Symmetry


*********************************
9. Topics in the Economics of Tort Liability
*********************************

I. Extending the Economic Model
II. Computing Damages
III. An Empirical Assessment of the U.S. Tort Liability System


************************************
10. An Economic Theory of the Legal Process
************************************

I. The Goal of the Legal Process
II. Why Sue?
III. Exchange of Information
IV. Settlement Bargaining
V. Trial
VI. Appeals
VII. An Empirical Assessment of the Legal Process



****************************************
11. An Economic Theory of Crime and Punishment
****************************************

I. The Traditional Theory of Criminal Law
II. An Economic Theory of Crime and Punishment



******************************************
12. Topics in the Economics of Crime and Punishment
******************************************

I. Crime in the United States
II. Does Punishment Deter Crime?
III. Efficient Punishment
IV. The Death Penalty
V. The Economics of Addictive Drugs and Crime
VI. The Economics of Handgun Control
VII. Explaining the Decline in Crime in the United States

The Chastening (re: '97 Asian Crisis) by Paul Blustein

I got this book because I'd gotten the impression from reading "This Time Is Different" that the '97 Asian Financial Crisis was very similar to what we might see if people began to flee US/EU government debt, so I wanted to get a clear view of what happened in '97 as a way of gaining insight into how the current crisis may play out.

1. The Committee to Save the World
2 Opening the Spigot
3. Winnie the Pooh and the Big Secret
4. Malignancy
5. Sleepless in Seoul
6. The Naysayers
7. The Bosun's Mate
8. Down the Tubes
9. Getting to Nyet
10. The Balance of Risks
11. Plumbing the Depths
12. Stumbling Out
13. Cooling Off

The Undercover Economist by Tim Harford

This Time Is Different by Carmen Reinhart & Ken Rogoff

It seems the main point of this book is to drill it into your head that countries have defaulted on their debts again and again and again and again. I think one reviewer put it well when he said that Reinhart spends a good chunk of the time just explaining the features of the data set she collected. It doesn't seem that this book aims to make it very clear how you can tell precisely when things are going to take a turn for the worse. The analogy that springs to mind is with earthquake prediction: Reinhart is like a scientist 1000 years ago arguing that earthquakes in a particular region occur again and again, and that certain things can indicate that a large earthquake may be likely in the near future.

Contents of This Webpage:
1. A List of Chapters in the Book
2. A Short Chapter-by-Chapter Summary
3. A Longer Chapter-by-Chapter Summary
4. Who Should / Shouldn't Read This Book?
5. My Thoughts/Questions

1. A List of Chapters in the Book:

Part I - Financial Crises: An Operational Primer
1. Varieties of Crises and Their Dates
2. Debt Intolerance: The Genesis of Serial Default
3. A Global Database on Financial Crises with a Long-Term View
Part II - Sovereign External Debt Crises
4. A Digression on the Theoretical Underpinnings of Debt Crises
5. Cycles of Sovereign Default on External Debt
6. External Default through History
Part III - The Forgotten History of Domestic Debt and Default
7. Stylized Facts of Domestic Debt and Default
8. Domestic Debt: The Missing Link Explaining External Default and High Inflation
9. Domestic and External Default: Which Is Worse? Who Is Senior?
Part IV - Banking Crises, Inflation, and Currency Crashes
10. Banking Crises
11. Default through Debasement: An "Old World Favorite"
12. Inflation and Modern Currency Crashes
Part V - The US Subprime Meltdown and the Second Great Contraction
13. The US Subprime Crises: An International and Historical Comparison
14. The Aftermath of Financial Crises
15. The International Dimensions of the Subprime Crisis: The Results of Contagion or Common Fundamentals?
16. Composite Measures of Financial Turmoil
Part VI - What Have We Learned?
17. Reflections on Early Warnings, Graduation, Policy Responses, and the Foibles of Human Nature

2. A Short Chapter-by-Chapter Summary:

Part I - Financial Crises: An Operational Primer [45pp]
1. Varieties of Crises and Their Dates
2. Debt Intolerance: The Genesis of Serial Default
3. A Global Database on Financial Crises with a Long-Term View
Part II - Sovereign External Debt Crises [51pp]
4. A Digression on the Theoretical Underpinnings of Debt Crises
5. Cycles of Sovereign Default on External Debt
6. External Default through History [15pp]
Part III - The Forgotten History of Domestic Debt and Default [38pp]
7. Stylized Facts of Domestic Debt and Default
8. Domestic Debt: The Missing Link Explaining External Default and High Inflation
9. Domestic and External Default: Which Is Worse? Who Is Senior?
Part IV - Banking Crises, Inflation, and Currency Crashes [58pp]
10. Banking Crises [33pp] - 
11. Default through Debasement: An "Old World Favorite" [6pp] - Sovereigns have been defaulting via debasement for as long as we have records, and they're still doing it; it just looks different nowadays.
12. Inflation and Modern Currency Crashes [18pp]
Part V - The US Subprime Meltdown and the Second Great Contraction [75pp]
13. The US Subprime Crises: An International and Historical Comparison
14. The Aftermath of Financial Crises
15. The International Dimensions of the Subprime Crisis: The Results of Contagion or Common Fundamentals?
16. Composite Measures of Financial Turmoil
Part VI - What Have We Learned? [16pp]
17. Reflections on Early Warnings, Graduation, Policy Responses, and the Foibles of Human Nature [16pp] - Using macro data can help predict when there's a danger of crises even if it can't predict precisely when/if something is going to happen, but up until now macro prediction was hindered by lack of data on past real estate prices before/after crises. We've started to fill that gap with our data set. International organizations should be tasked with 1) gathering macro data and pressuring governments to make macro data available (promoting transparency), 2) coordinating international financial regulation to prevent capital from going to riskier (more-leveraged) places in search of higher yield.

3. A Longer Chapter-by-Chapter Summary:

Part I - Financial Crises: An Operational Primer[45pp, 3-47]

Part II - Sovereign External Debt Crises [51pp, 50-100]

6. External Default Through History [15pp, 86-100]

Part III - The Forgotten History of Domestic Debt and Default [38pp, 101-138]

Part IV - Banking Crises, Inflation, and Currency Crashes [58pp, 140-197]

10. Banking Crises [33pp, 141-173]
A Preamble on the Theory of Banking Crises
Banking Crises in Repressed Financial Systems
Banking Crises and Bank Runs
Why Recessions Associated with Banking Crises Are So Costly
Banking Crises: An Equal-Opportunity Menace
Banking Crises, Capital Mobility, and Financial Liberalization
Capital Flow Bonanzas, Credit Cycles, and Asset Prices
Capital Flow Bonanzas and Banking Crises
Equity and Housing Price Cycles and Banking Crises
Overcapacity Bubbles in the Financial Industry?
The Fiscal Legacy of Financial Crises Revisited
The Elusive Concept of Bailout Costs
Growth in the Aftermath of Crises
Beyond Bailout Costs: The Impact of a Crisis on Revenues and Debt
Parallels in Revenue Losses between Emerging Markets and Developed Economies
Government Debt Buildup in the Aftermath of Banking Crises
Living with the Wreckage: Some Observations

11. Default Through Debasement: An "Old World" Favorite [6pp, 174-179]
MI of chapter: sovereigns have been defaulting via debasement for about as long as we have records, and seems to still be possible/happening today even among "advanced" countries; it just looks different nowadays.
174 - Description of the first known sovereign default (4th century BC), in which Dionysius of Syracuse in Greece collected all the money and restamped it at double the value.
175 - Four common elements of sovereign default:

1. Inflation (debasement?) has been the weapon of choice for sovereign default
2. Govs can be creative in how they do it
3. Govs can do it more smoothly on their own people than on foreigners b/c of their power over their own people.
4. Not sure about this one.

175 - example of Henry VIII's debasement (the currency lost 83% of its value)
175 - A clarification: governments default via debasement, which may or may not lead to inflation, depending on how quickly the country is growing.
176-177 - CHARTS - info about debasements in europe from 1258-1799 and from 1800-1899
178-179 - CHARTS - 1) example of debasement b/c of the napoleonic wars, 2) "the march toward fiat money" in Europe
179 - four main points:

1. the gradual decrease in average silver content of money in europe (aka "the march toward fiat money") shows that modern inflation is pretty much the same as old-world debasement
2. again, inflation / debasement / default are not new: they just look different now. this seems to be the main idea of this chapter.
3. new financial technology doesn't nec. create NEW types of crises but may make crises more serious (like w/ war tech)
4. today's "advanced" countries used to look just like today's emerging countries

12. Inflation and Modern Currency Crashes [18pp, 180-197]


Part V - The US Subprime Meltdown and The Second Great Contraction [75pp, 199-273]


Part VI - What Have We Learned? [16pp, 277-292]

17. Reflections on Early Warnings, Graduation, Policy Responses, and the Foibles of Human Nature [16pp, 277-292]

The chapter is in three parts:

1. A review of the "early crisis warning system" literature
2. An argument that a new independent international financial organization should be created to monitor important early-warning statistics and create international regulations to prevent future crises.

4. Who Should / Shouldn't Read This Book?

People who it seems will likely benefit from reading this book:
- Wealth managers (hedge funds, pensions, businessmen managing their personal fortune) who don't need investment tips spoon-fed to them. In other words, people who can be told some general information about how the world works and use it in combination with other research to create an independent hypothesis about where money is best invested.
- Serious economists

People who it seems will not gain enough from reading this book to justify the investment of time necessary to read it:
- People with only a slight interest in economics
- People looking for a user-friendly (Michael Lewis) explanation of what is happening in the world today
- People who read things quickly without meditating much on what they've read: I'd predict that such people will forget 99% of this book b/c of the very dry, academic tone. You'll be better off reading a summary of the book multiple times.


5. My Thoughts/Questions:

Q: How do you figure out what the tipping point is for a given crisis? How can someone use this book to better understand how things are going to play out in the world over the next 10 years?

Q: What could a normal person have done in past crises to protect himself from his government's bad behavior?

Q: What would have the 2007-2017 decade looked like if the government had pursued policies like those following the 1929 crash? How bad would it have gotten? Would we have had bread lines?

Q: In the event of US inflation, what hard currency alternatives will people turn to?

- love the color of this book cover, the pages, the font, etc. they did a really good job of making it look nice. The pages even have a nice texture to them, making them nice to write on.

- idea: sell a poster from the image on p16 (the "Standard Statistics" ad from right before the 1929 crash)

- I wonder how much Rogoff contributed to this...it seems like he may have been mostly lending his name to the book

- is there some index or measure of the level of connection between two countries' economies, ie the effect that the collapse/recession of one economy would have on the other

- the language is a little too formal for my taste

- learn more about the crises on p159

- Q: What's "real equity"? (161)