The LITTLE BOOK of ECONOMICS How the Economy Works in the Real World Greg IP eBook created (11/01/‘16): QuocSan CONTENTS: Additional Praise for The Little Book of Economics Little Book Big Profits Series Foreword Introduction §1 The Secrets of Success How People, Capital, and Ideas Make Countries Rich A Recipe for Economic Growth Take a Growing Population Add Capital Season with Ideas Nurturing Growth Into the Weeds Will the United States Become the Next Japan? §2 Economic Bungee Jumping Business Cycles, Recessions, and Depressions… Oh My! Not Your Father’s Business Cycle Ringing the Gong When the Bungee Cord Breaks §3 In-Flight Monitor Tracking and Forecasting the Business Cycle from Takeoff to Landing The Four Engines of the Economy The Mapmakers How to Make Astrologers Look Prescient §4 Labor Pains Employment, Unemployment, and Wages Say It Ain’t So Diving into the Employment Petri Dish Payday Unemployment, Naturally Into the Weeds The Job Market of Tomorrow §5 Fire and Ice Warning: Inflation and Deflation Are Toxic to Your Economic Health From Cigarettes to Aztecs Blame It on the Money Supply The Other Side of the Story: Mind the Gap and Your Mind Even Worse than Inflation The People’s Choice Into the Weeds §6 Drop the Puck! The Globalization Game Is Here Whether We’re Ready or Not A Gravitational Pull from Afar It’s Complicated A Question of Balances: Trade Deficits and Surpluses Meet Mr Smoot and Mr Hawley Into the Weeds §7 All the World’ s an ATM Knitting Global Markets Together Financing Deficits and More The Currency Market In Search of Stability The Case of China’s Yuan The American Dollar: The World’s Problem Into the Weeds §8 All the President’ s Men They Don’t Control the Economy But They Sure Do Try The Company Presidents Keep The Long Arms of the Law §9 The Buck Starts Here The Federal Reserve’s Amazing Power to Print and Destroy Money Spandex Money Who’s in Charge? §10 White Smoke over the Washington Mall The Making of Monetary Policy and the Fine Art of Fed Watching Inside the FOMC Meeting Punch Bowls and Ham Sandwiches The Technocrat in Charge Fedspeak Into the Weeds Zero: The Final Frontier §11 When the World Needs a Fireman America’s Lender of Last Resort and the World’s Crisis Manager A Rude Awakening Could the Fed Go Broke? Into the Weeds §12 The Elephant in the Economy What the Government Giveth and Taketh Away What the Government Giveth What the Government Taketh Away Into the Weeds Hitting Closer to Home §13 Good Debt, Bad Debt How Government Borrowing Can Save or Destroy an Economy Three’s a Crowd When Deficits Help Debt Traps and Debt Crises Could It Happen Here? Into the Weeds The Hidden National Debt §14 Love-Hate Relationship The Bipolar Financial System—Essential for Economic Growth But Sometimes It Goes Nuts Where Have You Gone, George Bailey? Capital Markets The Teenage Boys of Finance §15 A Species of Neuralgia The Multiple, Recurring Causes of Financial Crises Condition 1: Afloat on a Bubble Condition 2: Leverage, the Prime Suspect Condition 3: Mismatches, the First Coconspirator Condition 4: Contagion Condition 5: Elections Into the Weeds Acknowledgments About the Author Index A, B, C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q, R, S, T, U, V, W, Y, Z Additional Praise for The Little Book of Economics “Greg Ip has the rare talent of making even the toughest topics easy to understand In The Little of Book of Economics, he tells you what you need to know with superb clarity and memorable examples I recommend this book to anyone who wants a clear explanation of how the forces of economics shape the world.” —Michael J Mauboussin, Chief Investment Strategist, Legg Mason Capital Management; Author of Think Twice “The book is an excellent introduction to basic economic concepts and ideas explained in clear and thoughtful ways A must read in economic literacy.” —Nouriel Roubini, Professor of Economics, New York University; Cofounder and Chairman of Roubini Global Economics Little Book Big Profits Series In the Little Book Big Profits series, the brightest icons in the financial world write on topics that range from tried-and-true investment strategies to tomorrow’s new trends Each book offers a unique perspective on investing, allowing the reader to pick and choose from the very best in investment advice today Books in the Little Book Big Profits series include: The Little Book That Beats the Market by Joel Greenblatt The Little Book of Value Investing by Christopher Browne The Little Book of Common Sense Investing by John C Bogle The Little Book That Makes You Rich by Louis Navellier The Little Book That Builds Wealth by Pat Dorsey The Little Book That Saves Your Assets by David M Darst The Little Book of Bull Moves in Bear Markets by Peter D Schiff The Little Book of Main Street Money by Jonathan Clements The Little Book of Safe Money by Jason Zweig The Little Book of Behavioral Investing by James Montier The Little Book of Big Dividends by Charles B Carlson The Little Book of Investing Do’s and Don’ts by Ben Stein and Phil DeMuth The Little Book of Bull Moves, Updated and Expanded by Peter D Schiff The Little Book of Commodity Investing by John R Stephenson The Little Book That Still Beats the Market by Joel Greenblatt The Little Book of Economics by Greg Ip Copyright © 2010 by Greg Ip All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or Starbucks Start-up companies State and local government finance Steelmaking Stock prices Stocks Subprime mortgages Subsidy Summers, Larry Supplemental budget bill Supply Supply-side economics Surge (of imports) Sweden T Tariffs Tax deductions Tax expenditures Tax proposals (legislative) Tax revenue Taxes consumption/VAT vs government services income politics of sales social impacts of sources of supply-side economics and Technological progress Terms of trade Thailand Toxic assets Trade deficits and surpluses Trade promotion authority Trade relations and negotiations Treasury bills and bonds Treasury Department Treasury inflation - protected securities (TIPS) Truman, Harry U U-6 unemployment rate Underemployment Unemployment See also natural unemployment rate defined forecasts of and inflation job growth and Unemployment insurance Unemployment rate Unfunded obligations Unit labor costs United Kingdom United States bank regulation in borrowing budget process in debt deficits economic condition of exports by federal budget future crisis risks investor faith in debt of national debt Suez Crisis, behavior during technological progress in United States Trade Representative U.S dollar U.S Treasury V Valued-added tax (VAT) Volcker, Paul W Wage and labor costs Wage and price controls Wage-price spiral Wages Wall Street Journal Wal-Mart Warren, George Williams, John S Women in labor force wage levels World Trade Organization (WTO) Wriston, Walter Y Y2K Yardeni, Ed Yield curve Yuan Yugoslavia Z Zimbabwe www.merlehazard.com/Merle_Hazard/INFLATION_OR_DEFLATION.html www.wto.org/english/res_e/statis_e/its2009_e/appendix_e/a01a.xls www.aei.org/docLib/20051208_WP122.pdf www.piie.com/publications/chapters_preview/3802/2iie3802.pdf www.iie.com/publications/papers/paper.cfm?researchid=200 www.politico.com/news/stories/0309/20083.html story_id=12305746 www.economist.com/business-finance/displaystory.cfm? www.slate.com/id/1004294 ... Clements The Little Book of Safe Money by Jason Zweig The Little Book of Behavioral Investing by James Montier The Little Book of Big Dividends by Charles B Carlson The Little Book of Investing... The LITTLE BOOK of ECONOMICS How the Economy Works in the Real World Greg IP eBook created (11/01/‘16): QuocSan CONTENTS: Additional Praise for The Little Book of Economics Little Book Big... Navellier The Little Book That Builds Wealth by Pat Dorsey The Little Book That Saves Your Assets by David M Darst The Little Book of Bull Moves in Bear Markets by Peter D Schiff The Little Book of