Charles Wheelan: Naked Money (2017)

For many years, Tim Harford's The Undercover Economist and its sequel, The Undercover Economist Strikes Back, were my favorite go-to books when I wanted to remind myself of the basics behind some current economic phenomena. My only formal education in the field was a 2-semester, 4 hours per week, economics course at university, which taught me exactly a handful of primary school-level equations with acronyms whose meanings I didn't know even during the exams I passed. (I don't want to be unduly harsh to those professors, so hanging them for wasting hundreds of thousands of hours of young lives I wouldn't recommend. Just fire them ceremoniously.)

 

And then I stumbled upon a contender that matches the Harford books' wit and readability. Charles Wheelan is a public policy wonk and a journalist-cum-academic, which is the best combination for writing a book on difficult subjects for laymen. He has the catchy style of a columnist and the knowledge of a professor. In just a couple of hours, he manages to explain the fundamentals of the modern financial world, wide enough to cover almost all the big topics and still keeping it simple enough not to lose the curious, but not particularly gifted reader.

Wheelan starts the book by explaining the fundamentals of money and the banking system with the hypothetical tale of a village populated by rice-farmers who replace barter with the common currency of bags of rice. That part alone deserves a post sometime, somewhere. Then he leads the reader through the evolution of money from commodity money to fiat currency. In the middle of that journey, he expounds the advantages and potentially disastrous drawbacks of the intermediate step, the gold standard. 

Inflation, the bane of money, gets a thorough examination. What it is, what it should be, how it is measured, why it is sometimes a good thing, and why rising prices are actually much less bad than falling ones (deflation). 

After having seen the basics, the reader is thrown into the real world of multiple currencies to get a crash course in floating, bounded, and pegged exchange rates, purchasing power parities, and currency manipulators. Taking a real-life example where the choice of currency has had fundamental political and economical implications, Wheelan examines whether the Eurozone actually satisfies the requirements for a common currency (not really). Finally, he ponders whether bitcoin is money after all (it is, but not a very good one) and whether it will ever replace fiat money (no). 

The recurring characters of the book are Wheelan's favorite heroes of our world, the central banks. He spends a substantial part of the book explaining what their purpose is, what tools they have to keep the economy afloat - and what monetary policy is to start with.

Every topic is introduced or supported by historical examples and anecdotes (or simply, jokes). Wheelan tells the story of the chaotic monetary history of the US with competing banks and currencies coming and going with fortunes of flesh-and-blood people. He explains how the gold standard created the Great Depression from an "ordinary" recession. How the lessons learned there led to the first and last collective international currency exchange regime at Breton Woods, and how that ended thirty years later with Nixon's immortal words: "The foreigners are out to screw us. We should screw them first." How the rule of Keynesian economics came to an end with stagflation of the seventies when inflation (and unemployment) raged until Paul Volcker came and deliberately pushed the US into recession (twice) to stop it. How George Soros made $1bn a day by betting against the British government's resolve and helped the world move towards floating exchange rates. Who were the main actors and bad incentives that replaced the era of Great Moderation - when macroeconomists and central bankers thought they already had it all figured out - with the Great Recession, and how the FED led by a Great Depression-scholar saved the day - or has it? Lastly, he examines the historically unique phenomenon of a poor country financing a rich one, and ponders the surprisingly difficult question of who is the sucker in this game, China or America.

Surprisingly for an information-heavy book on a subject that most people consider both boring and impenetrable, this is a fun read. All it demands is a little interest in the topic and then the style and the content do the rest. Wheelan must be one of the very few people fascinated by the topic of public policy, but he has the talent to make more of them.