Friday, November 23, 2012

Book Review: How An Economy Grows and Why It Crashes

If you would like to learn about economics without having to read economics books, the this one is for you. Peter Schiff wrote out an elaborate allegory, that was originally told to him as a boy by his father, which helps those of us who are not experienced in economics to understand our current fiscal situation as a country. 

The setting is a small island called Usonia where the people there survive by eating fish that are caught by hand. Technological innovations allow these guys to catch more fish with less effort over time and an economy develops around the increased capacity. As this economy develops, the citizens of Usonia begin to learn important lessons about the role of savings, banking, and lending. 

They also soon start to develop trade relations with neighboring islands, Sinopia, Bongobia and Dervishia. Since everybody wants fish, they are used as the currency for this story. Soon, though, the senate of Usonia decides to begin using paper currency which can at any time be redeemed for real fish. Through generations of governmental monkeying, the amount of fish represented by one note begins to dwindle. Of course, you have to do whatever you can to fight off inflation-at any cost. 

He uses a cast of characters that seems strangely familiar: Ben Barnacle, George W. Bass, Ally Greenfin, Slippery Dickson and Barry Ocuda to name a few. Some other key players aren't people at all such as Finnie Mae and Fishy Mac. 

Take a read, and learn something about our economy. 

Here's a parting quote (p. 160): "Although economists talk like they have seen it all before, the truth is humanity simply has not long-term precedent for universal economic activity based on irredeemable paper money. 

History can show us many episodes in which individual governments, out of fiscal desperation, hitched their wagons to worthless currencies. Those experiments always ended in grief, especially for the citizens of the offending country. 

That's because it is impossible for one country to sustain a worthless currency while its neighbors continue to issue real money. Naturally, foreigners would refuse to take the worthless currency, and eventually a black market for real money would arise in the country itself. 

But now we are in a "through the looking glass" world where, for the past 40 years, no country issues real money. This is the biggest monetary experiment ever conducted. No ones know how or when it will end. But rest assured, it will."


Post a Comment

<< Home