‘How an Economy Grows and Why It Crashes’ by Peter D. Schiff and his brother Andrew J. Schiff is a book that I thoroughly enjoyed reading. I read it while driving to the snow at Perisher (south of Sydney). To be honest, it was a great way to kill a few of the 8 long hours of driving when I was cramped up in the car.
Although I originally read it for no other reason than to pass the time, I would recommend it to anyone who has an interest in the economy and is wondering why the US economy crashed as dramatically as it did. Oh, and there’s many lessons for those of us who live outside the US as well. It was an easy read, light hearted and at some points even humorous, something I didn’t expect from a book on economics.
Haven’t You Heard Enough About Recession and Financial Crisis?
Yes, but not like this. Peter Schiff is President and Chief Global Strategist of Euro Pacific Capital Inc. and is a candidate to become a US Senator in 2010. He, on numerous occasions, predicted the GFC on live television and was laughed at. He is the co-author of ‘How An Economy Grows And Why It Crashes’ as well as ‘Crash Proof 2.0’.
Over the last two years the media has focused on the recovery from the GFC and not the causes. This book focuses on the cause and the solution of the economic downturn. It shows how the government’s solution will put the US (and all the nations that follow the US) in the same position as before the crash because the same types of economists who failed to see the storm on the horizon are still at the helm.
This is why reading this book opened my eyes to the fact that the fundamental principles that the American government’s economic strategy is based on is so blatantly wrong.
Peter Schiff’s inspiration and base for writing the book actually comes from a book that his father, Irwin Schiff, wrote entitled, ‘How An Economy Grows And Why It Doesn’t.’ So, thirty years later the book was revised and updated to address the current economic woes, while still holding on to the same principles of the original book.
Something Fishy in our Economies?
The book approaches the subject of the American economy crash through the use of analogy. The story is told of three men on an island that have to catch one fish a day, using only their hands to survive. The story then progresses to an island so complex that it has a government with numerous institutions and a trade deficit.
When I first started reading the book I thought that the authors could have jumped in at a more advanced level but as I continued I realised that the simplistic opening few chapters were necessary to illustrate the fundamental principles that an economy is based on. I’d hazard to guess that most people wouldn’t have a clue how economies work. So it meant that I, a reader with only a basic knowledge of how an economy works, could understand the more complex principles that were to come, as well as appreciate the unfortunate mistakes that numerous governments are making.
I thought that this book was excellent; I would have no problem recommending it to my friends and family. This book has opened my eyes to the massive blunders evident in economic policies that I previously would have supported. I encourage you to read it too.
Tom Becker is a personal finance writer at
I haven’t read this book, but I like the fact it sounds like it starts off quite simply – its sometimes better to use an analogy and it sounds like it used to demonstrate the fact that the economy of the US (and a number of economies of other so called world leading nations) is built on such a fragile and from a long-term perspective floored structure. I would be interested to know if the book gives recommendations or comes to specific conclusions?
You should buy the book – I recommend it! The book concludes with the eventual downfall of the Usonians (America) and the rise to power of the Sinopians (China and other developing world countries). By printing money to get out of debt, countries can clear staggering amounts of debt but destroy the value of their currency. The reason why the United States has not seen hyperinflation yet, like we saw with Zimbabwe, is because the US dollar is the world reserve currency. Once the world realizes that the American dollar is worthless, foreign countries will strip America of its capital assets by buying them all with the American dollars that they accumulated over the years, flooding the American economy producing hyperinflation and sending America into a deep and severe recession. This is the worst case scenario put forward.
The final lines of the story illustrate this quite humorously with Senator Ocuda saying “Does anybody here remember how to make a net? I think its time we all went fishing”
I just finished “the general theory of interest and employment” by Keynes. It’s the book that established the theory that the bailout package was based on. He talks about deficite spending to get out of economic cycles and his famous “glass pyramid” analogy. Keynes other contribution was “dropping interest rates to maintain booms” which is what Greenspan did that he’s coping a lot of flack over.
I’d be interested to read a book that argues against Keynes point given that they’re taken as gospel now and are well quite compelling