Monday, August 6, 2012

Laughing at Economics

I always enjoy a good laugh bit it rarely happens when I am reading economics.  I’ve never thought of economics as the “dismal science” but likewise, it never seems to be a barrel of laughs.  Two weeks ago, while reading one of the Sunday newspapers, I came across an interview by Mary Ann Gwinn of The Seattle Times with Yoram Bauman, Ph.D. who describes himself as “the world’s first and only stand-up economist.” In addition to a Ph.D., according to the interview, Yoram has a background doing “stand-up routines at Seattle’s Comedy Underground.  The interview also mentioned that Yoram is the co-author of the recently published “The Cartoon Introduction to Economics: Volume Two: Macroeconomics,” which I immediately ordered after reading the interview.

The book is fun to read and funny as well.  More importantly the economics is solid and the book does a good job explaining important economic concepts in common sense ways with very helpful illustrations by the co-author and cartoonist Grady Klein.  For example, in the discussion on inflation, and specifically how prices change in real as opposed to nominal terms, the discussion goes as follows:

        To avoid suffering from money illusion, economists study how prices change in real terms.

        Real prices are adjusted for inflation.  They show us how the price of something has      changed relative to the overall price level.

        For example compare the price of milk in 1920.

                        That’ll be $0.72 per gallon.

        With the price in 2010.

                        That’ll be $3.00 per gallon.

        Based on this comparison of nominal prices, it looks as if milk has gotten a lot more        expensive.

                        $3.00 per gallon!? When I was a kid, milk was only $0.72 per gallon!
        But if we adjust for inflation between 1920 and 2010

                        In 1920 milk was $0.72 per gallon.  But the CPI says that average prices in 2010                    were  10 times higher …  …So in today’s dollars the price of milk was about                                   $7.20 per gallon!

        ...we see that the real price of milk has actually fallen.

        What this means is that the prices of most other things have gone up more than the      price of milk.
The discussion of GDP is another example of a good discussion of economic principles accompanied by helpful yet funny cartoons

        However you measure it, GDP gives macroeconomists a way to tell a story about the     entire economy.

                        Mommy tell me a story. $5.8 trillion… $8.4 trillion…$10.2 trillion…
        GDP sheds light on everything from Health Care…

                        Health care spending in 2008 was only 8% of GDP in Finland... …but was  16% of                                GDP in the United States… … and it’s growing fast everywhere.

        …to the size of government

                        Federal, state and local governments in the U.S. make up about 35% of GDP.
        …to the National Debt

                        During World War II, the U.S. national Debt soared to over 100% of GDP.

                        Then it was pretty steady at 30-60% of GDP for fifty years. And after the 2008                            financial crisis, it’s heading back up toward 100%.

        No wonder GDP is the most important statistic in macroeconomics!

I have left out the cartoons from my review of this book on purpose. The text clearly and simply provides the key economic concepts that define macroeconomics. It comes together as a superior overview. The cartoons interject the lightness and humor.  And not surprisingly even critical economic concepts benefit from humor, and likely the learning process is the greatest winner of all with a book like this.  Congratulations to Klein and Bauman on a job well done.  We need more books like this.

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