# My Christmas first book - "How an economy grows and why it crashes."



## Eoghan (Dec 27, 2011)

How An Economy Grows And Why It Crashes - Peter and Andrew Schiff
Hardback ISBN 978-0-470-52670-5, 233 pages
The book is essentially written around a parable that attempts. And in my opinion succeeds, in explaining the economics involved in running a country.

The basic premise is that of Keynesisan economists running the economy or Austrian school economists protecting the economy from government interference.

I was interested in the introduction which describes I think very succinctly the reason why Keynesian Economics trumps the more realistic Austrian Economics. “_Because it offers the hope of pain-free solutions, Keynesianism was an instant hit with politicians. By promising to increase employment and boost growth without raising taxes or cutting government services, the policies advocated by Keynes were the economic equivalent of miracle weight-loss programs that required no dieting or exercise. While irrational, such hopes are nevertheless soothing, and are a definite attraction on the campaign trail._” (Intro xiv)


“_Any dictionary printed before 1990 defines inflation purely as an expansion of the money supply. Newer editions have hedged their bets. But if you understand the true definition, you know that it is impossible that prices can stay flat, or even fall, while the money supply itself if being inflated_.“ (p127)

“_Wealth is always a relative term. In a primitive society where little is produced , even the richest can’t match the material well-being available to the poor of an industrial economy. In the Middle Ages, even the mightiest kings lacked the basic amenities that nearly everyone in the United States now takes for granted… things like central heating, indoor plumbing and fresh vegetables in the winter_.” (p25)

In the UK poverty is defined as below 60% of the average wage (or was that the mean?) When wages are depressed during a recession there are fewer “poor families” as the average wage goes down. Go figure!

One of the interesting facts which I had not given much consideration until now is that when Governments bail out failing companies they do two things. One – they prevent a bankrupt company going to the wall which basic economics requires. Two – they divert funds from where they should go, into new an profitable businesses that take up the slack and restart economic growth. I suspect that it is the latter which undermines the self acclaimed success of government programs.

All of this is highly predictable when central planning takes over and a few committees make decisions on our behalf. (The Road To Serfdom – Hayek) Sadly the intervention of government is the problem, not the cure. In this regard Calvin Coolidge was a great president because he refused to intervene and become embroiled in bailing out businesses etc… 

I would recommend the book - it is a humorous treatment of economics without being too heavy. It still packs a punch and makes you think though.


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## Hawk (Dec 27, 2011)

Just like "Essential von Mises" by Murray Rothbard, except a lot more fun! I love this read. Glad to hear a fellow PB'er enjoyed it.


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