Pang's Reviews > The Little Book of Economics: How the Economy Works in the Real World

The Little Book of Economics by Greg Ip
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's review
Sep 09, 2010

really liked it
bookshelves: recently-read, ecomics-finance

This was a great little book of economics - true to its title! The book covered some basic macroeconomics theories as well as some finance. I think it gave decent background info for those with no econ or finance background, but it definitely not for someone who wanted to have more details on the subject. I liked the fact that it ties a lot back to the current financial crisis with, in my opinion, unbiased point of view. It tried to present both sides of the coins. Bottom line is everything is unknown. The game changes depending on so many different factors. The system is complex and can be very fragile. One of many thoughts worth pondering: "Like the Fed's apparent success at taming the business cycle, its crisis-management skills may have lulled us into thinking the economy has become a safer, less violent place" (166). I actually would have like to see afterword with Ip's thoughts on what's going to happen with the current crisis.

I also enjoyed his writing style. It made for fast reading, and it wasn't dull to read. He spun some humorous analogies in there, which made things easier to understand. For example, I liked the fact that he compared crises to viruses: "Having vaccinated everyone against whatever killed the last business cycle, they fail to spot the virus that infects the current one" (27). I knew most of the information covered in the book, but it still was refreshing to read it.
We must have been the only kids in town whose weekly allowance was indexed to inflation (xxi).

Every business expansion eventually dies. Only the cause of death changes (23).

A central banker with dovish tendencies is like a wine critic who drinks Merlot out of a box. Nothing wrong with it, but best kept behind closed doors (148).

(Money Quote) In Parliamentary systems, ... the Prime Minister draws up a budget and Parliament passes it. It's like a steak: a solid cut of meat that changes little between the cow and the dinner plate. The United States' budget is more like a sausage, a mixture of ground meat from different parts of the animal stuffed into a misshapen skin (183).

... in 1947, finance accounted for 2.3 percent of GDP. By 2005, it was almost 8 percent. That's an awful lot of cake, and a lot of it was just sugary icing with no nutritional value: leveraged buyouts, speculative stock trading, and financial engineering whose pain purpose was to layer on more bets (213).
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