Economics for physicists

April 24, 2010 8:20 AM

Can anyone recommend a book which explains the basics of economic theory in a way accessible to physicists/mathematicians?

I have a background in physics, and would like to get a decent understanding of the basic mechanisms in economics, but it seems that most books on this subject argue in a very qualitative way, assuming that you already are comfortable with various facts about how the economic world works. I need something that builds the subject up from the ground up and explains it logically, preferably not a massive university textbook - more like a primer for the uninitiated. Anyone know of such a book?

A book like Keynes "general theory of employment interest and money" seems impenetrable, and I wonder if it has been boiled to a chapter of equations presented in a sensible way.

posted by snoktruix to Science & Nature (14 answers total)

The Price of Everything by Russ Roberts is a pretty good basic microeconomics book. It's more right-leaning, free-market extolling, but it explains microecon concepts pretty well. It's also a pretty quick read, aimed at lay-people, so it's a good introduction.
posted by asras at 8:51 AM on April 24, 2010

This is a very interesting question.

I would read this paper for starters.

I would also read the Misbehavior of Markets by Mandelbrot, and Fooled by Randomness by Taleb.
posted by dfriedman at 8:51 AM on April 24, 2010

Oh, and I should add, learning the difference between micro- and macro-economics would be helpful so you could figure out which you want to learn more about. Micro has to do with individual parts of an economy (the market for a single good, for example), as well as the behavior of individuals. Macro looks at economic activity as a whole (the whole economy of the United States, for example) and examines issues such as recessions, inflations, GDP, prices, unemployment, international trade, and so on. It's good to learn a bit of both since they have many of the same basic concepts, but then you can choose to study either one in depth.
posted by asras at 8:56 AM on April 24, 2010

A good free economics book is Economics with Calculus by Michael C. Lovell.

I don't think knowledge of physics will give you any significant head start on economics; they are quite different subjects (not counting things like "econophysics" that explicitly exploit similarities between certain physical and economic systems). The only advantage physics provides is that you already know plenty of math.
posted by k. at 8:59 AM on April 24, 2010

I am a physicist and have been trekking this path since October of 2008. I do not believe there is a good answer to your question. The go-to freshman economics textbook is "Economic Way of Thinking" by Heyne, Boettke, and Prychitko. It is not bad. The equations are mostly in there although it does have an enormous amount of text such as you are complaining about. I bought a used tenth edition for six dollars. An interesting short article was in The New York Times Sunday Magazine a few months ago: "How did the Economists get it (the fall 2008 credit crunch) all wrong?" Well they did not all get it all wrong. Schiller did not get it wrong. Taleb did not get it wrong. The Economists that Krugman pays attention to got it all wrong.

The most informative comment I have seen in all my research was a throw away line on Scott Sumner's "The Money Illusion" blog. He stated there is no correlation between economics expertise and investment success. This is how Economics got dubbed the dismal science.

One contrarian Economist I have found very illuminating is Deidre McCloskey. Her stuff was almost all available free on her website the last time I looked. She is very skeptical at any quantitative work that goes beyond the simplest of models. I like this question very much and look forward to the other answers contributed.
posted by bukvich at 9:03 AM on April 24, 2010

I'm not an economist, but I've read a fair amount in econ and have an engineering background. The problem with just a chapter of equations in econ is that there are a lot of qualitative aspects to economics (cf. Behavioral economics). The straight math of it would be more like mathematical finance, which is different in itself. Economics is inherently somewhat subjective and not absolutely predictable mathematically (otherwise, someone would have gotten very rich off the magic formal, instead of bankrupting themselves and nearly the western economy). I'm working on Keynes right now, it's slow going but interesting. The first econ book I read though was Naked Economics. It is exactly a primer for the uninitiated and assumes little. It explains basic concepts of why free markets are competitive, what free trade is, how inflation hurts and helps, and why the stock market is difficult to master. There's no math (close to an econ 101 course), but it does explain the basic mechanisms in economics very well.
posted by mnemonic at 9:20 AM on April 24, 2010

It's not economics per se, but econometrics, but I found it an interesting and approachable read on the kinds of research problems (some) economists deal with and how they go about it:

Mostly Harmless Econometrics: An Empiricist's Companion
posted by needled at 9:21 AM on April 24, 2010

Not quite a chapter of equations, but a short and accessible introduction to economics:
Economics: A Very Short Introduction.
posted by needled at 9:30 AM on April 24, 2010

It's not exactly what you're looking for, but you still might find Robert Heilbroner's The Worldly Philosophers worthwhile for a quick background of the players and the lay of the land. It doesn't really get into the math, but it does do a really good job of explaining how these ideas developed.
posted by tellumo at 9:37 AM on April 24, 2010

Thanks for the suggestions so far.

I guess I was looking for something that explains the key concepts using the "simplest possible" models. However, it may be the case in economics that either the concept is not translatable into an appropriate simple model that captures the phenomena (as the paper linked by dfriedman suggests), or that a simple model would be pointless because the idea is well expressed in words and it wouldn't be helpful to translate it into mathematics.

So perhaps a book like Sowell's Basic Economics is the best bet for a conceptual understanding with the minimum words.

I'm certainly not looking for tomes on decision/game theory or mathematical finance.
posted by snoktruix at 9:41 AM on April 24, 2010

However, it may be the case in economics that either the concept is not translatable into an appropriate simple model that captures the phenomena (as the paper linked by dfriedman suggests)

Yeah, that's really the key to the article I linked to. I think, but I don't have any evidence for this contention, that most honest economists would acknowledge the paper's underlying thesis. But I don't think they know how to answer the questions the paper poses.
posted by dfriedman at 9:58 AM on April 24, 2010

Security Analysis is more of an investing/corporate finance book, but you might find the mathier approach more interesting. In reference to recent banking and stockmarket problems, this might provide a better primer for how investments are valued.

Freakonomics might also be a good start to understanding some of the linkages that occur, although the supporting math really isn't disclosed in the book.

Your physics background will help greatly once you dive into the math part of things. Most equations are for theoretical purposes really, it's not like you can actually calculate a precise result that will compare to reality because every economic equation assumes everything else stays constant.
posted by dripdripdrop at 11:00 AM on April 24, 2010

I guess I was looking for something that explains the key concepts using the "simplest possible" models.

I think you should look for a textbook on microeconomics 101, since by definition it's looking at smaller economic transactions. I know they're big and long, but you don't have to read all of it to get an understanding; they're written to satisfy the needs of a broad audience who may want a deeper look at specific topics. Generally the first half of the textbook is relevant. The standard textbook judging by number of amazon reviews is Microeconomics by Robert Pindyck, and Daniel Rubinfeld. In the first sixty pages they start from first principles of scarcity and cover markets and supply and demand. Comparing the TOC of Pindyck and Rubinfeld to Sobin's they seem roughly the same content and length, and I'm hardly in a position to be recommending textbooks.

There's also macroeconomics, but the reasoning there is both hard to follow and basically scientifically untestable, dealing with the aggregate economics of nations and societies. As asras's Russ Roberts puts it, there's a lot of "post-hoc storytelling" focused around major events, but you can't exactly put a duplicate nation as a scientific control. (Ironically, the book linked to is itself anecdotal storytelling!)This is what Keynes wrote about, and the standard textbook is from Mankiw (former white house economic advisor), who wikipedia claims is a New Keynesian.

But here's the rub: Keynes wrote before the 'econometric' revolution that started taking mathematics seriously. Some of the above links claim it's value is overstated (too "autistic", or too simplified), but without it you've got even less. Macroeconomics theory comes and goes. Going back to Smith or Keynes would be like reading Aristotle's physics teachings. Plus, think of all the financial innovations and changes to the world since Keynes wrote: credit cards, credit reporting bureaus, the internet, adjustable rate mortgages, securitization and credit default swaps, baby boomers and the fall of communism.
posted by pwnguin at 11:33 AM on April 24, 2010

Note that the aforementioned Russ Roberts has a long-running podcast series on economics called EconTalk, which can be enlightening, though perhaps more time consuming than reading a book. You can take a look at the podcast archives for, say, the theory of markets for a verbal exploration of the economic way of thinking. The interviews with Mike Munger are particularly wide ranging, and there's a discussion of the book The Price of Everything that asras mentioned in the first response.
posted by chengjih at 4:12 AM on April 26, 2010