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Basic Economics Questions

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Can someone recommend me a good textbook for learning basic principles of economics?

Also, are there basic fundamental principles that all economists agree on regardless of their political beliefs?

 

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Economics In One Lesson by Henry Hazlitt.(but it's not a textbook, more a collection of short essays, you may also try the writings of Frederic Bastiat)

 

Without sounding like a dick, I can't answer the second question because I doubt all economists have been asked and provided answers. Added to that I am not sure if what they may have thought is or would be consistent with what they themselves think they mean.( well ok afeter reading that bit it does dickish, but not purposely:)

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Both excellent recommendations above. The Hazlitt book is available online

Another book, very short is "Essentials of Economics" by Faustino Ballve (also available online).

If you get done with some introductory texts and are looking for more, you could read "A Treatise on Political Economy" by Jean Baptiste Say

Another good book to read if you're done with introductions, but not yet ready for anything heavy, is: "The Making of Modern Economics" by Mark Skousen

This book has a chapter on each phase in the history of economic thought, from Adam Smith to modern times. So, one gets a good idea of how thinking evolved, about what is controversial and what is more or less resolved.

 

As for what economists agree about, there is very little. Most of what the classical economists said is broadly accepted as being true: i.e. that free trade among people and countries generally produces more wealth. Even here, there is a lot of argument about how to make the argument. And, there is a whole lot of argument about how much government intervention is helpful/hurtful.

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I would recommend three books:

 

Economics in one lesson by Henry Hazlitt

How an economy grows and why it crashed by Peter Schiff & Andrew Schiff

Economic policy by Ludwig von Mises

These will cover A LOT of ground, from so many different angles.

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Aren't the basic laws of supply and demand generally accepted by almost all economists?

I'm under the impression that the idea of supply and demand are recognized by most, but isn't there contention as to which causes what? I don't think they have ironed out the 'laws' yet as a group.

Edited by tadmjones

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A lot of the people on this forum and the economists listed above have decided their political conclusions first. They then use this to inform their economic theories. This is the wrong way to go about economics. Unfortunately this is how Austrian economics works and Objectivists hold Austrian economists like those above in high regard.

 

The best way to do economics is to build a model of how the world works and test it against reality to see if it's accurate, and then to modify from there. Greg Mankiw fits this bill. However, some of the above are outright laughable. For example Schiff is still predicting hyperinflation - there seems to be nothing in reality that can convince him otherwise. Along with Mankiw, I would recommend Krugman (http://www.amazon.com/Economics-Paul-Krugman/dp/1429251638/) - even if your politics is in disagreement with his, his is the best book to learn about IS-LM analysis (http://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/)which is a Keynesian theory. Any textbook which does not cover Keynesianism does not deserve to be called a textbook.

 

Even if you dislike the political/moral implications of Keynesian theory (which is absolutely fine), it still enables you to predict what will happen in this reality where Keynesian policies are followed. This will allow you not to fall into errors such as predicting a stimulus package enacted during depressed demand and low interest rates will cause the collapse of America. Similarly, Monetarist economic theories will be covered in a good textbook. Again you may dislike the political and moral implications of interest rate cuts, but a good understanding of monetarism will allow you not to fall into the trap of predicting hyperinflation when the government cuts interest rates during a slump.

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A lot of the people on this forum and the economists listed above have decided their political conclusions first. They then use this to inform their economic theories. This is the wrong way to go about economics. Unfortunately this is how Austrian economics works and Objectivists hold Austrian economists like those above in high regard.

 

The best way to do economics is to build a model of how the world works and test it against reality to see if it's accurate, and then to modify from there. Greg Mankiw fits this bill. However, some of the above are outright laughable. For example Schiff is still predicting hyperinflation - there seems to be nothing in reality that can convince him otherwise. Along with Mankiw, I would recommend Krugman (http://www.amazon.com/Economics-Paul-Krugman/dp/1429251638/) - even if your politics is in disagreement with his, his is the best book to learn about IS-LM analysis (http://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/)which is a Keynesian theory. Any textbook which does not cover Keynesianism does not deserve to be called a textbook.

 

Even if you dislike the political/moral implications of Keynesian theory (which is absolutely fine), it still enables you to predict what will happen in this reality where Keynesian policies are followed. This will allow you not to fall into errors such as predicting a stimulus package enacted during depressed demand and low interest rates will cause the collapse of America. Similarly, Monetarist economic theories will be covered in a good textbook. Again you may dislike the political and moral implications of interest rate cuts, but a good understanding of monetarism will allow you not to fall into the trap of predicting hyperinflation when the government cuts interest rates during a slump.

 

 

his is true, and I would add that Mankiw is not a keynesian, but a libertarian.  Still, his textbook is based on pure facts and not on political or ideological oriantations. He won't try to persuade which type of economic theory is better, not in the last.  On the other hand, he pretty much justifies State intervention in certain cases las market failures as well as free market in other situations. It's just a great textbook

Edited by juanaram

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Unfortunately this is how Austrian economics works and Objectivists hold Austrian economists like those above in high regard.

The best way to do economics is to build a model of how the world works and test it against reality to see if it's accurate, and then to modify from there.

 

 

Some of what you said about the wrong approach to economics is true. But that is not how Objectivists approach economics, nor is what you suggested the right way to approach economics.

 

Objectivists approach economics from an ethical and moral standpoint. It just so happens that the Austrian view happens to be inline the most with the moral approach to economics. And it also happens to be the case that a free market economic approach is the most prosperous and beneficial to a society. But the utilitarianism of the free-market approach is not the reason why Oists accept it, it's just a pleasant result of a free-market approach.

Edited by secondhander

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A lot of the people on this forum and the economists listed above have decided their political conclusions first. They then use this to inform their economic theories. This is the wrong way to go about economics. Unfortunately this is how Austrian economics works and Objectivists hold Austrian economists like those above in high regard.

 

The best way to do economics is to build a model of how the world works and test it against reality to see if it's accurate, and then to modify from there. Greg Mankiw fits this bill. However, some of the above are outright laughable. For example Schiff is still predicting hyperinflation - there seems to be nothing in reality that can convince him otherwise. Along with Mankiw, I would recommend Krugman (http://www.amazon.com/Economics-Paul-Krugman/dp/1429251638/) - even if your politics is in disagreement with his, his is the best book to learn about IS-LM analysis (http://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/)which is a Keynesian theory. Any textbook which does not cover Keynesianism does not deserve to be called a textbook.

 

Even if you dislike the political/moral implications of Keynesian theory (which is absolutely fine), it still enables you to predict what will happen in this reality where Keynesian policies are followed. This will allow you not to fall into errors such as predicting a stimulus package enacted during depressed demand and low interest rates will cause the collapse of America. Similarly, Monetarist economic theories will be covered in a good textbook. Again you may dislike the political and moral implications of interest rate cuts, but a good understanding of monetarism will allow you not to fall into the trap of predicting hyperinflation when the government cuts interest rates during a slump.

 

 

Your models are based on arbitrary assumptions. In the words of Mises (or was it Rothbard), people are not rocks. We have free will an a conscious, and therefore you cannot predict our behavior with certainty. At best you can guess at our behavior and you may even be able to predict out comes for a while, but eventually the model will fail because every factor is a variable. Often times those failures will be worse than all of the successes combined.

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Along with Mankiw, I would recommend Krugman (http://www.amazon.com/Economics-Paul-Krugman/dp/1429251638/) - even if your politics is in disagreement with his, his is the best book to learn about IS-LM analysis (http://krugman.blogs.nytimes.com/2011/10/09/is-lmentary/)which is a Keynesian theory. Any textbook which does not cover Keynesianism does not deserve to be called a textbook.

 

Let's be clear that you're talking about undergraduate textbooks here, not graduate books.  Keynesianism (and monetarism) are useful for giving undergraduates a working knowledge of a few big-picture economic questions, and helping them to understand political debates over economic questions.  However, graduate macro textbooks generally do not teach Keynesian economics.  Some Keynesian insights, such as sticky prices, are introduced as possible modeling choices, but none of the economics that Keynes actually did is really relevant anymore in terms of training future economists.

 

As to undergraduate economics textbooks, I taught a macro course recently, and decided not to use Mankiw's book mainly because I thought it was too dry.  I went with Baumol and Blinder's Macroeconomics instead, which is a very good book that does a good job of bringing in recent U.S. experiences and tying economic questions to the political debates of the day.

Edited by Dante

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A lot of the people on this forum and the economists listed above have decided their political conclusions first. They then use this to inform their economic theories. This is the wrong way to go about economics. Unfortunately this is how Austrian economics works and Objectivists hold Austrian economists like those above in high regard.

The best way to do economics is to build a model of how the world works and test it against reality to see if it's accurate

Except that declaring that "politics has nothing to do with Economics" is a political statement: a particularly disturbing one, according to which no principles that govern human interactions should ever be considered, by economists and their political henchmen, who end up enacting their theories. In other words, economists and politicians should be free to commit any atrocities or abuses against their fellow men, the principles of politics be damned. Economics doesn't need to be ethical first, that's just silly talk by people with silly political pre conceptions.

Hilarious, hilarious irony: Your complaint is that Objectivists rely on a philosophy based in reality, to formulate economic theories. That's wrong, because...oh yeah, it's biased. Biased in favor of reality and a rational ethics of course, but biased. And, like every good Liberal, your starting point is in the clichéd catchphrase that states that "biased is bad".

And your suggestion is to, instead, just come up with unbiased (meaning arbitrary, based in nothing) models, and test them against reality to see if they work.

They won't. You and 999.999 monkeys can type away on a million typewriters all you want, you're not going to come up with a model that works in reality. All you'll achieve is destroy lives, over and over again, every time you come up with a random brainfart and decide to use human beings as test subjects for it, against their will.

The irony, of course, is that by suggesting that you have not only accepted a politics, but you have accepted the politics of thugs. "Testing against reality" involves the subjugation of millions of unwitting men to your theory, and the destruction of their lives every time that theory fails. You of course never bothered naming your politics, that would be too honest. You just accept it without ever talking or thinking about it, like a brain dead zombie.

And you call people wrong for having the courage to spell out the moral convictions any economic system will inevitably be based on, instead of pretending they don't exist and applying them anyway.

Thanks for your suggestions, but I am proud of the fact that the only kind of economic theories I would ever even consider applying against reality (meaning: willingly subjecting myself or others to them) would have to be ethical first. That means they would have to stand up to the rational ethical principles of individual rights. It means they could not involve one man initiating force against another.

Edited by Nicky

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Except that declaring that "politics has nothing to do with Economics" is a political statement: a particularly disturbing one, according to which no principles that govern human interactions should ever be considered, by economists and their political henchmen, who end up enacting their theories. In other words, economists and politicians should be free to commit any atrocities or abuses against their fellow men, the principles of politics be damned. Economics doesn't need to be ethical first, that's just silly talk by people with silly political pre conceptions.

Hilarious, hilarious irony: Your complaint is that Objectivists rely on a philosophy based in reality, to formulate economic theories. That's wrong, because...oh yeah, it's biased. Biased in favor of reality and a rational ethics of course, but biased. And, like every good Liberal, your starting point is in the clichéd catchphrase that states that "biased is bad".

And your suggestion is to, instead, just come up with unbiased (meaning arbitrary, based in nothing) models, and test them against reality to see if they work.

They won't. You and 999.999 monkeys can type away on a million typewriters all you want, you're not going to come up with a model that works in reality. All you'll achieve is destroy lives, over and over again, every time you come up with a random brainfart and decide to use human beings as test subjects for it, against their will.

The irony, of course, is that by suggesting that you have not only accepted a politics, but you have accepted the politics of thugs. "Testing against reality" involves the subjugation of millions of unwitting men to your theory, and the destruction of their lives every time that theory fails. You of course never bothered naming your politics, that would be too honest. You just accept it without ever talking or thinking about it, like a brain dead zombie.

And you call people wrong for having the courage to spell out the moral convictions any economic system will inevitably be based on, instead of pretending they don't exist and applying them anyway.

Thanks for your suggestions, but I am proud of the fact that the only kind of economic theories I would ever even consider applying against reality (meaning: willingly subjecting myself or others to them) would have to be ethical first. That means they would have to stand up to the rational ethical principles of individual rights. It means they could not involve one man initiating force against another.

 

Politics and economics are linked of course. It is fine to have a political bias, everyone does. It is fine to have a moral bias everyone does. If economics said that killing babies would boost GDP and had a model and empirical evidence to prove it, then that would be valid economics. I agree that it would not be moral and therefore no rational politics would enact this in reality.

 

It remains a fact of reality that printing massive amounts of money does not always lead to massive price increases. Economics can give you the exact conditions under which printing money will not lead to inflation, and also the conditions in which it will. A lot of Austrians dispense with economics and instead of simply saying that "1. in my opinion printing money is morally wrong" they say "2. in my opinion printing money always leads to inflation".

 

Statement 1 is a valid statement - you are allowed your moral opinions. Statement 2 is invalid, you are not allowed your own empirical facts.

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his is true, and I would add that Mankiw is not a keynesian, but a libertarian.  Still, his textbook is based on pure facts and not on political or ideological oriantations. He won't try to persuade which type of economic theory is better, not in the last.  On the other hand, he pretty much justifies State intervention in certain cases las market failures as well as free market in other situations. It's just a great textbook

 

Politically Mankiw supported Bush I believe, so I doubt he is a libertarian. Economically, he is a New Keynsian - here is a quote from Mankiw http://www.nytimes.com/2008/11/30/business/economy/30view.html

 

IF you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes. Although Keynes died more than a half-century ago, his diagnosis of recessions and depressions remains the foundation of modern macroeconomics. His insights go a long way toward explaining the challenges we now confront.

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The irony, of course, is that by suggesting that you have not only accepted a politics, but you have accepted the politics of thugs. "Testing against reality" involves the subjugation of millions of unwitting men to your theory, and the destruction of their lives every time that theory fails. You of course never bothered naming your politics, that would be too honest. You just accept it without ever talking or thinking about it, like a brain dead zombie.

 

This is not how economic theories are tested.  The field of econometrics exists because economists have to test their models against purely historical data, without the conditions that would be present in an actual experiment.

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At a 50k foot view, Austrians are relevant to some future economy which doesn't exist and has never existed, and Keynesians are relevant to the economy we live in today.

 

Saying that Paul Krugman is right about some analysis of our current mixed economy does not make you an advocate of said mixed economy.

 

Today the Right is touting "expansionary austerity" etc. and pointing to LVM (and AR for that matter) as their intellectual foundation. On the other side you have Keyenisans pointing out the opposite. Reality is on the side of the Keynesians, as it must be since their foundation is based on a political system as it exists today. The Right, faced with this conundrum, is rejecting reality.

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The right misquoting LVM or Rand when they understand neither is of no consequence.  They have been rationalizing around the ideas they don’t like to cherry pick the one’s they do for decades.   Embracing Keynes as insight into the current state is simply being pragmatic since his theories sanction the actions of those who got us here.  The left has been rationalizing the history of those ideas for decades since there is always another person to blame for the economy. 

 

And before this goes down some rabbit hole over Tea Party conspiracies or other non-sense again I’m not saying the man was wrong about everything, or not that he might have some ideas worth taking a look at.  In a dark and twisted way if you want to predict the damage to real wealth in this country it would be useful to back feed through his theories.  I might do it if I had the wealth to make money off of the market dislocations and bubbles caused by those theories.  But that is not the point. 

 

As Einstein put it once, you can’t get out of a situation with the same thinking that got you into it. 

 

As for another point of clarification, the economy was free up until the Progressive Era, at least the intervention was insignificant to terms of indexing the controls to the overall economy, so Austrian Economics or any other classical Liberal Theory of economics can be tracked there.  Or if you want something more modern and definitively Austrian you have the so called Austrian “miracle” that put LMV on the map post WW1.   After that it isn’t happening.  You have the rise of the Welfare State and any theory that didn’t justify state control of the money supply for economic manipulation through spending was history by those who needed the illusion of academic approval to manipulate the economy.   . 

 

You can dispute some of the theories but they do have a real world model to work off if you wish to do so.  They are not simple thought exercises never practiced.    When the US turned into a mixed economy is a matter of debate, but post turn of the century is the usually agreed time range (my money is on the creation of the Federal Reserve). 

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