By ANDREW LEE
andrewlee@thestar.com.my
Author: Peter D. Schiff and Andrew J. Schiff
Publisher: John Wiley & Sons
WE never seem to run out of jargons whenever a recession is upon us. An economist marvels at the use of them – phrases such as capital control and fiscal stimulus are thrown around as though it were second nature to them (as it should be).
What of the common people though?
Many of us seem content with the validity of such terms and do not feel the need to question what they mean.
This leads to us assuming the meaning of certain phrases, without feeling the need to consult the great sage that is the world wide web.
My point is, few of us actually understand what we are talking about when we subtly slip in such jargons over coffee with our mates.
In fact, many of us assume that economics is a subject far detached from our everyday lives (a bit like nuclear physics) and that any analysis requiring knowledge on the subject should be left to the experts.
Indeed, piecing together how all the pieces of an economy fit together can be a daunting task – although, if anything, the imminent slow dip back into recession has proven that perhaps the experts themselves are having trouble as well!
It is a popular argument that it was the experts who got us into this mess in the first place.
The push toward Keynesian economics that began after the second world war was a time bomb waiting to explode – at the core of Keynesian’s ideas were that governments could smooth out the volatility of free markets by expanding the supply of money and running budget deficits when times were tough (there’s more jargon for you).
Common sense would suggest that such policy is not sustainable in the long run – all it does is create artificial bubbles in certain sectors of the economy that will come crashing down sooner or later.
How an Economy Grows and Why it Crashes by the Schiff brothers is an advocate of such common sense.
Inspired by How an Economy Grows and Why it Doesn’t by the Schiffs’ father Irwin, they have decided to write a more tongue-in-cheek book.
Using illustration, humour and storytelling, the authors attempt to take economics off its lofty shelf and place it back on the kitchen table where it belongs.
The book follows the lives of settlers living alone on a far away island, the actions they take to improve their standards of living and their eventual maturity into the strong, developed nation of Usonia.
Along the way, they face trials and tribulations not unlike those faced by the United States – in fact the reader will encounter many recognisable events and personalities in US economic history as the authors use this as an allegory throughout.
Certain names are changed for comic effect – Ben Bernanke is called “Ben Barnacle”, possibly to highlight his tendencies to inflate the economy, while Richard Nixon is referred to as “Slippery Dickson”, for obvious reasons.
The authors have done a fine job in explaining how economics is relevant to our daily lives.
It must seem taxing, forgive the pun, on us to attempt to understand how banks work, why self sacrifice contributes to society or why comparative advantages should be pursued – but the truth is that the answers to all these questions are much simpler than we think.
The book also does a good job of explaining how the global economic crisis came about.
Once mysterious jargon such as “credit crunch” and “sub-prime mortgages” become clear to the reader, as does the housing glut.
It is also interesting to note how politics seems to have begun to overlap with economics in Western countries, pushing the idea of civil liberties and the free market to the edge.
The converse might also be true, as governments in developing countries begin to realise the best way forward is by gradually relinquishing their control on their economies, thus allowing market forces to exert a greater degree of autonomy.
In hindsight, the best part about the book is that it is much more enjoyable to read than most daily financial papers or certain sites on the Internet offering dryer, more textbook style explanations (Wikipedia being the possible exception).
Somehow, the introduction of characters and events always seem to make any subject more appealing and accessible to readers, and that is certainly very true for a subject with a reputation for being boring like economics.
After going through the book, the reader will no doubt feel more secure over coffee table conversations, having picked up an understanding of economics like no other (as well as meanings to jargons one never attempted to find out).
It does make a person look less pretentious if he actually knows what he is talking about. I leave the last words on this book to a review I found on the Internet: ‘This is a phenomenal book that makes economics so easy a Congress could understand it. Very enlightening!’
