All Commentary
Wednesday, August 19, 2009

The Complete Idiot’s Guide to Economics

For years the series of Complete Idiot’s Guide books has been a great commercial success, dealing mostly with “practical” topics as varied as dog training and wedding planning. Useful to be sure, but not exactly intellectually stimulating. The Complete Idiot’s Guide to Global Economics, by economist Craig Hovey and former FEE staff member Gregory Rehmke, changes all that. Written for the intelligent non-economist (easy reading, but clearly not for true idiots) the book informs about the fundamentals of international economics and dismisses numerous false beliefs. For libertarians it’s most encouraging to see such a book reaching the mass market since the authors have no patience for coercive interference with the market order of production and trade.

The big message of the book is simple: If you want prosperity, leave people alone. The proper role of government is to keep the peace; it should not dictate what should and shouldn’t be produced; it shouldn’t impose tariffs or trade quotas; it shouldn’t interfere with the value of money; it shouldn’t give foreign aid or impede the flow of workers from place to place. The reader who pays attention will end up with a better grasp of global economics than the typical college economics major, whose professors often teach interventionist, anti-market nonsense.

Almost immediately, Hovey and Rehmke drive home the crucial point that economic freedom works far better than central planning–that is, domination and control by government authorities. That’s because knowledge is widely dispersed. Free markets tap into that knowledge while government authorities act in a state of ignorance and blindness. In a passage reminiscent of Leonard Read’s famous essay I, Pencil, the authors state, “What is amazing in the modern world is that we so easily benefit from vast knowledge distributed across the globe, from how to grow foods and spices, locate and mine minerals, cut and sew, design and assemble, carve and shape, program and debug, and all the vast range of skills that few of us possess but most of us use in finished products every day.”

Cognizant that many readers will have absorbed elements of what Ludwig von Mises called the anticapitalist mentality, the authors include numerous little “Warning, Pothole Ahead!” features in each chapter to deal with common misconceptions. For example, they confront the notion that profits are the evil consequence of greed and exploitation early on. They observe that profit just means obtaining benefits in excess of costs: “The saint who helps shelter the homeless and the cold-blooded bond trader both have profits in mind–that is, gains over and above the effort they invest.”

Perhaps the most persistent error in thinking about global economics is the idea that trade between nations needs to be balanced. Hovey and Rehmke attack that error at its roots, explaining, first, that trade really doesn’t take place between nations, but between people who happen to reside on different sides of a national border. If you think that individuals can and should manage their own buying and selling, then there is no problem, no matter what aggregate trade statistics show. But what about the menacing “trade deficit”? Don’t “we” lose jobs in the face of one? Relax, say the authors: “As much attention as is paid to job losses resulting from imports, little notice is given to how this promotes the creation of new businesses, jobs, and wealth.”

A favorite line of the anti-capitalists is that “globalization” is to blame for the poverty of underdeveloped nations. The authors show that’s pure bunk. International trade and cultural exchange do not keep poor people poor, but many formerly poor people have become pretty wealthy as a result of trade and cultural exchange. The crucial ingredients for economic progress, including freedom, stable money, and the rule of law, are not indigenous to most “third world” countries. Hong Kong and Singapore, to cite just two examples, are no longer poor thanks to globalization.

The authors ask if foreign aid is necessary for poor countries to break out of poverty. When people are poor, how can they save and invest? Isn’t foreign aid essential? No: Under the proper conditions for economic growth (noted above), even very poor people can save, invest, and progress economically. Foreign aid, by giving money to government officials, usually gets in the way of progress.

This book covers a lot of economic terrain and does so effectively. It would make enlightening reading for anyone who isn’t familiar with international economics (or economics at all) but wants to learn.