

Ask HN: what are some good resources to understand economics? - toumhi

Given what's happening in the United States now, I think it's crucial to have a good understanding of the economy. I always feel that the press is not providing good resources (at least press I have access to).<p>Do you know any good books/blogs/videos explaining subjects like debt/inflation/credit ratings/economic policies/ in-depth while being approachable by non-economists?
======
dxbydt
>what's happening in the United States now, I think it's crucial to have a
good understanding of the economy

I aver its not crucial to understand economics. It is crucial to understand
finance. This view was hammered into us repeatedly at the University of
Chicago.

The seminal paper, by Mr. Larry Summers, on the distinction:
<http://m.blog.hu/el/eltecon/file/summers_ketchup%5B1%5D.pdf> or on jstor (
<http://www.jstor.org/pss/2327785> )

You need to know how to add. You don't need to know about the well-ordering
principle. I say this as a math major who would love it if everyone knew why
add works in an integral field( ie. Peano arithmetic:
<http://en.wikipedia.org/wiki/Peano_Arithmetic#Arithmetic> ).

To quote my professor, there's 2 big portions to econ - the narrative portion
and the arithmetic portion. The first is mostly storytelling. Granted, there's
some consensus around the arc of that story ( more consensus in micro-econ
than in macro-econ ), but its still a story. The second completely ignores the
story. It just says if debt is what it is, ie. some x, and inflation is y,
what should the CDS be priced at ? ie. if CDS = f(x,y) what should that f look
like ?

Turns out that question is much more useful and actionable than the story-
telling aspect. If somebody told you the Dow fell by 500 points, its more
useful ( in a utilitarian sense ) to know what you should do with your
personal portfolio, than to know the reasons for Dow's fall (assuming that set
of reasons are even knowable). You might think the causation would be useful.
It is, to a very small extent, but the actionable portion ie. what you must
do, can be understood much more efficiently by simply focusing on the prices
of individual instruments that characterize market indices, derivatives on
those indices, ETFs that make a play on debt, inflation etc. The fact that
there were 10,300 puts at 113 strike on the August DIA yesterday is more
useful than what any individual economist thinks. It tells you that the short
term consensus view of Dow is 113*100 = 11300 ...the trend is down-sloping in
the short term.

Ironically, Summers said finance guys were mere ketchup economists. The dept.
of Ketchup pays ketchup economists huge salaries so they could calculate the
price of 2 quarts of ketchup if the market told them the price of 1 quart.
Whereas "real economists" were engaged in doing research on why a quart of
ketchup was priced the way it was ie. due to consumer wages, tomato prices,
cost of harvesting tomato, soil conditions etc.

Paraphrasing Summers "Ketchup economists reject research of the ketchup
market. They believe prices of ketchup are the only hard data worth studying".
You may not agree with any of this - but I do urge you to read that paper. Its
had a huge influence on the asset pricing community.

~~~
Tycho
Just like to say I've been really enjoying your contributions to Hacker News.
And thanks for the link to the Summers paper, will give that a read.

Thinking about your point though, isn't it more important that the average
person understands economics so that they don't vote for
economically/financially illiterate policies/politicians?

~~~
dxbydt
Thanks! My finance buddies in IB/PE like to say that finance is the only
portion of econ that actually works. The braindead portion = econ minus
finance, is only good for academia, a shot at the Nobel and a job at the
treasury :)

I actually think econ is a huge distraction net-net, because of the compelling
number of contradictory narratives that cannot obviously all be simultaneously
true. In that event, the only objective function is the asset price. In that
sense, its important to latch on to asset prices and functions of those
prices, understand how the slopes of those functions change, and then
understand how the vector sum changes if you take a bunch of those products in
tandem. Personally, I've been able to protect my portfolio only by not getting
distracted by the underlying economic explanations( assuming those are even
valid, given the dubious nature of the source ie. right-wing economist vs
left-wing vs freshwater economist vs saltwater vs libertarian vs pseudo-
socialist vs social-democratic vs conservative vs religious-conservative vs
fiscal-conservative vs 100 other flavors ) and just focus on market indices
that matter and derivatives that hedge those indices in case things go south.

I will go out on a limb and claim that if you spend $100 subscribing to 4
trading forums/chatrooms ( whether day-trading or swing-trading or commodities
or derivatives or fx ), you are saving yourself a lot of grief than if you
spend the same $100 buying econ publications. Atleast the former opinions can
be validated by simply buying/selling whatever asset they advocate ( not
necessarily with real $, just paper-trade ). The latter cannot be validated at
all. I remember attending a lecture where the reputed economist says
unemployed people must be taxed at a higher rate because they are consuming
oxygen but not paying revenue towards the GDP! That is actually very sound
economics from some bizzaro school of thought ( <http://healthcare-
economist.com/tag/oxygen-tax/> ) taken to its logical conclusion! Rather than
think about this dismally depressing scenario, tell me the price of such
oxygen contracts and I'll see if the market is sufficiently liquid so I can
take a position in those contracts :)

~~~
Tycho
Hmm, the finance/economics divide is reminding me somewhat of the
morality/legal divide. It's tempting to look at the idea of basing all your
decisions about viable strategies on hard finance data as being akin to basing
all your moral judgement on whether an action aligned with current laws. The
latter seems obviously flawed, but at least it offers some degree of empirical
certainty - whereas nobody can actually agree on a standard of morality (there
are many differing philosophies etc.).

~~~
dxbydt
There's a beautiful, beautifully argued book by Martin Gardner (
[http://www.amazon.com/Whys-Philosophical-Scrivener-Martin-
Ga...](http://www.amazon.com/Whys-Philosophical-Scrivener-Martin-
Gardner/dp/0312206828) ). There are 2 chapters on economics in that book, one
on free market capitalism ( "why i'm not a smithian" ), one on i guess you
could call it lite-obamaism ( "why i'm not a marxist" ).

Gardner rejects both. He works out some math behind their assumptions. Then
states his moral objections to both of them. I used to think Martin Gardner
was a giant puzzle-master with super high IQ. After reading that book, I
discovered a thinking, anxious, doubtful, religious, deeply charitable &
generous human being. To date, it remains my favorite Gardner book. Do check
it out, I think you'll love it. The rest of the book documents Gardner's
careful rejection of all of the popular philosophies ( solipsism, anarchism,
polytheism, monotheism, relativism, pantheism, determinism etc. ). Its a
monumental piece of work.

------
gabrielroth
A meta-comment on the answers to this question: For various reasons, a
disproportionate number of HN commenters are fans of "Austrian School"
economics. You'll see links to papers from mises.org, books by Murray
Rothbard, etc. Without passing judgment on any of this work, if you're new to
economics it would probably be helpful for you to understand that it's outside
the mainstream.

To answer your question more directly (although only partially): Wikipedia is
quite good on the major economic concepts and figures. I'd imagine that the
Wikipedia article on any of the subjects you mentioned would be a good, brief,
thoroughly hyperlinked starting point. Check out
<http://en.wikipedia.org/wiki/Inflation>, for example.

~~~
chrismealy
I'll pass judgment on Austrian economics: it's terrible. It's just tarted up
right-wing politics. They start with the assumption that free markets are
magic and from that they conclude that free markets are magic. Seriously,
they're against empiricism. They assume they're right and don't bother to
check their work. That's why as a research program it's never gone anywhere.

Austrians are just rightwingers who chose an economics to suit their politics.
If people want to be rightwing that's fine. There's no reason to drag bad
economics from the 1930s into it.

------
SkyMarshal
Tough question to answer, since economists don't fully understand economics
yet either, and still get it wrong (how many professional economists besides
Roubini foresaw and warned of the financial crisis again?).

Some of the most important bits of foundational knowledge I've accumulated
over the years:

1\. The Industrial Revolution demonstrated to humanity that wealth could be
created from thin air, on a large scale, and hence civilizations had an
alternative to stealing it from each other. There are basically two ways of
creating wealth:

-1) Harvest raw materials, apply labor, capital, and innovation to convert them into finished products worth more than the sum of their parts. The diff between what it cost to make the product and what you sell it for is the wealth you've created out of thin air (more commonly known as profit). It's why manufacturing is important.

We used to take hundreds of dollars worth of wood and iron and turn it into
thousands of dollars worth of sailing ships. Now we take hundreds of millions
of dollars worth of sand, aluminum, and copper and turn it billions of dollars
worth of microchips.

-2) Provide a service that saves other people time and/or money. Time & money = wealth. With the time/money saved, they can either do more of #1 or #2, invest it, spend it in leisure, or whatever else is of value. More commonly known as specialization.

Most things are combinations of the two - products that save time or money
(web apps, cars, etc.), or services that reduce the cost of #1 or increase its
final value.

2\. In a fiat currency system, the underlying of everything is interest rates,
and the underlying of interest rates is the risk-free rate of return. If you
only watch one single data point, the risk-free rate is the most important.
When it moves, everything moves (since all other interest rates are indexed
off of it). Normally the risk-free rate is considered to be US Treasuries, but
over the past few years there's been thought amongst some actuaries,
economists, traders, etc. whether it's not something else, like a composite of
US Treasuries and LIBOR, or something else. But just be aware that there is a
concept of a baseline interest rate upon which all other interest rates in the
economy are indexed on, and even tiny movements in the baseline rate have
major ramifications for the entire rest of the economy.

3\. Incentives matter. One of the things that all economists across all
schools of thought agree on. One good article:
[http://economix.blogs.nytimes.com/2009/09/09/what-weve-
learn...](http://economix.blogs.nytimes.com/2009/09/09/what-weve-learned-
incentives-still-matter/). Plenty more if you google the phrase.

4\. Fractional reserve banking. Many people misunderstand how this works, so
I'll preface by saying that individual banks _cannot_ create money. Eg, an
individual bank cannot loan out more than it has in deposits. If a bank has
$100 in deposits, and the Federal Reserve sets the reserve ratio at 10%, the
bank must keep 10% in reserve, eg it cannot loan out more than $90 of its
$100. But, the banking _system_ can essentially create money, or multiply it,
based on the fractional reserve ratio and the money multiplier. Wikipedia has
a good table that demonstrates how this works:
<http://en.wikipedia.org/wiki/Money_multiplier#Table>

4\. On a meta level, don't subscribe to one economic school or another, rather
learn and understand them all, where and why they disagree, but don't get
emotionally invested in any one of them. I see lots of Austrians in this
thread and a Keynesian or two. Listen and understand, don't believe. Economics
is the study of one of the most complex, dynamic, and intractable systems we
know of, and no school has it completely right yet, all are subject to further
revision.

5\. In that vein, read Benoit Mandelbrot's _The (Mis)Behavior of Markets_ for
a good discourse on why economics is so difficult and intractable.
<http://www.bearcave.com/bookrev/misbehavior_of_markets.html>

6\. Also read Charlie Munger's Harvard Commencement speech, _"On the
Psychology of Human Misjudgement"_ , for a reminder of why not to get
emotionally invested in one school of econ, or worldview, or religion for that
matter.
[https://duckduckgo.com/?q=munger%20psychology%20of%20human%2...](https://duckduckgo.com/?q=munger%20psychology%20of%20human%20misjudgment&kh=1&kg=p&kp=-1&kb=d)

I can think of more, but that's enough for now, hope it helps a little.

------
joelhaus
The federal reserve banks have some good resources, but I would go through
these in this order:

<http://www.federalreserve.gov/aboutthefed/default.htm> >>
<http://www.federalreserve.gov/pf/pf.htm>

<http://www.khanacademy.org/#current-economics> >>
<http://www.khanacademy.org/#banking-and-money>

<http://research.stlouisfed.org/>

To qualify this, I do have a B.S. degree in Econ.

[ADDED]: An important component of risk analysis is _political risk_ (but it
is often overlooked in discussions dealing with the U.S. due to the perception
that it is most stable alternative). There is a fine Wikipedia article that
discusses this, and in light of the recent downgrade, may help explain things:
<http://en.wikipedia.org/wiki/Political_risk>

------
ekm2
I would suggest Greg Mankiw's Principles of Economics.He also has a blog here
<http://gregmankiw.blogspot.com/>

~~~
ca136
+1 for anything by Mankiw. We read several of his books when I was studying
Econ in college a few years ago. Given your interest in inflation, government
spending, etc, you'll want to focus on the chapters on Macroeconomics. I also
found a good presentation from the Berkeley website that might be interesting:

[http://emlab.berkeley.edu/users/webfac/wood/e100b_f08/intro....](http://emlab.berkeley.edu/users/webfac/wood/e100b_f08/intro.pdf)

------
mrtron
Keep in mind your question is quite broad like asking how to get started into
programming.

You will get conflicting opinions on economic models and theories like you
would on programming languages and algorithms.

The mainstream press provides brutally inaccurate opinion and talking points
regarding economics. Completely ignore those articles and look into some
expert talks like the npr posts recommended.

Study how the federal reserve decides to move interest rates - it is the post
important macroecon process.

~~~
toumhi
True, I expect there's not one and only resource. I'd like to know of quality
resources from different models, even contradictory ones.

By just reading the news I learn about facts but not about underlying
processes, root causes etc.

Not about why it is necessary to bail out Greece with different scenarios that
could play out if we don't do it.

~~~
SkyMarshal
<http://tickerforum.org/>

Search for 'Genesis'. Ignore the political discussions, and don't bother with
context, just find the few posts where he elaborates enough that you don't
need the context of the rest of the thread. Or start reading his blog,
<http://market-ticker.org/> starting back at the beginning around 2006.

He's unabashedly conservative/libertarian, but he has had the strongest grasp
of the mechanics of the financial crisis going all the way back to 2006 of
anyone I've yet seen, even vs famous economists like Krugman. Originally an
engineer, made his fortune as an entrepreneur, now manages his money from
Florida, blogs about the crisis, and runs that discussion forum for investors.

------
jhancock
Accessible read on banking:
<http://mises.org/mysteryofbanking/mysteryofbanking.pdf>

I have always found the "back stories" on how/why our economy came into
existence to be "pulled out of thin air". I just started reading this new
book: <http://www.amazon.com/Debt-First-5-000-Years/dp/1933633867> I'm only
about 1/3 the way into it, but so far impressed.

~~~
thisuser
Oh Graeber's book is out! Lovely! I have been passing around his essay by the
same name for some time now. Should be a good intro to the book
[http://blog.longnow.org/2010/04/22/debt-the-first-five-
thous...](http://blog.longnow.org/2010/04/22/debt-the-first-five-thousand-
years/)

I would also recommend anything by David Harvey. Start out with this animated
version of one of his talks: <http://www.youtube.com/watch?v=qOP2V_np2c0> Then
move on to his Capital vol. 1 lecture series.
<http://www.youtube.com/watch?v=gBazR59SZXk> There is also a book format of
his reading guide

------
credo
My apps <http://cascadesoft.net/EconomyApp.aspx> (iPhone, iPad, Windows PC)
provide a snapshot of the US economy. The iPad and iPhone apps were once
ranked #1 on Apple's top charts for the Finance category.

Obviously, I can't claim to be entirely objective in this matter, but I think
that the app is a great resource for anyone who wants to understand the US
economy.

------
raintrees
Two more sites: I use <http://economistsview.typepad.com/> to get a summary of
opinions and links to other sources, and I understand there are now some
finance videos/courses at <http://khanacadmey.org> under the Banking/Money
section (I haven't vetted them yet).

------
Isofarro
"Begg, Dornbusch and Fisher" for a one-volume treatise on Economics. That was
my Economics 101 book last century, but constantly updated and revised the
recent editions are still topical and clearly explained

Dornbusch and Fisher also publish a standard one-volume treatise on
MacroEconomics which might be a better fit for your country-level
requirements.

------
bumbledraven
I like _Price Theory_ by David D. Friedman
([http://www.daviddfriedman.com/Academic/Price_Theory/PThy_ToC...](http://www.daviddfriedman.com/Academic/Price_Theory/PThy_ToC.html))
and _Human Action_ by Ludwig von Mises (<http://mises.org/resources/3250>).

------
epnk
"Economics in One Lesson" by Hazlitt is digestible, a quick read, and gets to
the heart of a lot of issues, IMO.

~~~
chrismealy
This is one of the worst books ever written. It's just an introduction to
1940s right wing politics.

~~~
steins
Yet surprisingly it explains the shitstorm we have today better than most
textbooks based on monetarist, keynesian, or efficient market theorists.

~~~
chrismealy
Show me in the book where that's true.

------
kloncks
Semi-related comment but...we need a HN-like site for Economics. I believe
there was something like that before, but I'm not sure what happened to it.

Anyone interested in starting something like that on the side as a hobby?

------
duncan_bayne
There is a wealth of articles, free (good!) books, etc. at
<http://www.mises.org/>, home of Austrian economics online.

------
Mrgt40
<http://www.calculatedriskblog.com/> has really awesome summaries of key
economic data and development.

------
amayne
Wealth of Nations, seriously. Over two hundred years ago Adam Smith laid out
the important concepts.

~~~
steins
There is a little bit of good information in there, but his theories of value
are terrible. When you read this do yourself a favor and research the
subjective theory of value as well. It describes the real world far better
than the labor theory of value.

------
jtardie
Personally, I really like Austrians.

Mises.org is a good place to start in that regard.

~~~
chrismealy
That's politics, not economics.

~~~
steins
mises.org has a lot of economic and political theory, and it ties both
together rather well.

~~~
chrismealy
Those mises.org people are neo-confederate crypto-racists. It's great if
you're interested in the economics of feudalism.

~~~
ngm
What is a crypto-racist? I've met many people who work there and have found
them quite friendly. And what's wrong with 1940s right-wing politics? It was
definitely more sane than modern politics (right and left).

------
pitdesi
<http://www.npr.org/blogs/money/> is great for understanding what's going on
right now

There was a fantastic 1980 PBS (video) series called Free to Choose, by Nobel-
Prize winning economist Milton Friedman and his wife Rose. It's available for
free viewing here: <http://miltonfriedman.blogspot.com/>

Once you get into economics, you will like this blog:
<http://marginalrevolution.com/>

~~~
chrismealy
MR is a right-wing blog. Not so much economics.

