Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt and Stephen J. Dubner - William Morrow, 2005

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven D. Levitt and Stephen J. Dubner - William Morrow, 2005

Twice in the same day a friend has told me that I would enjoy Freakonomics. I was hooked when I read the first sentence in the advertisement: Which is more dangerous, a gun or a swimming pool?

As many of you know, I have often suggested that many things work exactly the opposite of the way most people think they work. Also, people tend to over-estimate the probability of horrific events or results. Thus when the dollar falls relative to foreign currencies, people are frightened into doing the wrong thing at the wrong time.

One of the most common examples of upside down thinking is the effect of increases in short-term interest rates. The belief is that an increase in short rates means long rates will go up. The reality is that an increase in short rates slows the economy thus lowering the probability of an increase in long rates. In an over heated economy, the probability of an increase in long rates and short rates is high but the increase in short rates does not mean that long rates will rise!

I am currently reading an excellent book: The Bottomless Well; The twilight of fuel, the virtue of waste, and why we will never run out of energy. I like to skim books several times without ever actually reading every page. I will skim this one a hundred times because it includes powerful ideas and data I have not seen before. I have written how most folks have little clue in regard to the power of the law of substitution. Few people have any understanding of how the consumer price index can say inflation is 2.7% while the PCED says that inflation is 1.6%. A one percent difference in the inflation rate alters billions of economic decisions.

I am currently also working my way through The Future for Investors. The section about growth will cause me to do independent study in the coming weeks. Somehow, I have to work in a quick read of Freakonomics. Economics is the dismal science and I love it.