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Worstall’s Guide To Economics

Over on the jungle telegraph thing I am asked the following:

And, well, this is slightly difficult because there’s vast areas of the subject where I know nothing at all. And some very limited areas where I’m right at the research frontier. And yes, I’m usually less wrong when I know nothing than when I know more.

However, an extremely idiosyncratic guide.

1) Any of the standard undergraduate textbooks. Get an old edition, yes, the joke is that the questions are always the same, it’s just the answers that change. But at Econ 101 level not much has changed for 30 years or more. Samuelson is fine, any of Krugman, Cowen and Tabarrok, Mankiw, will walk you through the basics of the subject equally well. For the UK Lipsey is fine as well.

2) There’s two things you’ve really, really, got to understand. The first comes from the game of “Two Things”. We can boil any and every subject down to two things. Boxing is “Hit, don’t get hit”. Civil engineering is “Mud, there is always mud”. Economics is:

Incentives matter

Opportunity costs, and there are always opportunity costs.

When you grasp those two concepts no, that won’t make you an economist. But it will offer the nuts and bolts of how to think and reason through an economic point or problem.

The second is what Brad Delong calls the only really important thing we’re trying to understand.


Something the hell happened around 1750. Another way of reacing the same conclusion is to use Angus Maddison’s numbers. Nice spreadsheet of them here. Really worth walking through that for some time. it’s telling us that the average lifestyle for pretty much all people for pretty much all of history was around $600 per person per year. That’s in modern money, at modern prices. And that’s also the same as what the World Bank calls “absolute poverty” today. What those Africans living on maize from their acre of land are living on today.

And that’s our big question: what the hell did happen? Because we have many thousands of years when that was normal: now, only 250 years after something or other, we decry it as being so appalling that we must help everyone out of it. What the hell caused that kink in the graph? Various people have various explanations but that is the thing that we’re trying to explain.

And that’s the heart of the subject, we’ve our two things to give us a general logical structure and we’ve got our great question that we want to answer.

After that all is details. And that’s really just a matter of what interests you in the subject. If you want to understand invention and innovation then Baumol’s your man. For rent, the basic starting point is always Ricardo. And the first chapter of Tim Harford’s “Undercover Economist” is about as good an explanation of Ricardo on Rent as anyone’s ever going to give you.

PJ O’Rourke’s “Eat the Rich” is wonderfully funny but it’s trying to answer that same Delong question. What the heck happened that some places are rich and others aren’t? Another take on the same point is this. That’s the economic models that all of climate change is built upon. Chapter 4 is especially interesting. Because they’re trying to predict, not look back at what happened 250 years ago. But the answer is in fact the same. If we continue doing whatever it was that caused 250 years ago then we’re going to have that same economic growth that we’ve had which is making that chart scream off up to the right. If we don’t we won’t. The assumption is just baked into it: something like vaguely capitalist and vaguely free market makes the world richer, not doing those two things lowers how much richer it gets.

Just because they’re three great books I would recommend Parkinson’s Law, The Peter Principle, and Up the Organisation by Robert Townsend. What they’re really looking at is how organisations work internally. How incredibly difficult it is to get an organisation to do whatever it is supposed to be doing, rather than what an organisation usually ends up doing, which is whatever is of benefit to the continued existence of the organisation. And that’s the beginning of public choice economics. Why is that government doesn’t quite do either what was promised nor what we’d rather like it to do?

But again, that’s to spiral off into details.

The undergraduate textbooks do in fact inform on the basics. Because that’s simply what they’re for. Then, once you’ve grasped the two things, there’s that big question, really the only one we’re interested in (the greatest interest being, of course, how do we keep it going?). And then whatever interests you. Krugman’s essays from the 1990s? Why not, this one is excellent. Guns Germs and Steel by Jared Diamond might not strike you as economics but it’s another attempt to answer that same question, what the heck happened? Assuming that you’re interested in the subject, not trying to get a job in it, you can simply forget all the math and the macroeconomic models in detail stuff. After the undergraduate basics, simply read good economists discussing a problem you’re interested in.

39 thoughts on “Worstall’s Guide To Economics”

  1. I also think this blog gave me a better grasp of. Many of the basics than a few hundred hours of undergrad economics. More swearing, as well.

    (Tom Clancy’s Debt of Honor, describing a trade war between Japan and the US also explaine big chunks of macroeconomics well)

  2. The Pelican abridgement of the Wealth of Nations is very readable. To get a grip on the remorselessness of competition I recommend the Pelican abridgement of Origin of Species. To see what men get up to before 1750, the context of what happened in 1750, read the Pelican abridgement of Gibbon’s Decline and Fall.

    Bingo – reading those three and thinking about them gets you a better education than most people get. And infinitely cheaper, too.

  3. Ricardo on rent is well out of date. Ricardo was the basis of Marxism, remember.

    And not a single mention of Bastiat? Shame!

  4. So Much For Subtlety

    something like vaguely capitalist and vaguely free market makes the world richer, not doing those two things lowers how much richer it gets.

    A whole chunk of the world has tried to be vaguely capitalist and vaguely free market. Papua New Guinea. Much of the Pacific Islands in fact. Botswana. The Philippines.


    Puerto Rico.

    It doesn’t seem to help that much actually.

  5. I second Bastiat and Hazlitt as very easy-to-understand intros to basic Economic thinking. What helped me most beyond these was reading Cafe Hayek (I notice it over on your Hardly Trivial). I also think after incentives and opportunity cost, a grasp of tax incidence would put one leaps and bounds forward if ever debating politics/government issues which a vast number of economic debates/ online internet flame wars seem to focus on.

  6. Bloke in North Dorset

    Someone on here recommended and Tim endorsed Lawrence James’ Rise and Fall of the Brtish Empire. It’s not economics per we and I’m only around half through and I think it goes a great insight on to the role of expanding trade in that era Tim mentions.

  7. For the Great Divergence, then Pomeranz: The Great Divergence: China, Europe, and the Making of the Modern World Economy is essential.

    Full of insights and surprising information.

    Guns, Germs and Steel on the other hand….hhhhm. Has an atrocious reputation amongst anthropologists and historians, tribes of which Diamond is not a member and it shows. He is far to quick to cherry pick speculative ‘facts’ that support his case.

  8. Kelly looks quite fit, one to one hand on tuition is the preferable means to educate her.

    And as balance to the works quoted here, most of which are outrageous far right unproven dogma, might I suggest the Courageous State, by a tax expert and professor of economics in the UK, Richard Murphy.

  9. Garmany calling, Garmany calling: “We can’t allow a regime where markets are masters of governments”.

    H/T The Blessed Ambrose, this very morn.
    The guilty party: Professor Bofinger.

  10. Someone on here recommended and Tim endorsed Lawrence James’ Rise and Fall of the Brtish Empire.

    Might have been me. I read it, and subsequently recommend it, after I saw somebody on Samizdata recommend it. A good half of the books I read these days come from blog recommendations.

  11. The “Great Divergence” is trivially explained. It’s the consequence of the professionalisation of farming.

    You could also do an economic lesson on the economic benefits of being a young blonde with big knockers in a barter/gift economy.

  12. “I found Thomas Sowell’s Basic Economics easy to read and informative.”

    I was about to buy that, having been very impressed by Sowell’s other stuff. Any comments? Tim?

  13. Not so much an economics text book but The Baroque Trilogy by Neale Stephenson is a fantastic attempt at explaining what happened in 1750.
    The story runs between 1650 to 1715, covering everything from the Interregnum through the Hanoverian succession. The founding of the Dutch Bourse, Lloyds, the Royal Society, Banking, trade, and battles between Whigs and Tories.
    The last book in the trilogy, The System of The World, pretty much sums up what he was trying to do.

  14. Thanks for that Tim, I’d been wondering the same myself. All your fault of course, your Register articles got me interested in economics.

  15. Just because they’re three great books I would recommend Parkinson’s Law, The Peter Principle, and Up the Organisation by Robert Townsend.

    And they’ll also teach you more about management than you’d learn on a Harvard MBA course (not that that’s saying much).

  16. 1) Anything and everything by Milton Friedman, but especially Free To Choose, Capitalism and Freedom, and (with Schwartz) A Monetary History of the United States.
    2) Anything and everything by Thomas Sowell, but especially Basic Economics.
    3) F. Hayek’s The Road to Serfdom.
    4) Paul Johnson’s Intellectuals… for the chapter on Karl Marx.

  17. Damn you Tim for bothering with the “jungle telegraph”. Now I have at least a months worth of books I didn’t know about before. I learn more in one day’s blog posts here than I did in my econ 101 in college.

    Kelly I hope you’ve found your way here. The reason I like this blog so much is that Tim has no issue asking questions about things he doesn’t understand. Although the commentards are not nearly as forgiving eventually someone turns up that has half a clue what they are talking about. Unlike egomaniacs like Murphy there is no believe this or I’ll delete your comment attitude.

    Arthur the Cat mentioned Tim’s articles on the Register. The pieces about rare earths are what led me to question previously held notions.

    Since this post contains to much sunshine and roses for my taste I do need to add a complaint. The Timmy elsewhere section is terrible. I would like to see a list of all published articles. I don’t expect a complete archive but would it really be that hard to add links as articles are published?

  18. Rob

    I’ve managed to get through 72 pages of Sowell’s “Wealth, Poverty, and Politics.” So far I’ve noticed one glaring mistake about North American river systems. Other than that it has been a good read.

  19. On Dani Rodrik… back in 2011 he wrote a syndicated op-ed on the revolutions in North Africa in which he claimed that the people weren’t motivated by “economic concerns”, but rather by anger about corruption. Yet I remember reading elsewhere at the time that it had something to do with a spike in food prices (possibly as a result of reduced grain supply from the U.S. due to ethanol subsidies) and the Tunisian president had tried to placate the protesters with promises of price-fixing.

    I don’t think he (Rodrik) judged what was happening there accurately.

  20. I would like to recommend John Kay’s The Truth about Markets. It summarises economics very elegantly and provides lots of insights into why some nations remain poor and are destined to remain poor.

  21. Tim

    Might be nice to elide questioner’s coordinates (unless specifically given permission).

    But thanks very much for the graph and discussion.
    Obviously, the answer is ROTM™….

  22. I agree with the comments about basic text books. Economics For Dummies is basic, and contains just enough graphs and mathematics to help you decide if you like that angle of the subject.
    Also like Thomas Sowell a lot. His ‘compared to what’ joke can be adapted to almost anything, and stimulated me once to easily find data that for practical purposes UK food bank use in 2014/15 has reduced compared to 2009/10. People who wail about ‘austerity’ should also get the ‘compared to what’ treatment.

  23. Chris Miller Feb 16 @ 1.42pm.

    I agree although I think that Parkinson’s The Law and the Profits is a better book explaining Public Finance.
    “Expenditure rises to meet income”.

  24. Tim,

    Two things (obviously)
    – why did some countries income/head _fall_ – surely they would have stayed at the usual Malthusian trap level?
    – I thought the second thing about economics was TANSTAAFL. Which isn’t quite opportunity cost. It’s more that someone always has to pay for it, and that you will end up paying for your lunch in some way at some time, even if it’s not quite on the ticket.

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