Basic economic understanding is sorely lacking in the general population. Seeing that a significant number of people have a very lackadaisical attitude towards money, which causes them to drastically overspend, it is little surprise that the disastrous monetary policies of much of the world’s countries are similarly misguided. The underlying theme seems to be that money you do not own but frivolously spend in the present leads to much greater fulfillment than saving up and spending only money that you have earned. It is bizarre on an individual level. The same is happening on the governmental level.
Irresponsibility, lack of accountability, and cronyism are to blame for harebrained financial decisions. You can find many technical analyses for why the fiscal policy of, for instance, the United States, or the European Union are disastrous. What is not so easily available are books that convey in simple terms why the singularly misguided economic theories of John Maynard Keynes are so disastrous. In that regard, the short and entertaining book How an Economy Grows and Why It Crashes by Peter and Andrew Schiff comes in handy. It appeals to common sense by describing a simple economy and how it functions.
Their allegory of a small island state serves to illustrate why the common distinction between microeconomics and macroeconomics obfuscates more than it illuminates. In fact, obfuscation is arguably the main but unstated aim of academic economics. While reality is not quite as simple as this books portrays it, the main message is clear: you cannot negate basic economic reality via economic trickery.
A core theme of this book centers around the temptations of inflationary monetary policy, and their subsequent disasters. Two such examples are the dot-com bubble as well as the subsequent housing bubble. The book also draws attention to the educational bubble. It ends with a dark prophecy of that island state going bankrupt, drawing parallels between the United States and China, which holds the bulk of US treasury notes.
The key message is that the crash is inevitable. One omission of How an Economy Grows and Why It Crashes is that the government has more tools at its disposal to temporarily stave off the inevitable collapse. For instance, while pension obligations and Medicare expenses are mentioned as examples of costs that the government will not be able to meet, which is a conclusion you can arrive at with only a rudimentary grasp on statistics, it is not the case that those obligations are fixed. You could just do what countries like Germany do: increase the retirement age. When a state pension was first introduced, in Prussia in the 19th century, if I recall correctly, the age at which you were eligible was so high that only a small percentage of the population would ever reach it. Thus, this solves the problem, albeit it is not much of a solution as it simply reveals that social security is a ginormous scam.
I warmly recommend How an Economy Grows and Why It Crashes to anybody who wants to improve his financial literacy. If you have been trained in economics and believe that Keynes is the way to go, you are probably a lost case, but maybe this book helps you to understand why Keynes is a quack. He reminds me of Karl Marx and socialism: his theories have never worked in practice, yet that only seems to make his followers defend him ever more feverishly.