What Would the Great Economists Do?

This was an interesting book, where the author (Linda Yueh) walked through big ideas from historically influential economists and demonstrated how their ideas remain pertinent in today’s modern world.  She provides the stories of their life that helped them shape their ideas.

Here are the economists she describes:

  1. Adam Smith – In this section, the author describes his ideas of supply and demand guided by th “invisible hand.” His opinion was government cannot change and should not try to change economy. He would argue for less government intrusion.
  2. David Ricardo – This economist’s ideas help explain the international trade economy.
  3. Karl Marx – This economist influenced both the USSR and China. The author describes how China was more like what Marx imagined. Still, he would not recognize China now as they have modified their markets to push prosperity.
  4. Alfred Marshall – Marshall described how optimal decisions are made based on utility theory. He would argue for progressive tax rates but avoid redistribution of income. Marshall saw government as a regulator instead of provider of services, and would push for decentralization. Work to improve the skill set of the poor. Cutting taxes to encourage employment is consistent with his thoughts.
  5. Irving Fisher – Fisher linked investment and interest rate. He described an equation of exchange to predict prices and money supply change developing the quantanty theory of money. Chile is used as an example as they have inflation based wages which would be consistent with his thoughts.
  6. John Maynard Keynes – This influential economist developed much in the way of investment. He investigated the questions of whether to invest or not to invest in an economic downturn.
  7. Joseph Schumpeter – Schumpeter described how taxation limits innovation. He discusses the importance of innovation especially within a capitalist economy.
  8. Friedrich Hayek – Hayek described the theory of business cycles. He would argue that too much regulation let to the 2008 recession.
  9. Joan Robinson – This economist described wages and wage growth. She discussed how imperfect competition allows for lower wages for productivity. She would argue global competition has held wages down as well as technological advancement such as industrial robots.
  10. Milton Friedman – Friedman discussed central banks actions. He provided innovative ideas like a negative income tax and flat tax. He argues the Fed caused the depression in 1929. Friedman states to solve a depression, one must inject general liquidity. He would have supported increased liquidity in Qualitative Easing but probably not buying mortgage backed securities as that would be a bailing a bad asset.
  11. Douglass North – North looked at why so many countries are poor. He concluded that poor institutions are expensive and hinder a country’s success. When there is a poor institution such as rule of law, a country cannot rise up. There is path dependence where good institutions lead to wealth. Concentrate on improving institutions.
  12. Robert Solow – Developed the Solow growth model where technology pushes productivity

Additionally, the author described Paul Samuelson, who provides a neoclassical economical synthesis. He explains how wages are affected by international Trade. His ideas help understand both Brexit and the rise/support of Trump.

A quick joke from the book:

How can you tell the difference between a republican and a democrat?

  • The republican sees someone drowning and throws out too short a rope and yells, “the rest is up to you!”
  • The democrat throws out too long a rope and let’s go!