The Little Book of Economics: How the Economy Works in the Real World, Revised and Updated

Introduction

For most Americans, the economy is like the plumbing: something to ignore as long as it’s working. In the past five years, it feels like every pipe in the house has burst. Americans have endured a financial crisis, the worst recession and weakest recovery in memory, exploding government debt, and the threatened breakup of Europe’s single currency.

In the presidential elections of both 2008 and 2012, the economy trumped all other issues by a gaping margin. Economists have been repeatedly surprised by events, and often can’t agree on what to do about them. Yet people are hungrier than ever for their insight, devouring economics-themed blogs and hundreds of new books about the economy. “Like being an undertaker during a plague, business is good for the economics profession,” Greg Mankiw, an economics professor at Harvard University, wrote on his blog.

I have been following the economy since—well, childhood. My mother was an economist (long since retired) who delighted in applying the dismal science to raising her four children. I’m sure we were the only kids in town whose weekly allowance was indexed to inflation. I took economics in college, though not intending to write about it; I just wanted a fallback in case journalism didn’t work out. Right out of college, I joined a metropolitan daily newspaper that put me on the night shift covering local politics, crime, and the like, a lot of which never made it into the paper. The business section, however, had lots of space ...