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Ask HN: What are the must-read books about economics/finance?

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Re: Ask HN: What are the must-read books about economics/finance?

#101
Preface: For a bit of I suppose... uhh, qualification, I took nearly every single upper division Economics class my university offered (~25). I did so because I LOVE Econ. Also, sorry for the rambling nature of this.

First things first, finance is only sort of economics, it's really just finance. I'd highly recommend taking an accounting class (or book) and a grab an intro finance book. Accounting will really help with jargon, and just some really basic things (like balance sheets). Also, "Security Analysis" [0] is the "only" book you'll ever need, Warren Buffet recommended it to Bill Gates, and now Bill Gates recommends it to everyone.

Back to Economics... There are two primary "groups" of thought... sort of like twins separated at birth who grow to hate each other.

---------------------------------- The First: Neoclassical Economics ----------------------------------

Focuses primarily on microeconomics and largely mathematical. It's birth is largely due to Economists wanting to make econ a "true science" like we see the physical sciences (biology, chemistry, physics). It starts around the late 1800s and really picks up steam around the time of Einstein. Math was hot and being applied everywhere.

A really interesting period to research and study is right after black Tuesday (and before the great depression) and what the central bank didn't do (before central bank intervention in markets). While I really detest the bastard, Milton Friedman's work on monetary policy is pretty science and generally good here. [1],[2].

I'm a Keynesian (I suppose-- Econ gets deep fast), and so you'd be no where without reading some of what Keynes did to get our assess out of the great depression (i.e. government spending). It's also more or less the birth of Macroeconomics... You'll know you're good when you laugh at forgetting: Y = C + I + G + (X - M). Some good things to get started are looking at the IS-LM [3] model and AS-AD [4] model.

That gets you into the 60s - 70s. Tall Paul Volker is the unsung hero of the 80s, read about him (he ran the federal reserve). After that microeconomics starts to fragment into things involving game theory and behavioral economics (Daniel Kahneman is the man).

Econometric analysis mathematically speaking is just multivariate regression analysis for time series or cross-sectional data. More "modern" analysis is probably using panel data [5] (combination of cross sectional and time series). Calculus, linear algebra, and differential equations should prepare one plenty for everything but panel data analysis. The real "econ" part is applying solid econ theory to the mathematics you're using, a textbook will help [6]. For finance this is your bread and butter.

Game theory will apply a lot of different mathematical tools. You will need to love pure math. To really get into it requires pain or love. I like a healthy amount of both.

---------------------------------- The Second: Heterodox Economics ----------------------------------

So as it turns out, neoclassical economics is at most half of Economics. It's really where the "philosophy" comes into play. You're gonna need a quick history lesson to sort of see it's topic matter. Economics really didn't exist before... the 1500s. You can try to apply economics to earlier times but you could also just make shit up and post it to twitter. Both would be equally likely to contain truth.

Economics came into existence around the time the Dutch began developing trade routes (1550s). A by product of all this trade, is tons of cash, and goods-- currency (silver, metals, whatever) starts to actually be used in society (before that it was mostly just a status symbol). It pisses off a lot of _institutions_, most of all "the church" and monarchies because money is allowing people to gain power. It's usurping power from them. This is the rise of the "merchant class" and now thanks to money (trade really, but whatever it's complicated)-- people are liberating themselves from the social status they're born into. Eventually modern republics appear, and governments form. Nations trading globally becomes more common (Dutch, English, Spanish) and we get to Adam Smith, David Ricardo [7], et. al.

Now it's the 1800s. People are seeing the birth and growth of capitalism, industry, corporations, and the tumultuous death of agrarian life. Now the way the "common person" lives their day dramatically changing, for a few it was better for most it was worse. Some economists begin to ask why are we replacing these now defunct _institutions_ with equally shitty, or possibly shittier, ones. This is more or less becomes the birth of heterodox economics which largely studies the more abstract ideas like "institutions"; by it's very nature the content tends to be philosophical.

By the 1920s heterodox economics is falling by the wayside. The content is less able to be tested like a physical science (i.e. no math/stats); so, it's treated like a misbegotten child... By the 1950s heterodox content was marginal at best-- the cold war and fear of communism made (makes) people insane. Economists pretty much had to be pro-capitalism or face being called "commies" and thrown in jail or worse being a narc in a witch hunt. This was more or less the nail in the coffin in mainstream heterodox economics (at least for research in the Occident). After the cold-war ended the nail got pulled out, but I wouldn't say it's really outta the coffin yet.

This book [8] isn't great but it's quickly digestible and will point you in the appropriate directions.

---------------------------------- ----------------------------------

Some Rambling to Finish

I'd highly recommend not just learning how to use the tools, but why we have them and where they came from. Economics is vastly deeper than the average person will ever know. That depth is greatly empowering and guiding when using its lenses to see and solve problems. One last thing, know there's no going back, you will see the world differently.

[0] https://www.amazon.com/Security-Analysis-Foreword-Buffett-Ed...

[1] "The Role of Monetary Policy." American Economic Review, Vol. 58, No. 1 (Mar., 1968), pp. 1–17 JSTOR presidential address to American Economics Association

[2] "Inflation and Unemployment: Nobel lecture", 1977, Journal of Political Economy. Vol. 85, pp. 451–72. JSTOR

[3] https://en.wikipedia.org/wiki/IS%E2%80%93LM_model

[4] https://en.wikipedia.org/wiki/AD%E2%80%93AS_model

[5] The course I took on panel data, http://web.pdx.edu/%7Ecrkl/ec510/ec510-PD.htm

[6] https://www.amazon.com/Using-Econometrics-Practical-Addison-...

[7] He more or less invented trade theory (competitive advantage) https://en.wikipedia.org/wiki/David_Ricardo

[8] https://www.amazon.com/Age-Economist-9th-Daniel-Fusfeld/dp/0...

Edit: for formatting.

Re: Ask HN: What are the must-read books about economics/finance?

#102

If you know Chinese, there is a must read: Economic Explanation(經濟解釋) by Steven Cheung. If you don't, you can read: Economic Explanation: Selected Papers of Steven N.s. Cheung. (Same book name but different content - collection of essays vs a book on theories) Why Steven Cheung? As a close friend to Ronald Coase, he too focuses on empirical research (the real world) rather than blackboard economics (the imaginary wor…

> how empirical work destroys blackboard economics

The value of empirical work hinges on the assumption that the economic environment you're modeling is ergodic, or at the very least stationary AND that you have enough data of good enough quality.

If those conditions are not given, then you need theory. To establish relationships, not just time-series properties, this needs to hold for all variables separately as well as their copula, else you need theory. If one of the ingredients in your model is not observable, you need theory.

I am really tired of all this post-adolescent posturing by "hard scientists" who haven't thought things through. Maybe the relevant distinction is not between "real world" and "imaginary world" but between mirage and best-you-can-do-under-the-circumstances. (Then again, I am a theorist so perhaps I am overly harsh.)

I suggest Polya's Plausible Reasoning [1] as a better guide to "economic epistemology". Maybe look into Rational Belief theory (key reference: M. Kurz's 1994 papers [2,3]) for a "compromise" in modeling. Also, Fischer Black: Estimating Expected Return [4].

_________

[1] https://www.amazon.com/Mathematics-Plausible-Reasoning-Two-V...

[2] http://web.stanford.edu/~mordecai/OnLinePdf/03.OnRBE_ET_1994...

[3] http://link.springer.com/article/10.1007/BF01213817

[4] http://www.cfapubs.org/doi/abs/10.2469/faj.v51.n1.1873

Re: Ask HN: What are the must-read books about economics/finance?

#103

One approach is to go to the MIT OpenCourseWare website, look for the economics department, and look at their reading lists. Of course, that's going to be mostly academic reading (textbooks, etc.). But if you want to learn the basics, it's probably safer to start there than the pop econ books (and I would dispense with most heterodox reading before you're able to assess them within a larger framework). Two good books…

I am very glad this is the top voted answer. Forget investing books and blogs and whatever. All worthless junk. Read the accounting textbooks and figure out valuations. Then you can figure out trading with your stats skills.

A couple of good youtube channels though! Martin Shkreli's channel and Aswath Damodaran.

Then some books might be beneficial to you but you yourself can be the judge of that. Everybody thinks they get finance and economics. They don't.

Re: Ask HN: What are the must-read books about economics/finance?

#104

If you know Chinese, there is a must read: Economic Explanation(經濟解釋) by Steven Cheung. If you don't, you can read: Economic Explanation: Selected Papers of Steven N.s. Cheung. (Same book name but different content - collection of essays vs a book on theories) Why Steven Cheung? As a close friend to Ronald Coase, he too focuses on empirical research (the real world) rather than blackboard economics (the imaginary wor…

Maybe i overread it but The Fable of the Bees is from Bernard Mandeville. https://en.wikipedia.org/wiki/The_Fable_of_the_Bees

My two takes for a good historic understanding of economics are this Books: Economics of Good and Evil, Tomáš Sedláček https://www.amazon.com/Economics-Good-Evil-Economic-Gilgames...

and Schwarzbuch Kapitalismus, Robert Kurz (could't find a English Version) https://www.amazon.com/Schwarzbuch-Kapitalismus-Ein-Abgesang...

Re: Ask HN: What are the must-read books about economics/finance?

#105

Basic Economics by Thomas Sowell is the book that got me interested in economics. It's a large but easy to understand read.

Thomas Sowell books which stay within the boundaries of economics are all excellent and very readable. I also recommend Applied Economics - which is more practical than Basic Economics.

A funny and probably relevant piece from Joel Spolsky:

"Super quick review if you haven't taken any economics courses: econ is one of those fields that starts off with a bang, with many useful theories and facts that make sense, can be proven in the field, etc., and then it's all downhill from there. The useful bang at the beginning is microeconomics, which is the foundation for literally every theory in business that matters. After that things start to deteriorate: you get into Macroeconomics (feel free to skip this if you want) with its interesting theories about things like the relationship of interest rates to unemployment which, er, seem to be disproven more often than they are proven, and after that it just gets worse and worse and a lot of econ majors switch out to Physics, which gets them better Wall Street jobs, anyway. But make sure you take Microeconomics, because you have to know about supply and demand, you have to know about competitive advantage, and you have to understand NPVs and discounting and marginal utility before you'll have any idea why business works the way it does."

http://www.joelonsoftware.com/articles/CollegeAdvice.html

Re: Ask HN: What are the must-read books about economics/finance?

#106

The following list will introduce you to Western Economic Philosophy as it relates to modern history specifically. This list is weighted heavily toward neo-classical economics and does not get into computational model based economics - specifically microeconomics, which comprises the bulk of economics education today: Schumpeter - History of economic analysis Adam Smith - Theory of Moral Sentiments Kaynes - The Gener…

All of those are very dated and you won't learn much about modern economic thought from them. Many of those people (Keynes, Marx, Graham, etc...) are like reading Freud. Very little of what Freud wrote has made into modern psychological though. It is more of his methodical approach that brought psychology into the modern age. The same can be said of many on that list. They brought a rigor of thought to economics that…

All of those are very dated

I think he knows that, since he added a disclaimer right at the top saying these are all heavily weighted towards neoclassical econ (i.e. "modern books" ≠ new books). Which is another way of reminding the reader that they are generally older books.

Re: Ask HN: What are the must-read books about economics/finance?

#107
post #103

One approach is to go to the MIT OpenCourseWare website, look for the economics department, and look at their reading lists. Of course, that's going to be mostly academic reading (textbooks, etc.). But if you want to learn the basics, it's probably safer to start there than the pop econ books (and I would dispense with most heterodox reading before you're able to assess them within a larger framework). Two good books…

I am very glad this is the top voted answer. Forget investing books and blogs and whatever. All worthless junk. Read the accounting textbooks and figure out valuations. Then you can figure out trading with your stats skills. A couple of good youtube channels though! Martin Shkreli's channel and Aswath Damodaran. Then some books might be beneficial to you but you yourself can be the judge of that. Everybody thinks the…

Wait, Martin Shkreli's channel? The guy who's been indicted on securities fraud?

Re: Ask HN: What are the must-read books about economics/finance?

#108
post #6

Economics in One Lesson by Henry Hazlitt Human Action by Ludwig von Mises

These books are just old reactionary propaganda. If that's your thing there's much better reactionary propaganda around.

I wouldn't be so quick to dismiss these if I were you. One needn't be a free-market capitalist, FWIW, to get a lot out of Hazlitt's book in particular. It's very practical.

Re: Ask HN: What are the must-read books about economics/finance?

#109

The following list will introduce you to Western Economic Philosophy as it relates to modern history specifically. This list is weighted heavily toward neo-classical economics and does not get into computational model based economics - specifically microeconomics, which comprises the bulk of economics education today: Schumpeter - History of economic analysis Adam Smith - Theory of Moral Sentiments Kaynes - The Gener…

The similarity between Galbraiths 1929 and what happened in 2008 blew me away.

Re: Ask HN: What are the must-read books about economics/finance?

#110
post #107
post #103

Earlier quoted context omitted.

I am very glad this is the top voted answer. Forget investing books and blogs and whatever. All worthless junk. Read the accounting textbooks and figure out valuations. Then you can figure out trading with your stats skills. A couple of good youtube channels though! Martin Shkreli's channel and Aswath Damodaran. Then some books might be beneficial to you but you yourself can be the judge of that. Everybody thinks the…

Wait, Martin Shkreli's channel? The guy who's been indicted on securities fraud?

Same guy.
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