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Archive for November 28th, 2010

Kelly Bundy would recommend: How an Economy Grows and Why it Crashes

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Bud:    In college, I’m reading the philosophy of Plato
Kelly: You mean Mickey Mouse’s dog wrote a book?

If you want to know how an economy works and you don’t want to read one of those dry textbook-style books then you might want to try How an Economy Grows and Why it Crashes by Peter D. Schiff and Andrew J. Schiff

A Fish Story

Wrapped appropriately in a fish story, this book is about the mechanics of a nation’s economy – growth and crash and some of the reasons for both.  I am not sure who the target audience for this book would be but when I picked it up from the new books table at the local public  library I thought of Kelly Bundy of Married with Children fame. (more

The Kelly Bundy character played by Christina Applegate certainly did not like reading books.  But Kelly may like this book by Schiff.

The authors say the island fishing story is an allegory of U.S. economic history.  That is true, but what has been practiced as U.S. economic and monetary policy has antecedents well back to the time of Rome.  So the book is also an allegory of decisions governments made when they got into monetary trouble throughout history – not just what happened in American history.  What was that saying about learning from the past or being condemned to repeat it?

Island Fishing & Entrepreneurship

The book starts out with three men living on an island – Able, Baker, and Charlie.  It’s a closed economy.  The three of them live at a subsistence level.  They spend all their time catching fish by hand to live.  It takes all day to catch one fish and they need to consume one fish per day to survive.  So, the book starts out with the most simply economy possible.  There is no savings, no credit, no investment, and nothing that increases a man’s productive capacity to catch more than one fish per day. 

Man has more of an aspirational vision than this.  Wake, fish, eat, and sleep.  And Able was just the guy that was going to take some risk to make things happen on the island.

Able in an entrepreneur and he comes up with the idea of a fish catcher.  A fish catcher could increase his productivity so that he does not have to spend all day catching a single fish.  If this invention works then he wouldn’t have to spend all day catching fish and he could use his time for something else.  For example, Able could use this extra time – made possible by the increase of productive capacity of the tool – to make some clothes, build a shelter, and write a screenplay for a feature film.  Able sets out to build a net.

Taking Risk, Lending, Interest Rates, Banks, Inter-island Trade, and the Crash

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