Review:Charles Wheelan's Naked Economics:Undressing The Dismal Science

CEOs Are Not Men Like You and I

I don't pretend to have an expertise in the field of economics, but like politics, events transpire in our country and around the world and we hear a lot of rationales and proscriptions regarding issues. So often contributions to debates happen quickly and have a knee-jerk ideological quality to them. Expressed opinion piggy-back onto earlier opinions. It seems some groups go so far as to spread disinformation, as if an intellectual war is being fought in this country without Geneva convention rules. Hysterical reactions are commonplace in the media. If candidate A gets elected, the Dow Jones will drop to 2000.Today it seems like every politician gets his 15 minutes of being Hitler from his detractors. I don't understand how people can use that description so cavalierly, and in it's way it is a diminishment of the horrors perpetrated by the most evil madman of the 20th century. Another example of the problem of assessing accuracy-politicians could either be raising or lowering taxes depending on whose opinion is being expressed. Statistics are easily doctored, polls can be influenced by the form in which questions are asked. Opinion makers are cynically banking on amnesia on the part of the American public. I have a background in History, and a lot of what I was hearing did not cut it. So I started reading up on economics and current events.

Economics, like evolutionary biology, is a pretty obtuse subject for many people. I think it is pretty difficult to study what individual companies or industries do, much less a national or global economy. And who has the time to put in to understand even the basics? Though it was not the first book on economics I have read, Charles Wheelan's Naked Economics is a pretty good introductory primer if you are interested in economics. As far as the subject matter goes it is fairly easy to read, and gives many concrete examples to illustrate the concepts. Wheelan explains why economies work the way they do and does it in an interesting way. Though I have some issues with the content of the book,  but overall, you learn about the different competing ideas of economics, and a lot of basic concepts, so that you could in fact look at an issue and examine as an economist might.

Wheelan covers important concepts in the book such as incentives and externalities. Incentives are ways to encourage desired behavior, such as tax cuts for businesses that create new jobs, or grants for pharmaceutical companies to develop new vaccines. The converse of this is negative incentive or moral hazard, where groups are rewarded for bad or criminal behavior, such as approving bad loans due to regulatory loopholes or diminished regulatory activities. Externalities are added costs of products that are not reflected in their nominal costs. It costs so much to extract ore from a mountaintop, but if the company goes out of business and does not clean up the site, their are extra cost that someone will have to pay (the taxpayer). Another example would be the financial meltdown that began in the 2nd half of 2008. Massive profits were made short term, but in the long run many of these companies wound up bailed out by the government. He also discusses concepts like inflation and market pricing and GDP.

Wheelan discusses the nature of the market system and the role government plays in the economy as regulator and planner and infrastructure builder, both the positives and negatives. He covers the importance of openness and freedom of information, which allows investors to have faith in the financial system. There is a chapter on productivity and technological advancements and he also discusses the impact that special interests and politics have on the economy and government policies. The role of the Federal Reserve Board, Globalization, and World Economic Development are also analyzed. He writes about the effect of public perception has on economics. In many cases he takes different views on these issues and analyzes their merits and shortcomings.

Overall I think he delivers a fair and easy to understand overview. However, though he does take pains to cover a lot of the issues over globalization, I think at some point he brings up the argument of whether globalization should exist or not. While maybe it is true some protesters in the famous Seattle meeting of the WTO, the real argument is not yes or no, but how globalization is conducted, what regulations need to exist and how much control countries and the average people who live in those countries have over their destinies. Thomas Friedman extols the "Golden Straitjacket" which forces wayward countries to act appropriately or face economic disaster. Another way of looking at it is that countries at a time of crises have leverage used against them for the benefit of other countries, or banks, or other organizations/companies. These organizations are supposed to aid development, but can as often have a counterproductive affect, and probably can seem more to be a means of control and a source of unnecessary suffering and hardship. Maybe there is a bit of an irony in the use of the word straitjacket in his defining concept, though I suppose "golden lobotomy" would not pass muster. Though it is just mentioned briefly in the book , I think at this point it is a bit of a straw man argument. I don't mean to overstate, to say that he is being a shill for corporate rapacity, but that it is more nuance. Globalization and world trade does help people and improves lives, but also creates instability and can destroy economies and disrespect local cultures and traditions.

I also think, and to some extent due to hindsight, that there is a bit of a benign view of role of the Federal Reserve, and not enough criticism of the free-market neo-classical economics that has been a fundamental part of our national ideology for 30 years. I know that Wheelan does not believe markets to be self regulating and that the less government and regulation the better, but I think that it may not be emphasized enough. On some level it seems to me that a lot of the Chicago School economic theory was created not through objective research but in order to support the economic interests of big business and serve as an ideological counterpoint to Keynsianism and the regulations of the New Deal. Which is all well and good, except that those theories don't seem to really work in the real world where there is incomplete knowledge, where capital is always available, no unemployment, etc. And you would think that there definitely had to be a monetary incentive behind creating these ideologies. Given the economic recession, and the failure of Greenspan and Bernanke to see the bubble economy, and the long overdue realization that we need strong regulation to have a hope of a competitive and stable market economy, it seems to me as an American who doesn't suffer from post-election amnesia that if a second edition of this book were to be made, that maybe some of that section of the book could be reevaluated.

Invisible Hand outs

But overall, for a book on economics it is a good read, and upon completing the book you will definitely have a much better understanding of economic thought. There is a lot of humor, wit, and common sense anecdotes that make a traditionally dry subject interesting. A very good place to start, free of pie charts and graphs and mathematical equations. But also read other economists like Paul Krugman and Joseph Stiglitz for their views on the free market and on globalization and development.