Resources & suggested reading for readers of The Little Book of Economics

1.1Since a book as short as The Little Book of Economics can’t answer everything about such a big and complicated subject, I’ve put together this brief overview of books, organizations, blogs and other resources for those who want to dive more deeply into particular subjects or acquire more expertise. Except for the books, most are free.

Basic economic theory

My book spares you the nuts and bolts of academic theory, such as supply and demand curves and investment-savings equations. If you would like that technical expertise, consider taking a course or picking up one of the many entry-level textbooks taught in college. Such textbooks will teach the basics of both microeconomics (how individual consumers, workers, firms and the markets for a single product behave) and macroeconomics (how the economy operates as a whole).

Among the most popular is Greg Mankiw’s introductory Principles of Economics, and the more advanced Macroeconomics. His writing is exceptionally clear and intuitive and effectively illustrated with contemporary examples.  The Cartoon Introduction to Economics, Vol 1 & 2, by Grady Klein & Yoram Bauman, as the name suggests, is a fun, easy-to-follow entry to economics in cartoon form.

To learn more about the evolution of economic thought, I recommend The Worldly Philosophers, by Robert Heilbroner, which profiles each of the most influential economists. Sylvia Nasar’s Grand Pursuit tells the story of modern economic thought mostly through detailed stories of its leading thinkers. Her YouTube video gives the essentials in four minutes. John Maynard Keynes’ General Theory of Employment, Interest and Money, virtually invented macroeconomics.  It’s available here free (posted, ironically, by Marxists). Even if you skip the equations, you will enjoy Keynes’ fascinating insights into human nature. So many are now aphorisms that the General Theory will  feel strangely familiar, like reading a Shakespeare play for the first time.

Some bloggers apply academic theory to contemporary topics. Among the most noteworthy are Mankiw, Paul Krugman at the New York Times (look for posts he labels “Wonkish”), Nick Rowe at Worthwhile Canadian Initiative, and Menzie Chinn and James Hamilton at Econbrowser. Academics publish mountains of new research each year. Many of the best papers are produced under the auspices of the Cambridge, Massachusetts-based National Bureau of Economic Research, which distributes regular summaries of new papers by email, and VoxEU, a portal run by the London-based Center for Economic Policy Research where economists post short essays summarizing their research. The Initiative on Global Markets at the University of Chicago regularly polls an Economic Experts Panel to determine the professional consensus on contemporary policy questions. Their responses are often surprising.

Other Resources

– If you have a bit of economics already and aren’t put off by math, you can get a good grounding in the building blocks of the economy by reading Chapter 14 of Mankiw’s Macroeconomics, “A Dynamic Model of Aggregate Demand and Aggregate Supply,” which you can download for free from the website of his publisher,  Worth Publishers.

– Academia’s workhorse macroeconomic model is IS-LM.  One of its shortcomings is that it describes monetary policy principally through changes in the money supply when central banks instead target the short-term interest rate.  I recommend reading “Keynesian Macroeconomics without the LM Curve” by David Romer and his follow-up paper, “Short-run fluctuations” which modify the IS-LM model to better incorporate how central banks execute monetary policy in the real world.

– Economists and policy makers often analyze problems and make forecasts using models of the economy. The most popular family of models today goes by the ungainly label “dynamic stochastic general equilibrium ” or DSGE. The New York Fed offers a primer here on DSGE models. The math looks more frightening than it is.

–Paul Krugman explains recent economic events through models first developed after the Depression. One of the problems in the profession, he argues in this speech, is that contemporary economists forgot so many of those early insights, and as a result did not fully understand the implications for fiscal and monetary policy in a world where interest rates are near zero. 

Economic growth

Good books for understanding the historical and institutional drivers of growth over time are Why Nations Fail, by Daron Acemoglu and James Robinson; How the West Grew Rich by Nathan Rosenberg and L.E. Birdzell Jr.; and The Rise of the Western World by Douglass C. North and Robert Paul Thomas. An excellent exploration of the challenges facing China is China 2030, a lengthy study produced jointly by the World Bank and the Development Research Center of China’s State Council.

Other Resources

–  In the 1980s Paul Romer, now at New York University, revolutionized the theory of growth by identifying the unique role played by knowledge  in the production process . Romer showed how the creation of knowledge overcomes  the law of diminishing returns and increases a country’s growth rate. His seminal paper “Increasing returns and long run growth” is here. Other important papers are on his web site here.

Tracking the economy

Major financial news publications have blogs that frequently report and comment on economic developments: they include The Wall Street Journal’s Real Time Economics, The New York Times’ Economix, The Economist’s Free Exchange and The Financial Times’ FT Alphaville. Most of these publications limit the access of non subscribers.

Actually learning how to forecast is as much art as science. The classic study of business cycles is Measuring Business Cycles, written in 1946 by Arthur Burns, a future Federal Reserve chairman, and Wesley Mitchell, one of the founders of the NBER. It’s available for free on the NBER web site. You don’t have to read their work to benefit from their wisdom: just follow the index of leading indicators, which they devised and is now maintained by The Conference Board.

Statistics & economic indicators

The data that used to be the preserve of Wall Street experts is now available almost instantly to everyone for free. The most important economic data in the United States is produced by the Bureau of Labor Statistics, the Census Bureau, the Bureau of Economic Analysis and the Federal Reserve. You can get email alerts from them when the latest reports are released. Goldman Sachs’ economics department put out a helpful guide to interpreting economic data a few years ago called “Understanding U.S. Economic Statistics” which can be found for free on the web, e.g. here.

To monitor the ongoing economic progress of the world, it helps to have some handy resources. My favorites are the World Bank’s World Development Indicators, with essential indicators of economic progress for every country in the world; the annual Factbook of the Organization for Economic Cooperation and Development (OECD), a multilateral group of the world’s 34 most developed economies; and the Pocket World In Figures, published by The Economist and available for purchase from its web site. Each week, The Economist carries a concise summary of economic and financial indicators for the world’s most important economies, on the second and third last pages. (They are also available online.)

If you want to do your own economic analysis, you’ll need data. The best free source is the Federal Reserve Economic Database, or FRED, maintained by the Federal Reserve Bank of St. Louis with thousands of data series plus charting and analysis tools. For international data, I recommend the World Economic Outlook database of the IMF, updated twice a year.

Other Resources

American statistics are pretty reliable. Not so China’s, as detailed in this report for Congress’  U.S.-China Economic and Security Review Commission.

How should GDP count business investment, especially in intangibles such as research and development? James Hamilton explains the process with a simple example based on the story of Robinson Crusoe’s potato farm.

The labour market

The BLS publishes regular studies of the labour market in its Monthly Labor Review. The OECD’s annual Employment Outlook gives authoritative advice on the problems in labour markets around the world, including the United States, although the writing is often dense. The Economic Policy Institute, a left-leaning think tank, produces an annual compendium of labour data called The State of Working America, along with regular updates on labour market developments.

The most detailed work on the connection between education and inequality has been by Lawrence Katz and Claudia Goldin. Their  paper, The Race between Education and Technology: The Evolution of U.S. Educational Wage Differentials, 1890 to 2005, explains how inequality has grown as a result of the changing supply and demand for high-skilled labor.

Inflation

A readable layman’s guide to America’s modern experience with inflation is The Great Inflation and its Aftermath by Robert Samuelson, a columnist with The Washington Post. An excellent, dispassionate academic review of inflation through the ages is Monetary Regimes and Inflation: History, Economic and Political Relationships, by Peter Bernholz.

Other Resources

– Economists used to believe there was a tradeoff between higher inflation and lower unemployment. In the 1960s Edmund Phelps and Milton Friedman, working separately, showed that in the long run this could not be true. As the public adapted its  expectations to higher  inflation, unemployment would revert to its natural level. This article accompanying the Nobel prize in economics to Phelps in 2006 explains the relationship between unemployment and inflation. 

International economics

The International Monetary Fund generates formidable research, data and analysis on the world economy. Its twice-yearly World Economic Outlook, Global Financial Stability Report and Fiscal Monitor are chock full of helpful charts and data and its web site provides plenty of free data for comparing economic performance between countries. Be warned: the IMF is not a bastion of out-of-the-box thinking and you won’t find many harsh words for its shareholder-governments. The Peterson Institute for International Economics is one of the most prolific generators of research and commentary on international economic topics. An excellent book for understanding the history of the international monetary system (including the euro) is Exorbitant Privilege, by Barry Eichengreen.

To follow trade developments such as protectionist measures and new agreements, consult Global Trade Alert, maintained by the Center for Economic Policy Research. To learn about American trade policy and its history, I recommend the books and articles of Douglas Irwin of Dartmouth College.

Other resources:

– Martin Feldstein of Harvard University, an early skeptic of the euro, provides a comprehensive and easy to read description of what went wrong in this paper.

– Bruegel, a European think tank, produces numerous in-depth economic studies, with particularly thorough coverage of the euro crisis. They also have a handy timeline of the euro crisis.

– John Williamson of the Peterson Institute for International Economics wrote an article in 2008, Exchange Rate Economics, which explains the forces that determine where currencies go

– Robert Mundell and Marcus Fleming developed the benchmark theory of how economies operate under various exchange rate regimes and free movements of capital in the 1960s. This article accompanying the Nobel prize to Mundell in 1999 explains their work.

– In 1996 Murray Obstfeld and Kenneth Rogoff  incorporated exchange rates, current accounts and other international factors  into a model of the whole macroeconomy. The paper is pretty heavy going but it was an important advance in conceptual modeling of the economy. 

Fiscal policy and the federal government

A short and reader-friendly primer on the federal budget is “Policy Basics: Introduction to the Federal Budget Process,” which you can find on the web site of the Center on Budget and Policy Priorities. The thorough and impartial reports of the Congressional Budget Office are essential reading for any student of fiscal policy developments, in particular the short pithy summaries in the director’s blog. There are numerous think tanks and web sites devoted to budget policy. Two I turn to often are the left-of-center Center on Budget and Policy Priorities, and the center-right Committee for a Responsible Federal Budget. Federal budget policy seldom makes gripping reading; an exception is The Triumph of Politics, David Stockman’s colorful memoir of his years as Ronald Reagan’s budget director. The most authoritative, unbiased source of analysis on the tax system, including almost instant analysis of the impact on various income groups of new or proposed tax change, is the Tax Policy Center.

Other Resources

– The economics of budget deficits and debt have been debated heavily for years. A good guide to the basic economics is the article “What Do Budget Deficits Do?” by Laurence Ball and Gregory Mankiw, written in the mid-1990s.

– Christina Romer, who served under Barack Obama, updates what we’ve learned about deficits and stimulus in light of the recessions in the United States and Europe in a 2012 speech called “Fiscal policy in the crisis: lessons and policy implications.”

– Olivier Blanchard, chief economist at the IMF, and his colleague Daniel Leigh explain the conditions under which austerity helps, and under which it hurts in this article, “Fiscal consolidation: at what speed?“

– Martin Sullivan, an independent tax expert, has written a handy guide to the corporate tax system and the costs and benefits of reforming it. Corporate Tax Reform: taxing profits in the 21st century can be purchased at  www.apress.com. 

Regulation

Following the massive and multi-layered federal regulatory machine is almost impossible. Nonetheless, one organization that manages to do so is the GW Regulatory Studies Center at George Washington University. The Center for Effective Government provides a more liberal perspective. Regulation: A Primer, by Susan Dudley and Jerry Brito is an excellent overview of the subject published jointly by the GW Regulatory Studies Center and the Mercatus Center at George Mason University. The classic work on regulatory economics is The Economics of Regulation, by Jimmy Carter’s deregulatory czar, Al Kahn.

The Financial System

Two excellent background documents on the American financial regulatory system are Blueprint for a Modernized Financial Regulatory Structure, published by the Treasury Department of George W. Bush in 2008, and A New Foundation: Rebuilding Supervision and Regulation, which was produced  by Barack Obama’s Treasury Department in 2009, and became the basis for the Dodd-Frank financial reform law. They provide a before-and-after-the-crisis perspective of the strengths and flaws of the American financial system. You can track the progress of the Dodd-Frank financial reform law at the Dodd-Frank Resource Center maintained by Davis Polk, a law firm that caters to financial institutions. Treasury maintains fact sheets and guides to the Dodd Frank law.

The Federal Reserve

The best source of information on the Federal Reserve are its own web sites: those of the Board of Governors in Washington and its 12 regional reserve banks. Federal Reserve System: Purpose and Functions is a thorough and balanced description of how the Fed works, available on the Fed’s web site or in print. It has not been updated since 2005, and thus excludes important changes in its operations since the crisis. To follow the Fed’s decisions, sign up for email alerts, and regularly check the tab “Monetary Policy” on its home page. Meeting calendars of the Federal Open Market Committee include links to statements, minutes, forecast details and transcripts (released with a lag). You should also browse the numerous, excellent working papers produced by the Fed’s huge staff of professional economists. Fed chairman Ben Bernanke delivered his own concise history of the Fed and the crisis in four lectures at George Washington University in March, 2012; video recordings are available on the Fed’s web site. They have also been published in book form by Princeton University Press.

Many books have been written about the Fed. The most authoritative (and no doubt longest) is Alan Meltzer’s two-volume (confusingly, it takes up three books) A History of the Federal Reserve, although it ends in 1986. More popular books that tell the recent history of the Fed are Secrets of the Temple, by William Greider; Maestro, by Bob Woodward; and In Fed We Trust, by David Wessel. Fault Lines, by Raghuram Rajan, offers a  more critical of the Fed’s role before and after the crisis.

Crises

In recent years, the volume of books and research on the topic of financial crises has grown dramatically. Here are a few likely to have staying power: Manias, Panics and Crashes, by Charles Kindleberger; Devil Take the Hindmost, by Edward Chancellor; and This Time is Different, by Carmen Reinhart and Kenneth Rogoff. If you can only read one book about America’s crisis, it should be the report of the Financial Crisis Inquiry Commission, a group of former politicians, policy makers and economic experts appointed by Congress. Just be sure to read the dissenting views, not just the main text. Larry Summers, who has probably dealt with more crises than almost anyone else alive, helpfully prepared a list of required reading on the topic for one of his classes, called “Crisis Economics: History and Evaluation of the Policy Response to the Great Recession,” available on the web site of Harvard’s Kennedy School.