Preface: Why study economics
Being able to judge which argument makes the most sense in a given economic environment and based on the moral values and political goals of the environment.
What's different about this book
I take my readers seriously.
This book has a lot of real world information.
Chapter 1 Life, the Universe and Everything: What is Economics?
Economics is (almost) about life, the universe and everything?
Does economics study rational choice or does it study economics?
expenditure
consumption of goods and services
Goods and services must be produced from the beginning (inventory)
Conclusion: Economics is the study of the economy
Chapter 2 From Pin to Pin: Capitalism, 1776 to 2014
From pin to PIN
Improve the division of labor in three aspects
The production of pins is small and large. With the development of technology, passwords (PINs) have entered the stage.
“Capitalism” in Smith’s Age
Differences Between Today and Smith’s Day
Business ownership shifts from individuals to large numbers of individuals holding shares through stocks.
Today, businesses are limited liability companies
Improvement of workers’ status and power.
From a perfectly competitive market to an oligopoly market.
Currency was linked to the gold standard, and stocks, financial derivatives, and the financial system were born.
Conclusion: The real world changes, and so does economic theory
Chapter 3 How We Got Here: A Brief History of Capitalism
Life is stranger than fiction: why history matters?
History affects current decisions
History also forces us to question some taken-for-granted assumptions
History can highlight the limits of economic theory
Moral Responsibility - We should try to avoid using people for "live experiments"
Turtle vs. Snail: The world before the dawn of capitalism
Capitalism originated in Europe in the sixteenth and seventeenth centuries.
The Dawn of Capitalism: 1500-1820
The emergence of new science, new technology and new institutions
Colonial expansion begins
The huge trauma left by colonization
Industrial Revolution: 1820-1870
The average life expectancy is 17 years and the working week is 80 hours: the miserable world of some people
The rise of the anti-capitalist movement
The myth of free markets and free trade: What is the truth about capitalist development?
Britain, the pioneer of protectionism
America, champion of protectionism
The expansion of free trade—mostly through illiberal means
The heyday of liberal economics: 1870-1913
Capitalism on high gear: the rise of mass production
The scale of production has increased, risks and instability have increased, and a new economic system has emerged.
The golden age of “freedom” was not so free
The Great Turmoil: 1914-1945
Capitalism Fell: World War I and the End of the Golden Age of Freedom
Capitalism Has a Rival: The Russian Revolution and the Rise of Socialism
The Depression Period of Capitalism: The Great Depression of 1929
Start reform: The United States and Sweden lead the way
Capitalist growth slows, socialism overtakes capitalism
The Golden Age of Capitalism: 1945-1973
Capitalism excels in all aspects
Factors Behind the Golden Age
IMF International Monetary Fund (balance of payments)
IBRD International Bank for Reconstruction and Development (World Bank - Project Loans)
General Agreement on Tariffs and Trade (GATT)
Remixing Capitalism: Pro-Worker Policies and Institutions
Managed capitalism: Government regulates and shapes markets
A new dawn: Developing countries finally begin to develop
The Middle Path: Capitalism works best with appropriate government intervention
Transition period: 1973-1979
Stagnant inflation (stagflation)
The Rise and Fall of the New Liberals: 1980 to the Present
The Iron Lady: Margaret Thatcher and the End of Britain's Post-War Compromise
Ronald Reagan and the Reshaping of the American Economy
The Third World Debt Crisis and the End of the Third World Industrial Revolution
The Wall Comes Down: The Frustration of Socialism
One World, Are You Ready: Globalization and the New World Economic Order
The Beginning of the End: The Asian Financial Crisis
False Dawn: From the Internet Bubble to the “Great Moderation”
Cracks in the Wall: The 2008 Global Financial Crisis
The “Keynesian Spring” and the Return of Free Market Orthodoxy
Aftermath: The Lost Decade
Chapter 4 Let a hundred flowers bloom: How to “do” economics
developmentalist tradition
Conclusion: How economics can do better
Maintain intellectual diversity and encourage “cross-pollination”
Doing economics well is relevant to all of us
Chapter 5: People in the play: Who are the economic participants?
The individual is the protagonist
Organizations as Protagonists: The Reality of Economic Decision-Making
The most important economic decision-makers are businesses, not individuals
Separation of the two powers of the enterprise
Rich international organizations: World Bank, IMF and others
Rule-making international organizations: WTO and Bank for International Settlements
International organizations that promote ideas: United Nations agencies and the International Labor Organization
Cooperative (one person, one vote system)
Workers (unions) and the government influence business decisions and are important economic actors
Individuals are not what mainstream economics thinks they are.
Split Individuals: Individuals Have "Multiple Selves"
The socially embedded individual: society shapes the individual
Impressive individuals: Easily manipulated
Complex Individuals: Individuals are more than just selfish
Individuals who often make mistakes: individuals who are not very rational
Conclusion: Only imperfect individuals can make real choices
Chapter 6 How much do you want? Output, income and happiness
Gross Domestic Product (GDP)
Net Domestic Product (NDP)
Gross National Product (GNP)
Limitations of GDP and GNP
Output is calculated based on market prices. In reality, a large number of economic movements occur outside the market, and these outputs can only be "estimated."
The market output of housework is not calculated.
real data
Most of the world’s output is produced in a few countries
The output of most developing countries is minuscule compared with that of the richest countries.
income
Gross National Income (GDI)
Gross National Income (GNI)
Adjusted for different price levels: Purchasing Power Parity (PPP)
Income does not equal standard of living
real data
The richest country has a per capita income of more than $40,000
The four poorest countries have a per capita daily income of less than one dollar
happiness
Adaptability preferences and vacation awareness: Why people’s judgments of their own happiness can’t be fully trusted
"Good Life Index" distributed by the Organization for Economic Co-operation and Development (OECD) in 2011
Conclusion: Why economic data can’t be objective
Chapter 7 How is your garden: The world of production
Economic Growth and Economic Development
Economic development is the development of production capacity
Production capacity is low, and even the value of the finished product cannot be determined
Technology is the foundation of economic development
Technology is not everything: the importance of work organization
The rise of Fordism or the mass production system
Lean Production Systems: A Modification of Mass Production Systems
Production capabilities outside the enterprise are equally important
real data
Why 6% growth is a "miracle"
Unlike economic growth, economic development cannot be measured by a single indicator.
The proportion of investment in GDP, a key indicator of a country’s development
R&D data is also a good indicator for rich countries
Industrialization and deindustrialization
Mechanization and chemical processes make it easier to increase manufacturing productivity
Economic "Learning Center"
The rise of post-industrial society?
Deindustrialization does not mean producing better manufacturing products
Part of deindustrialization is an “optical illusion”
Manufacturing is still important
real data
Agriculture remains surprisingly important
In rich countries, manufacturing is less important than it once was, but it is still more important than people think.
Developing countries are deindustrializing too early
Switzerland, Singapore and India, service-based success stories
Depleting the Earth’s resources? Focus on environmental sustainability
The development of science and technology has brought problems and solutions
But technology also has limits
To improve living standards and better adapt to climate change, developing countries still need to develop their economies
Rich countries should continue to develop their economies, but they can no longer put production and consumption first
Conclusion: Why we should pay attention to production
Chapter 8 Banks’ Trouble: Finance
Banks and the “traditional” financial system
Banking is (somewhat) a trust scam, but useful to society (if done right)
Central banks are the most important tool to address trust issues in the banking system
Further boosting confidence: deposit insurance and prudential regulation
"Traditional" financial system
Investment Banking and the Rise of the New Financial System
Commercial Bank (Savings Bank)
Securitized debt products: personal debt packaged into a composite bond
Asset-backed securities (ABS)
Residential Mortgage-Backed Securities (RMBS)
By being "structured", ABS can also become more complex - and said to be safer
Structured products only transfer and cover risks, but cannot eliminate them
Financial derivatives are essentially gambling, betting on the direction of "other things" in the future
Other financial derivatives - options and swaps
New finance and its consequences
Growing complexity makes financial systems less efficient and less stable
Growing interconnectedness also exacerbates financial system instability
New finance makes non-financial companies more short-sighted
Financialization of non-financial corporations
Overdevelopment of the financial industry and its consequences
Improper allocation of talent
The “revolving door” problem
Encourage some kind of hard-to-detect corruption
real data
The number of financial crises has increased significantly
The "evil alliance" between short-term shareholders and professional managers weakens corporate investment capabilities
Non-financial companies increasingly rely on financial activities to make profits
Conclusion: Finance needs strict supervision precisely because it has such great influence
Chapter 9 Boris’s sheep are about to die: inequality and poverty
Ivan is not alone – the pursuit of equality is a driving force in human history
"I think it's all about jealousy"
Excessive income gap is harmful to the economy: instability and weakened class mobility
Inequality leads to poorer social outcomes
In many cases, greater equality leads to faster growth.
Some animals are more equal than others: Too much equality can be harmful
Kuznets Curve: Long-term Trends in Income Inequality
different types of inequality
Measuring inequality: Gini coefficient and Palma ratio
Most equal versus least unequal: Europe vs Southern Africa and Latin America
Wealth inequality is much greater than income inequality
poor
For most of history, the common living condition of mankind has been poverty
Absolute poverty vs relative poverty
Different dimensions of poverty: income poverty VS multidimensional poverty
Poverty level: poor population VS poverty gap
What Poor People Do Wrong: The Causes of Poverty
real data
1.4 billion people live in absolute poverty, most of them in middle-income countries
If the national poverty line is adopted, it is possible for the poverty-stricken population to be between 5% and 80%.
Conclusion: Why poverty and inequality can be controlled
Chapter 10 I do know a few people who are working: work and unemployment
Work
Work is the basic condition for human survival
The dog that doesn't bark: an area ignored by economics
Work and basic human rights
How work shapes us
Work affects physical, mental and mental health
“Work as long as you want”: Labor standards vs. free choice
real data
Poor countries work longer hours than rich countries
Drought or flood: Unequal distribution of working hours
How long do you actually work: paid vacation and annual hours worked?
Work risks: workplace accidents and job insecurity
unemployment
The personal costs of unemployment: financial hardship, loss of dignity and depression
The social costs of unemployment: wasted resources, social decay and diminished skills
People Between Jobs: Frictional Unemployment
Some skills are no longer needed: technological unemployment
Unemployment created by politics and trade unions: political unemployment
Lack of demand: cyclical unemployment
Capitalism requires unemployment: systemic unemployment
real data
After the Golden Age, unemployment in rich countries rose sharply
Unemployment is hard to define in developing countries: underemployment and low productivity
Conclusion: Pay attention to work
Chapter 11 Leviathan or Philosopher King: The Role of Government
Government and Economics
Government cannot override individuals: contract theory
Contractualism exaggerates individual independence
market failure
Some goods can only be provided to the collective: public goods
Most public goods are changed from becoming “public” due to political considerations
Too few suppliers leads to social inefficiency: imperfect competition
Unbundling, nationalizing or regulating: Coping with imperfect competition
Whether it is a market failure depends on how you view the market operation.
government failure
Dictators, politicians, bureaucrats and interest groups: Governments may not even think about promoting the public interest
Even if the government wants to correct market failures, it may not be able to do so because of information asymmetries and resource constraints
Depoliticization: freeing markets from politics
markets and politics
The theory of government failure deserves attention, but it must be doubted
Advocating depoliticization is anti-democratic
There is no so-called "scientific" division between market and politics.
The White Witch and Higher Magic; Depoliticization Is Impossible
Multiple roles of government
real data
In the 150th year of the government, the size of the government has greatly increased.
A large amount of government expenditure is not consumed or invested by the government itself, but transferred
Data cannot fully reflect the government’s impact
Conclusion: Economics is a political debate
Chapter 12 Abundant products and everything: International aspect
international trade
Ricardo Challenges the Qing Dynasty and Adam Smith: Comparative Advantage VS Absolute Advantage
HOS (comparative advantage) assumes that all countries have equal production capabilities and structurally excludes the protection of infant industries.
HOS (Comparative Advantage) is overly optimistic about trade liberalization because it assumes that capital and labor can be transformed and used in any industry at no cost
Even compensation cannot hide the fact that many people have been harmed
International trade is very important, but it does not mean that free trade is the best
real data
The importance of international trade in different countries or regions
The foreign trade dependence of many countries is much higher than the time average
Changing the structure of international trade: growth in trade in manufactured goods and exaggerated growth in trade in services
balance of payments
Current account balances, capital and financial account balances
real data
Some countries’ trade deficits or surpluses account for half of their GDP
The current account deficit is usually smaller than the trade deficit, while the underlying account surplus is usually larger than the trade surplus.
Sudden surges in and out of capital can cause serious problems
Foreign direct investment (FDI) and multinational corporations
Foreign direct investment has become the most active component of the balance of payments
FDI affects the production capacity of the recipient country
The evidence for positive effects of FDI is rather weak
Some multinational companies choose not to make money in certain countries
Other potential negative impacts of FDI on host countries
transfer pricing tax avoidance
Subsidiaries of multinational corporations may “crowd out” local firms in credit markets
Change host country policies
For the benefits of FDI to be fully realized, appropriate regulations are required
real data
Most FDI occurs among rich countries, but the recent FDI flows into developing countries account for an "overly large proportion", mainly due to China
The proportion of cross-border mergers and acquisitions has increased, changing the global industrial structure
Immigration and remittances
Migration reveals the political and ethical nature of markets
Immigration often benefits the receiving country
“Intellectual drain” and “intelligent flow back”: Impact on sending countries
real data
Immigration to rich countries has increased, but not as much as people thought
One third of immigrants live in developing countries
Overseas remittances increased significantly
The pros and cons of sending too much remittances
Conclusion: The best country in all possible worlds?
Postscript How to use economics to boost the economy
How to “use” economics
Economics is a political debate
Don’t be the “hammer guy”: there are many ways to “do” economics, each with its own pros and cons
Facts are already theories: Facts, even data, are not objective
There’s more to an economy than markets: there’s also production and jobs to consider
So what: Economics is too important to just leave to economists
“The so-called experts are people who don’t want to learn anything new”: How not to be “taken advantage of” by economists
Listen to the other side too: humility and open-mindedness
Pessimism in the intellect, optimism in the will: Change is difficult, but not impossible
Final Thoughts: It’s easier than you think.
Wondershare EdrawMind
