Free Lunch - Easily Digestible Economics by David Smith

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Free Lunch - Easily Digestible Economics by David Smith

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Category: Business and Finance
Rating: 4/5
Reviewer: Chris Bradshaw
Reviewed by Chris Bradshaw
Summary: Eyes glaze over when the likes of Robert Peston start talking about quantitative easing or credit default swaps on the news? David Smith's jargon free guide to economics keeps things simple and is a fine primer to firm up your knowledge on the so-called dismal science.
Buy? Yes Borrow? Yes
Pages: 357 Date: August 2012
Publisher: Profile Books
ISBN: 9781781250112

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Reading David Smith's new book Free Lunch brought to mind an episode of the Freakonomics podcast broadcast earlier this year. In it, listeners were first asked to imagine that the interest rate on their bank account was 1% per year and the rate of inflation was 2% per year. In a year's time would they be able to buy more, buy about the same or buy less using money from that account?

Second, they were asked to imagine that they had $100 in a savings account at an interest rate of 2%. If they left the money to grow at that rate for five years would they end up with more than $102, exactly $102 or less than $102? A study by America academics found that only 50% of respondents managed to get the answer to both questions right. A surprisingly low number you may think given that the questions were fairly basic.

While not specifically aimed at improving the personal finances of readers, Free Lunch aims to give a grounding in basic economic literacy missing in the Freakonomics examples, both in theory and in practice. Smith aims to make readers a bit more informed when the likes of Robert Peston starts talking about ECB bailout funds, the UK current account deficit or the value of the pound in their pocket and by and large he succeeds.

As befits a journalist rather than an academic (the author is the economics editor at the Sunday Times) Smith offers clear, jargon free explanations, whether it is covering the basics of supply and demand and the power of incentives or the complexity of quantitative easing. Split into easily digestible chunks, Free Lunch covers a whole range of themes and concepts on both the micro (small) and macro (large) level (yes, it really is that basic at times). Why is the Bank of England's target for inflation set at 2%? Is there an optimal rate of taxation? What do economists mean when they talk of globalisation? Why do house prices go up and down? What does the Euro crisis mean for the British economy? All are covered in varying degrees of depth offering a novice reader enough to become better informed.

Smith no doubt has his own preferences when it comes to economic theory but mostly keeps them to himself and the book is all the better for that. The starter, appetiser, main format works well most of the time with a nice change of pace provided by brief biographical portraits of a number of history's most influential economists from Adam Smith and his invisible hand to Marx, Keynes, the Chicago and Austrian schools.

The original edition of Free Lunch was published before the great financial of 2008 and though the new updated version does offer some explanations into the causes and severity of the global meltdown it is only a cursory inspection. Readers wanting a basic guide to the recent calamities would be better served with The Big Short by Michael Lewis

Keeping with the meal inspired title, Free Lunch has no Michelin pretensions. Smith has produced something that is simple, hearty and tasty. Think of a well cooked steak rather than a concoction of jus, drizzle and foam. The subtitle of Free Lunch is Easily Digestible Economics and Smith has succeeded in offering just that. And the answer to the original questions? You'd be able to buy less in question 1 and you'd have more than £102 in question 2.

If this book appeals then you might also enjoy The Big Short by Michael Lewis.

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