bizzXceleration: Performance, Value and Profit

Business Cycles and Applied Macroeconomics Readings

Like we said there are (now) five and it's not entirely clear what order to suggest which should come first but we'll pick an order and explain the choices as well go.

Ahead-of-the-Curve (Ahead of the Curve: A Commonsense Guide to Forecasting Business and Market Cycles by Joseph H. Ellis):

Ellis is a retired Goldman retail analyst who a long and successful track record in his industries. Since he was tracking cyclical industries he needed to understand cycles and over the years evolved a simple graphical technique that's well-grounded in experience, accuracy AND theory. It also makes the underlying nature of cycles, structural patterns and relationships clear to the naked eye without a lot of econometrics. This is the source of the YOY% approach which we've used for several years and adopted/adapted (alright stole) from Ellis. We've also notice that in the last six months the YOY Meme has taken over the world from the WSJ to BreakingViews, to BigPicture to EconDay. Hmmph - we do our own charts. But if you want a more detailed explanation and dissection read the book.

Be Your Own Economist: covered that above but let me explain a bit of the dilemma. Ellis's book will certainly get you going, and in many ways, might be all you need to read. We say having come to with a pretty decent grounding in economics, business cycles and whapping away at the problem. Mike's book will ground you with an independent but complementary explanation of why cycles work, how to interpret the data in a cycle framework and to translate the headlines.

Peddling Prosperity (Peddling Prosperity: Economic Sense and Nonsense in an Age of Diminished Expectations by Paul Krugman)

 Krugman likely doesn't need much introduction but before you judge him entirely by his NYT columns he was and is a very good economist who won the John Bates Clark medal, made major innovations to int'l trade theory and wrote some very good popular economics books in the 90's explaining economic issues in as good a prose as anybody who's written (though you can see it evolve into clearer & simpler over time). We recemmend without qualification any and all of these books as essential reading and ground, and for the same reason we recommend PP here and now. While the dates would appear to make them dated in fact they are such good introductions to various topics that are not only still with his but are now orders of magnitude more important that we wish a) he's re-visit, refresh & update everyone of them while b) keeping his personal political proclivities out of the analysis as he did then. Sadly much of his recent popular work is disingenous in the extreme where very good economics is inter-mixed with biased policy and not so disguised polemics. There's a reason why Paul wasn't made Chairman of the CEA; and unfortunately will have difficulty getting the Nobel that his earlier work put on the path toward. All that said let me piggyback a couple of more comments as long as the rant toggle is ON.

1. "Madmen who hear voices in the air distill the frenzy from some academic scribbler of generations past" - Lord Keynes. We can actually show where that's true with regard to Hitler and unfortunately, as the Supply Side voodoo magic meme shows, it's still true today (Krugman does a nice job of walking you thru all the ins & outs). Yet macroecon matters, at the bedrock basis, as much as any other social policy - and mistaken ideas in that regard are devasting to the health and welfare of society. Yes, we're talking about you and your children - pay attention. Churchill's decision in the 20's to return to a "sound money standard (gold)" was driven by nostalgia for a dead age rather than sound reasoning and led Britain into a major depression in the '20s which almost collaped their society and was so bad the Great Depression hardly added to the pain. Our own troubles with Guns-n-Butter in the '60s, Nixonian price controls and Carter's ineptitude created problems which a) we just began to recover from in the mid-90s, laid the foundations for the income disparities that are so troubling to us all now and set the table for problems that will be-devil us for the next two decades. At the same time Volcker (& Reagan's) breaking the back of inflation, some growing sense in macro-policy and a competent non-political Fed laid the foundations for the Great Moderation which gave us two decades of increasing general prosperity. Aside from a major war perhaps the most momentus policy decision the next President will make will be the next Fed chair. If a more complacent political appointee is put in we could end up where we were in the '60s and '70s; or heaven forbid where the French, et. al. got themselves in the 1890's for example. The most dangerous current beginning to run right now is the notion that Bernanke has done a bad job when he's done superbly.
2. Peddling Prosperity takes you thru the various macroeconomic currents and events of the '80s and '90s, the growth of policy entrapaneurs who distilled their frenzies from extractions and distortions from the sound work of Feldstein, Mundell and others on taxes and money and trade. It also weaves in the internecine food fights in the profession where, because it was intellectual difficult to link clean, clear and well-established micro-principles to the extremely messy and complicated aggregate economy the entire profession went nuts in pursuit of mathematical abstractions. This 20 year journey in the wilderness bubbled out in the public consciousness and opened a wide window for a lot of kuku moi (that's bat quano for the rest of you) to ooze into policy-making.
   
• If you'd like another take Greg Mankiw has as a great paper (Economist as Scientist and Engineer [ web, dloadbable from us] ) paper that we highly recommend that is as nice a survey as there is.
• Charlie Munger (yes that Munger - Warren's partner in profit) gave a wonderful lecture at UCSB several years ago giving you a very hard-nosed look at key ideas and real-world relevances. It's on the strenghts and weaknesses of academic economics and should be required reading for any academic or policy-maker [UCSB speech PDF, blog dloadable].

Back in the day when I moved on (escaped) to the real world there were a set of issues on disequlibrium, dynamics and micro-foundations that were the next frontier. Imagine my utter disappointment and dismay on discovering that 20 years later the entire profession lost itself in navel gazing and abstract debates. Take a look at both books. If you're interested in understanding the theory, applications, data and so forth that backup Mike's work these are the books and not just as good as it gets but the best we know of. If you look them over and are more comfortable start with the Principles book (get the whole principles book instead of just the macro one). But we wholeheartedly recommend the Intermediate textbook because it carefully lays out, reconciles and integrates all the previously conflicting currents. And does it in a very good style. If you can spare the time, energy and attention you'll be well repaid. If you have younger friends and relatives at college insist that they get to and thru an Intermediate macro-course (though share this blog with them of couse !).

China's Economic Transformation (China's Economic Transformation, Knowing China by Gregory C. Chow): Greg Chow has written a wonderful applied macro textbook on the transformation of the Chinese economy. Where this one bites in particularly is on several levels.

First off Chow is one of the preeminant econometricians and applied macro-economists of the last 50 years. Next he is native Chinese and grew up with the language and culture. And third he's been a very senior advisor over decades to both the Taiwainese and mainland governments and been as influential as any single person could be in influencing their choices (btw - how many most sr. gov't officials could interview Larry Summers and get into a discussion of Black-Scholes option pricing and real-world applications. Well the Chinese can and did when he was over there. Can't imagine that happening anywhere in the West. Can you imagine ?!!).

On the next level Greg's discussion of history & culture, analysis of major sectors and policy challenges and overall macro-analysis as well as inclusion of institutional factors is wonderful. Where the latter is important is that none of the classic models work here so he had to create his own - as good an example of applied macroecon as there is. Some of the chapters are a bit technical much of the book is not so just skip the parts that make your head hurt if you like. The chapters on education, banking & finance, education, pollution, the trade-offs between Agriculture and modernization, the history of policy-making, the choice to emphasis coastal provinces first over interior zones are each worthy of books in their own right. This book should be reqiured reading for any journalist, businessman or policy-maker involved with China. In fact if it were up to me I'd require a couse in it for any of my folks heading there on on assignment. As a side note if the textbook is heavy going Greg's book on Knowing China includes much of the simple prose analysis as well as good introductions to Chinese culture and history. That should be essential reading for anyone interested in China (a complementary historical work contrasting Chinese socio-economic history with Western is China Transformed: Historical Change and the Limits of European Experience by R. Bin Wong).

Archives

And of course we've put up a few things from time-to-time which are contained in the archives: Economy. In particlar we'd point you to two major posts that tried to explain our synthesis of all these sources into a "concise" explanation and toolkit intro for business cycle analysis.

Weigh the World Works: Understanding the Business Cycle

WtW Part Deux: Patterns, Cycles & Indicators