Book review - Gregory Mankiw, Principles of Economics

★★★★★

Introduction: You should already have read me

I imagine Economics 101 is a pretty common introductory subject in (American) undergraduate degrees. Even before that, some notions on the topic are introduced through optional subjects in high school. Let me begin with a radical thesis: every student everywhere in the world should be required to master the contents of a book like this one. It should be mandatory—a sine qua non before finishing compulsory education (probably with some supplementing from Personal Finance for Dummies). I don’t care what other subjects you have to brutally eliminate and expel from the curriculum—this should take precedence over everything beyond basic literacy and numeracy.

And this is because it’s hard to think of a subject more important, both for pragmatic self-interest (so as to properly guide the spending, job-seeking, and investing decisions of future citizens) and collective well-being (to make our citizens more rational and aware of how the world really works, and to prevent their ideological capture and the fossilization of dead-wrong but popular beliefs that make all our lives worse). If you haven’t read this book, read it—or anything like it. Do not let young, easily influenced minds become corrupted by false beliefs about how “capitalism is bad,” among other things.

The Contents

This is an introductory economics textbook, and quite a behemoth. (In the 10th edition, which is the one I read, that’s 836 pages of reading material.) The contents are what you’d expect: it has 38 chapters that can loosely be divided into Foundations and Microeconomics (Chapters 1–23) and Macroeconomics (Chapters 24–38). The core message of the book can be summarized, Ten Commandments-style, in its Ten Principles of Economics:

1. People face trade-offs.

2. The cost of something is what you give up to get it.

3. Rational people think at the margin.

4. People respond to incentives.

5. Trade can make everyone better off.

6. Markets are usually a good way to organize economic activity.

7. Governments can sometimes improve market outcomes.

8. A country’s standard of living depends on its ability to produce goods and services.

9. Prices rise when the government prints too much money.

10. Society faces a short-run trade-off between inflation and unemployment.

Some of these ideas might seem pretty intuitive, but they tend to be ignored by most people.

Along the path of illustrating these key concepts, you get a walkthrough of the key concepts of economics and economic models for explaining human behavior: supply and demand, elasticities, externalities, types of goods, industrial organization, monopolies, GDP, unemployment, long-term growth, money growth and inflation, the theory of aggregate supply and demand… I mean, the book covers a lot of ground—which is only to be expected, given its size.

On the whole, the explanations are pretty easy to follow, the models are presented in a simple way, and the math and curves are fairly toned down. I was mostly reading this book on a tablet while doing my daily hour of exercise on the treadmill, and had hardly any difficulty following it—although the later macroeconomics chapters started to become a bit dense and would have benefited from a second reading and consultation of earlier pages.

Along with the main text, the book includes lots of case studies, FYI boxes with extra tidbits, and at least one newspaper article by an economist in almost every chapter. There are quick quizzes every few pages and a big section with exercises at the end of each unit (I skipped the latter for obvious reasons, but when I revisit the book’s concepts in the future, I’ll probably do a few—they looked well designed for putting the theoretical content of each chapter into practice).

Overall Assessment

This is an excellent book. I have no other textbooks to compare it to, but if you want to acquire solid foundations in basic economics—which you absolutely should, and almost certainly didn’t get from school—this is a very good place to start. I’d also say the tone is quite neutral and non-partisan: I didn’t get the impression that any of the complex views in economics were oversimplified beyond what was pedagogically necessary. The macroeconomics chapters read very Keynesian, but most economists would agree with that. It wasn’t just a paean to market absolutism—one of the Ten Principles is precisely that sometimes markets fail and society has to act.

Caveat emptor, though: if you are a leftist, this book will anger you, because the whole premise of economics (things like “capitalism is good,” “individuals act as rational agents seeking to maximize utility,” “the invisible hand of the market works well to create the greatest good for the greatest number most of the time,” etc.) is alien to your worldview—even if those things are true.