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

Spin-freeEconomics

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.

Source: Two Good Economics Books: Spin-Free Economics, Animal Spirits