Your economics (and market structure) summer reading list
Economics has been called the dismal science. But these days it’s front-page news on a daily basis: The troubles in Greece, grappling with income inequality, where China’s economy is headed. With that in mind, it seems like a good time to brush up on what some of the best writers of recent years have to say on the subject. Here are four books I have been taking a look at this summer:
“The Wisdom of Crowds,” by James Surowiecki. We can get a weekly dose of Surowiecki’s sharp insight in The New Yorker, where he is a staff writer. But it was this 2004 book that established him as an economic thought leader. In it, Surowiecki dispenses with the idea that experts have all the answers. Rather, it’s often large bodies of people that figure things out. The author uses a big dose of economics to show why.
“Predictably Irrational,” by Dan Ariely. Ariely, an economist at M.I.T., specializes in behavioral economics: The study of what people are thinking when they change jobs, buy a new car, sell their house, and so on. He takes to task the standard model of economics, in which we’re all rational players using solid information to make decisions. Instead, Ariely argues, we’re a mix of different selves – some rational and some not – that come to the fore at different times. “Predictably Irrational” is a witty, great read.
“Economics in One Lesson,” by Henry Hazlitt. Not a new book – it was first published in 1946 – “Economics in One Lesson” remains an excellent guide to monetary policy, markets, the impact of inflation, and much more. Hazlitt comes from the so-called “Austrian school,” so his take on things has a strong libertarian bent. But he makes a strong case for the importance of free markets, the limits of government, and how price systems work. A classic book.
And, looking beyond economics, to broader trends of interest right now, there is “Flash Boys”, by Michael Lewis on market structure. Whether the topic is baseball, the economic meltdown of 2008, or Silicon Valley, few writers make economics as entertaining as Lewis. His latest book is a take-down of the high-speed stock trading that he says skews the market in favor of those with the fastest Internet connection. As he so often does, Lewis finds a hero – a trader named Brad Katsuyama (who incidentally spoke at our annual institutional conference this May) – to guide us through an arcane world. And he argues that high-speed traders not only are gaming the system, they’re a burden on the larger economy.
Successful investing relies on solid understanding of economics and its impact on decision-making. The need to keep your knowledge fresh in this industry is one constant we can always count on, as I mentioned earlier this year in my compiled list of smart books for investors. It’s a complex investing world, but economics helps explain how it ticks.