I think everybody should read Tim Harford’s new book, The Undercover Economist Strikes Back. This includes (a) everybody who has no idea what to make of the conflicting arguments about fiscal and monetary policy, whether the austerians or the stimulards are right; (b) everybody who thinks they know exactly what fiscal and monetary policy ought to be; (c) all economics students; (d) anybody not in the first three categories.
The subtitle is ‘How to Run – or Ruin – an Economy’. The Undercover Economist has decided to tackle macroeconomics. That this is so successful a book – clear, balanced but not indecisive, readable – is praise indeed, from someone like me who thinks macroeconomics is in a pretty sorry state. There is an absolutely terrific introduction about Bill Phillips (of the machine and the curve). The first batch of chapters cover: what do we mean by macroeconomics, what can cause recessions, what is money, how money and inflation are related, different policy prescriptions for different types of recession, output gaps and unemployment. Later chapters look at management and productivity, the concept of GNP, demolish the idea that ‘happiness’ can/should replace growth, discuss whether there are physical limits to growth, look at inequality, and the book ends with an agnostic view about the future of macroeconomics.
The book would be worth reading for the first half alone; it is such a public service to explain why macroeconomists are arguing about how policy should respond to the post-crisis recession, and to do it with such clarity that you can be utterly confident the author understands his subject. (I do not get this sense of confidence from a lot of people writing about the economy.)
I would have liked the Undercover Economist to tackle some areas of macroeconomics omitted from the book: financial markets and asset prices; and exchange rates and the balance of payments. Both are important to understand recent economic history and the financial crisis. So the book is not a complete guide. It would be churlish, too, to point out that a couple of the chapters are really more microeconomics than macro (job matching and efficiency wage models of the labour market, and management). And I personally don’t like the Q & A format of the book, but that’s seemingly a minority view. I still enjoyed reading it. It is definitely one for my list of economics books for beginners.