Customer Reviews

Common Sense Economics: What Everyone Should Know About Wealth and Prosperity

5 star:		(15)
4 star:		(6)
3 star:		(0)
2 star:		(1)
1 star:		(0)

 

 

The three authors managed to write a very good introduction to macroeconomics 101 without a single equation or a single supply demand curve. This is an excellent book for the layperson allergic to numbers. All macroeconomics principles are developed solely through narrative logic. Thus, the book is truly readable for anyone. For the ones who have expertise in economics, it is fascinating to observe how well the authors have presented the material in the absence of any quantitative methods.

The book is divided in four parts. Part I: Ten Key Elements of Economics; Part II: Seven Sources of Economic Progress; Part III: Economic Progress and the Role of Government; Part IV: Twelve Key Elements of Personal Finance. The parts vary in quality.

Part I is the best. It is a world class introduction to macroeconomics that is very accessible. You learn most everything you need to know about economic incentives, demand and supply, economic profit, competitive advantage of trade, and other fundamental concepts. I rate this part a 5.

Part II is very good too. It builds upon the foundation of Part I, and goes on to explain the necessary social infrastructure for a working economy including the Rule of Law, functioning capital markets, monetary stability, and free trade. It explains rather brilliantly why trade deficits do not matter a whole lot. This is because they have to be matched by capital inflows. The latter results in lower interest rates, more investments, and additional employment. The authors mention that from 1980 to 2003, the U.S. experienced chronic large trade deficits but employment expanded by 35 million jobs. The authors make an identical case for outsourcing. If something can be done cheaper abroad, it channels domestic resources to higher productive activities. As a result, output and income will rise. I'd give this part a 5 rating.

Part III is the weakest. First, it does not say a whole lot that has not been already covered. Additionally, it reads like a Libertarian manifesto. As written, the authors have you believe that most forms of government expenditures are wasteful. To fix that they recommend that 3/4th of both houses of Congress should be required to: a) pass any Federal expenditure programs; and b) to borrow any funds to finance the Budget Deficit. Well if you want a functioning government that steps in where there is no profit opportunity and does not default on its sovereign debt, you'd have to ignore the authors recommendations. While the authors explained smartly that Trade Deficits do not matter a whole lot in Part II, they failed to explain that Budget Deficits per se at not the end of the World either. As long as Budget Deficits represent a percentage of the economy that is not greater than the nominal growth of this same economy the Debt level to GDP ratio remains constant.

Within this same Part III, the authors also hammer at arbitrarily at our Federal Reserve. They recommend that if the price level changes up or down by more than 4% in two consecutive years, all Governors of the Federal Reserve System should be fired. The authors are under the illusion that the Fed has a 100% control on our economy, including its inflation rate. It really does not. If we'd follow the authors' recommendation s, we would have fired Paul Volcker in 1980. Yet he did a superb job of breaking the back of double digit inflation triggered in good part by OPEC quadrupling the price of oil in 1979. I'd give a 1 rating to this section.

Part IV is pretty good. It is an excellent introduction to financial planning. The authors do a good job of tying in macroeconomic principles they explained in the earlier parts to investment principles they present here. This section reads like a summary of the excellent book written by Burton G, Malkiel "A Random Walk Down Wall Street." It all boils down to diversifying your investments, save regularly, uses your company 401K, invest in index funds for superior performance, don't chase hot mutual funds or hot investment tips. I'd give this section a 5.

If you like this book I also strongly recommend the mentioned book by Malkiel. Another good book on economics is "Hidden Order. The Economics of Everyday Life" by David Friedman (son of Milton Friedman). This latter book is far better than the much hyped but vapid "Freaconomics."

This book is a careful, sober, and measured conservative economic manifesto, something in the spirit of Henry Hazlett's famous Economics in One Lesson (Three Rivers Press, 1979), but longer and more detailed, with an addition on personal finance. The authors are rather sober and pedantic, so the reading is not great fun, but it is clear and logical.

The section on personal finance is the best part of the book, and covers virtually all important points about wise personal finance. Only the first two of the authors' twelve points require some emendation. Their first point is "discover your comparative advantage." (p. 123) This is of course true---you should do with your life what you are good at doing, not what others want you to do or what you think is morally the best thing to do. We humans have very heterogeneous capacities and we are most contented when we get to exercise those capacities that represent our relative strengths. However, among those activities in which you have a comparative advantage, to that which will give you the most personal satisfaction---this they do not mention. In particular, if you think that you should simply pick a profession that will maximize your income, you are making a bad mistake. Wealth is nice, but not if it is purchased by activities that you do not value and daily routines that you tolerate only because of what they offer in terms of material reward.

Their second point is "Be entrepreneurial. In a market economy, people get ahead by helping others and discovering better ways of doing things." I think this point is probably just wrong. The entrepreneurial spirit is one of several personality types, and is not necessarily associated with "helping others" or "discovering better ways of doing things." The latter two activities are not correlated either. It might be better said that one should try to change the world for the better, either by entrepreneurship, helping others, or being creative.

The authors also offer "ten key elements of economics," "seven major sources of economic progress," and "ten elements of clear thinking about economic progress and the role of government." In every case, the authors offer good advice, but sometimes this advice is, to my mind, biased in an unwarranted way towards a conservative world view. Let me give some examples.

The first of the authors' "ten key elements of economics" is "Incentives matter." This, of course, is a central message of economic theory. If you want people to behave in certain ways, you must supply incentives that lead them to choose to behave as you wish. However, it is simply empirically incorrect that people are only motivated by personal gain and material reward. In a health economy, people have altruistic tendencies that lead them to help others, they have pride in doing their appointed jobs well, for their own sake, and they recognize such character virtues as honesty, trustworthiness, as sense of fairness, and a commitment to reciprocity. It is simply a mistake to think that these moral preferences are simply forms of enlightened self-interest, and that people behave prosocially only because they fear punishment for breaking moral rules. This issue is important because the view that people are selfish money maximizers leads to bad economic policy advice in such areas a criminal law and creating a culture of virtue rather than of corruption in a firm or in society at large.

Their second economic principle is that "there is no free lunch." What they mean by this is that virtually every proposal for intervention in the market economy will benefit some and hurt others. We should always be mindful of who gains, who loses, and how much. For instance, we may impose a quota on imports that saves the jobs of 1,000 workers, but the cost will be to consumers and taxpayers, and can easily amount to two or three times the yearly wages of the workers involved. However, there certainly may be government interventions that create a net surplus of gain for the winners over the cost to the "losers"---I put losers in quotes because in many cases those that pay for an intervention gain from it and do not consider themselves losers at all. For instance, an anti-poverty program that gives young people skills and values that make them into productive and fulfilled citizens may be valued positively by the taxpayers who foot the bill for the program.

The authors' seventh principle is "people earn income by helping others." What they mean is that the salaries of high-paid professionals and the profits of entrepreneurs are not forms of exploitation of the less well off, but rather reflect their contribution to society. This is a very important point---many people deserve every cent that they earn and the idea that their earnings are illegitimate is just wrong-headed. But, what about people who earn by lying and cheating, as we have seen frequently in industry and finance in recent years? They earn money by hurting. Moreover, what about those who have the privilege of inheriting wealth that they have not worked for? It may be that their wealth is justly acquired, but they are not necessarily helping anybody.

The authors' ninth point is that "the `invisible hand' of market prices directs buyers and sellers toward activities that promote the general welfare." This principle is largely correct, but we know that there are several sorts of "market failures" that lead market prices to diverge from social welfare. Conservatives do not like to talk about "externalities," "public goods," and "increasing returns industries," but they are a central part of standard economic theory. When there are market failures, it is worth investigating whether there are state interventions that might correct them. Of course, there are also "state failures," that might make the cure worse than the disease. Still, it is always worth looking for ways of improving market economies through wise state regulation.

I know that many modern social democrats will disagree with the authors' "seven major sources of economic progress," because they involve promoting competitive markets and limiting the extent of government regulation and maintaining low tax rates. However, I think these principles are quite reasonable. There are social problems that require regulation and taxation, including fighting poverty, investing in education and health care, and contributing to environmental integrity. But in many countries regulation and taxation are captured by special interest groups who use the state for personal wealth aggrandizement (so-called "rent-seeking"), and these should be opposed single-mindedly by taxpayers and voters.

As for the "ten elements of clear thinking about economic progress and the role of government," some of their principles are highly contentious. Their second is "government is not a corrective device." This is completely incorrect. There is no advanced modern economy without a strong and large government sector, and the reason for this is that government regulation is a strong and healthy corrective to unbridled market competition. Of course, government can also be captured by special interests, as we have seen above. But social security, public health insurance, food and drug regulation, environmental controls, and a dozen other areas are well served by government regulation. Their sixth principle is that "government slows economic progress when it becomes heavily involved in trying to help some people at the expense of others." (p. 78) This point is generally true, but unemployment insurance, aid to those who are temporarily impoverished, or who are or chronically impoverished through no fault of their own, is not very costly and is immensely socially beneficial. Of course, most of the time when the government helps some, the "some" are well-off middle-class or rich voters with political clout, as the authors stress.

Towards the end of the book, the authors propose draconian constitutional changes that take the power away from the legislative branch of government in the name of fiscal conservatism (p. 117). This includes a constitutional requirement of three-fourths majority in both Houses of Congress for federal expenditures, federal borrowing, and state mandates. This is just right-wing craziness. The idea that our economic ills are due to a bloated government and excessive taxation is seriously overblown, and we have the right to elect legislators that work on majority rule, not something close to unanimity.

Most of the points I have tried to make in my criticism of the authors' economic principles are pretty obvious, and they could be incorporated profitably into their argument. Of course, theirs would not then be a conservative manifesto. It would just be common sense.

I recently had the opportunity to hear Dr. Gwartney, of Florida State University, speak. A truly impressive, insightful economist with good, solid economic solutions for individuals and for our nation. After reading all the glowing customer reviews, I add my vote for reading his book "Common Sense Economics." Americans need to study our Constitution (such as Robert G. Natelson's The Original Constitution: What it Actually Said and Meant) and understand economics so we can hold Washington accountable. Also, consider my book "Reclaim Liberty" that also highlights economic and Constitutional problems that are facing our nation: Reclaim Liberty: 3-Step Plan for Restoring Our Constitutional Government

This is essentially a newer edition of a book previously released by the author. The writing is clear and concise on many basic economic principles. If you are looking for an indepth analysis of how economics effects socio-political issues, this is not the book you are looking for. However, if you are looking to begin setting a solid foundation for economic understanding there is perhaps no better place to begin.

Common Sense Economics should be read by every person in the world. It is that important.

Four economics professors (Gwartney, Stroup, Lee, Ferrarini) set out to make economics easy to understand for the layperson, and with Common Sense Economics they have succeeded. This is the book that I will give to my Mom, who wants to understand how markets work but has no interest in reading through the dense academic treatises of Mises. This is the book that I will give to my friend who wants to gain a deeper understanding of the objective facts of economics, but doesn't want the "free market biases" associated with Hayek. This is the book that I would recommend to other college students that want specific examples of how they can use economic analysis to evaluate current public policy decisions without traveling 70 years into the past with Hazlitt to commiserate on FDR's New Deal policies.

Common Sense Economics is split into four parts, titled: (1) Twelve Key Elements of Economics, (2) Seven Major Sources of Economic Progress (3) Economic Progress and the Role of Government, and (4) Twelve Key Elements of Practical Personal Finance. In this review I will cover the first three.

In Twelve Key Elements of Economics, the authors present the basic, fundamental rules of economics. They introduce the key concepts of incentives, marginal analysis, trade, division of labor, specialization, prices, profits and economic institutions. They also use this section to debunk popular economic fallacies; most notably, the myth of the free lunch, and the belief that more jobs, not increased productivity, raise living standards.

In Seven Major Sources of Economic Progress, the authors answer the question, "Why are some countries rich and others poor? They describe how the legal system, competitive markets, limited government regulation, an efficient capital market, monetary stability, low tax rates and free trade are requirements for prosperity. By the end of this section even the Marxist will realize why North Korea is poor and Hong Kong rich.

Economic Progress and the Role of Government is my favorite section because the authors specifically describe the features of government that lead to economic prosperity and the actions it can take to hinder it. Most notably, I learned that certain "public goods", are not easily provided by the market, and that government must do the job. To learn which goods are public goods, you'll have to read the book, but I'll give you a hint: they're not health care and education.

My favorite part of the book comes at the end of this section, when the authors propose eight constitutional amendments that would compose an Economic Bill of Rights. They argue that the Constitutional safeguards on government powers have been imperfect and ineffective, and that only through an amendment process are we to escape the doomed march towards default or hyperinflation. Instead of simply pointing out problems, these suggested amendments give me concrete solutions that I can use as talking points when discussing economic issues with my peers.

I do believe that everyone in the world should read this book, because even if you don't live in a country with free markets, this book will convince you of their merit. However this book is especially important for Americans to read. Consider it a course in economic literacy. Most of our population, and alas, many of our political leaders, are economically illiterate. If every voter had a solid grasp on the ideas presented here, there would be a vast shift in the political discussion. No longer would taxpayers be fooled into supporting the American auto industry or bailing out its banks. No longer would we tolerate pork barrel legislation and restraints on free trade. No longer would we trust the government to control our health care and education industries. No longer would we tolerate the welfare state. No longer would we be ignorant to the dangers posed by soaring budget deficits, a bloated national debt, and runaway inflation.

Instead, Americans will learn again the lesson that many of us have forgotten; that the founding principle of this country is not unrestrained democracy in which the majority votes away the rights of the minority, but a limited government charged with protecting the rights of the smallest minority there is: the individual.

The book is surprisingly readable though written by 4 economists. I wish I would have had this book when I was taking my economics courses in college. It is very readable, and provides great, data-driven information on why the war on poverty hasn't worked, the downside of regulation and its negative impact on prosperity, and the need for re-thinking governments' role in economic management. Great book for business people, investors, or anyone looking for a primer on economics (macro and micro).

This book was very helpful in the understanding of economics. It helps people get a better perspective on personal finance, democracy, and especially macroeconomics. I think this book should be a required textbook for government and economics classes because it gives you a down to earth understanding of all the different aspects in economics. The authors of this book made it simple for anyone of any age to comprehend the material. There is an abundance of concepts and detailed information to assist people with their struggles in understanding economics.

In each part of the book the reader can grasp specific information on personal finance, economic progress, economics in our government, and lastly basic economics itself. This book helped me understand how the American government system worked and it clarifies liberal thoughts that conservatives should see. There are parts that describe competition and that is very important. My generation needs to understand that college needs to be a necessity because we are going to competing for our jobs and futures with other very well educated people from various intelligent countries. The book expands on investing and saving and those are both crucial actions that need to be done by future college attendees like myself.

There are several aspects of this book that I will keep with me. This booked has helped me better understand the flow of money, political problems in our economy, and the elements of economics that I have previously learned in my Econ class. I would suggest this book to anyone who doesn't fully understand economics or anyone who is just interested in a good read.

This book is written on a level that most of us can understand. As the title states, common sense together with basic understanding of established economic laws, can better help us understand the flow of money, responsibility of the government and how they work together to enhance our lives. But we must first seek the Kingdom of God and all these things will be added to us(Matthew 6:33). Praise the Lord.

I've read several of the economics books meant for a general audience. Overall, I'd say this one is the best, edging out Thomas Sowell's Basic Economics 3rd Ed: A Common Sense Guide to the Economy.

Common Sense Economics is particularly strong when it discusses the ways in which various government policies make us poorer.

This is an amazing book. Everyone that I have given this to book to read has ended up buying a copy for themselves. From 15-59 year olds (and beyond), this book written for you with everyday relevant examples to help you understand the impact and influence of economics. I ended up being fortunate enough to study under Dr.Gwartney himself and this is as close as it gets to studying under him.