Friday, July 27, 2007

Economics in one Lesson : Book Review

This is one of the best books I have read. Very lucid and always revolving round the central theme. The essence of the book is summarized in the author’s words itself as

“The art of economics consists in looking not merely at the immediate, but at longer effects of any act or policy, it consists in tracing the consequences of that policy not merely for one group, but for all groups.”

It is significant to note that the author calls economics an art and thus distances economics from the rigors statistics or what in modern days is called econometrics. The author takes up different issues like supply-demand principle, subsidies, tax sops, price control, import-export policy and analyses (using the before mentioned principle) the effects of a particular policy on different groups of people viz. producers, consumers, tax-payers and indirectly affected people. Pure straight thinking and natural reasoning flows to draw conclusions of which we know, but are not aware or refuse to accept. All the reasoning in the book is based on the following axiom.

“Something cannot be created out of nothing”
In other words,
“Economic resources have alternative uses and the best policy is the one which which produces net gain in the long run.”

Also, the author tends to rely on the belief that

“Nature always tries to reach a static equilibrium” which does happen in mechanics but is contrary to the III Law of Thermodynamics: “In any thermodynamic process, entropy (chaos) is always greater than or equal to zero.”

I would recommend this book to all those interested in economic and business policy. It would entice those people who believe in long-term rather than quick-fix solutions. One reason I liked the book was that the author thinks in a way similar to the author of the book “The Intelligent Investor” viz Benjamin Graham. They both believe that making your point louder and more often doesn’t make it right. A short review of this Geeta of investment philosophy will come next.

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