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Sun Apr 20 21:49:45 2008
Best Books - Economics and Finance
I list my favorite books on economics and finance.

What are my current favorite books on economics and finance?

Money.
Image courtesy of User: Although (wiki)

To make the list, a book had to meet these criteria:

Be interesting to read. This is hard for this subject! I just wanted books that had an engaging style and narrative thread.

Give a solid big picture. Many books in this area are just one recent author's attempt to sell the public on their latest "winning" strategy. (Isn't it funny how for most of these authors the best way to make money is often just to sell books about making money?) I wanted books that would give a coherent overview of how markets worked, so an intelligent reader could figure out strategies on their own.

Be reasonably objective. I wanted books where the author realized that although they were experts, they didn't know everything. Usually good authors compensate by presenting different viewpoints, and clearly separating personal feelings and anecodtes from facts.

So, flipping through my small library, here are my top picks (no particular order):

Personal Finance: Easy, this has to be A Random Walk Down Wall Street by Burton Malkiel. Debunks a lot of the investment myths you hear about. His simple (and very practical) advice on dollar-cost-averaging has gotten me through two boom-bust cycles.

Economics: A favorite is The Worldly Philosophers by Robert Heilbroner. It is a combination of a History of Economics and a primer all in one.

Macroeconomics: I'd pick The World Economy Since the Wars by John Kenneth Galbraith. Maybe an odd choice, since I don't see many other references to it! But I trust very few textbooks on macroeconomics since I don't believe anyone really knows how it works. What I like about Galbraith's book is that it is just him rambling about his experiences and observations during the 20th century. He was not just an observer: he was a participant, and held key posts in the US Government throughout World War II and after. Great book. And speaking of Galbraith, that reminds me of

Busts: One of the most important things you can do, either as an individual investor or the leader of a country or company, is to recognize (and if possible ameliorate) boom/bust cycles. Unfortunately, most of those in charge don't seem to be able to recognize busts until after they've happened. If those in charge can't prevent them, at least a savvy investor can take precautions to limit their exposure. And I know of no better way to recognize these cycles than to study previous ones.

The Great Crash, again by Galbraith, is probably the best such book. It meets all of the criteria, especially readability. Although Galbraith was better known for other books such as The Affluent Society and The New Industrial State, I would not be surprised if The Great Crash became his biggest legacy, if only because it remains timeless, whereas some of his other works were hugely relevant in the 1950s but are less so now.

The other boom/bust book to read is of course Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay, first published in 1841. Not all of it is excellent, but the chapters on The Mississippi Scheme, The South-Sea Bubble, and Tulipomania are stunning. Even in 1841, he was writing about historical events, but those chapters could be from the from the headlines of today. Later chapters on Alchemy, Fortune Tellers, Magnetisers, and so on, just add to the point.

The bottom line: the clever have taken advantage of the foolish for all of recorded history. Hopefully you can avoid being foolish by reading these, and hopefully you have the integrity not to take advantage of those who have not read them.

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