Saturday, February 26, 2011

How An Economy Grows, and Why it Crashes

My friend Kalyan liked the book "How an Economy Grows, and Why It Crashes" so much that he bought 4 copies, and gifted one to us. That's how I came to know about and read the book.

If someone had told me that any author could explain the differences between "Keynesian ideas" and the "Austrian school" to any lay person, I'd have been highly doubtful. But the Schiff brothers do it, in the first 3 chapters of this highly readable book.

Peter D Schiff is an investor with a great understanding of economics. Let's assume that 1 in 50 people work as teachers. But only 1 among these 50 teachers is a master teacher. Only they have grasped the subject to such an extent that they can explain it to others with lucidity and simplicity. Peter Schiff is one such teacher.

This book has much going for it. It is a book presented as one ongoing allegory. If you have read "The Richest Man in Babylon" or "The Wealthy Barber" you know the kind. This book follows that storytelling tradition.

The story starts with 3 guys (Able, Baker and Charlie) stranded in an island where they have to catch fish by hand daily to survive. Each and every concept of trade and economics is built as these three become sophisticated in their economic dealings.

The authors build seamlessly from microeconomics concepts to grander topics in macroeconomics. Using examples of two larges countries (US and China, very thinly disguised) the authors play out several dire scenarios. In its criticisms, the book is hard-hitting and opinionated, and doesn't hold back.

The authors come down very strongly against holding on to US dollars. In a way, this book serves a personal wake-up call to me, because I don't own any tangible assets at all, and all savings are in paper US dollars, which Schiff feels has to fall prey to eventual inflation.

In each chapter, boxed "Reality Checks" are sprinkled on the side margins for extra clarity. "Takeaways" are given at the end of each chapter to reinforce the economics concepts introduced.

The book is a very easy read, and can be finished in one to two sittings. Everyone who is 15 or older should read this book. I can't think of any exceptions


Mycroft said...

Yes they're smart, but you have to take some of what they say with a grain or two of salt. They've been saying the US/world monetary explosion is immanent from the late '70s. Their alternative is to buy yellow hunks of metal and store food in the root cellar.

Mike said...

Have added it to my expanding library wait list.

I can see from your sidebar that you're reading the 4HWW. Please, save yourself the time.

Tim Ferriss is, in my opinion, a digital snake oil salesman and his book is the worst kind of vague, bombastic hype.

Ram said...


Yes, I see your point. If one keeps saying the 'tiger is coming' for years, eventually they might be right by sheer chance. (BTW, I didn't know that they were bearish on the US Dollar since the 70s.) And I have no interest in yellow metals.

Perhaps I was a bit too effusive in my praise. But I do think it is important to at least hear dissenting voices and their reasons.

The economics lessons are good for most of us who are not employed in the financial industry. Might be too simplistic for others.

Thanks for making the point,

Ram said...


Re your comment about 4HWW, I will post about it at some point.

I can see why you call him a snake oil salesman (SOS). I get the feeling myself while reading many of the pages.

And yet, I can't deny that the book does make a few good points. It made me think about automating tasks and prioritizing.

This book reminds me of Rich Dad, poor dad. A few nuggets hidden amidst lots of improbable sounding claims.

It is for those few nuggets that I am reading the book. A reader has to be discerning, which is the same point that Mycroft makes in his comment above.


Parvinder said...

Peter Schiff did a great job in this book. I can think no one else could have explained the the economics as clearly as he did through this book.
Even someone completely doesn't know about economy and how it works, can understand easily reading this book. I think it's a very simple book that exists on the market, at this time, to understand the basic concept of our economy.
It also shows us how government intervention can also distort the economy.
I recommend this book to everyone.