Wednesday, November 17, 2010

Greg Ip: The Little Book of Economics

I promised the readers of this blog (September 10, 2010) a comment on Greg Ip’s The Little Book of Economics, How the Economy Works in the Real World. Here it is.

Before reading the book (250 small pages) I was a bit put off by Ip’s quote, in the introduction, of Paul Krugman who declared that most macroeconomics – the study of the broad economy – of the last 30 years was “spectacularly useless at best, and positively harmful at worst.”

This was one of the hyperboles that went with the rather exceptional intensity of the 2008-2009 financial crisis, but now seems utterly wrong.

In a similar vein, the claim by the author that, as a young journalist, he “discovered a chasm between the economics taught in college and the real world” stroke me as excessive and largely misleading, intended perhaps to attract readers distrustful of “academic” thinking.

Fortunately, Ip proves exactly the contrary in his very clear and easy to understand little book. He uses extensively the best of macroeconomic theories to explain current and past events and policies, as well as the basic rules and mechanisms of growth and fluctuations. In the process he shows a real pedagogical talent for simplification and, more importantly, for judgment. In complicated matters he goes right to the crux of the problem and is able to select the relevant theory in the midst of the generally huge, complex, and mostly uninteresting macroeconomic literature. But he does that without burdening the lay reader with the usual lists of references and quotes that make the reading of textbooks often heavy going and boring.

Non economists interested by macroeconomic events and policies will find in the book a very readable introduction to the matter, without equivalent in other publications. This is moreover a useful introduction to macroeconomic and growth textbooks that develop these analyses in much more detail.

But professional economists too can find in Ip’s synthesis a useful bird’s eye view of that part of their theories that survived the “trial by fire” of the last few years.

Reading Ip helps one put everyday’s macroeconomic events and policies in an intelligible perspective. Not a small feat indeed.

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