If you want to understand the behavior of others, including adherence to and deviation from rational axioms, you need game theory. Here is Yale's open course in game theory and it's a good place to start, but it might be difficult if you don't begin with more basic econ.
For more basic things, start with price theory (aka microeconomics). Ignore macro for a while--money and banking is essential, especially if you want to see through silly discussions about monetary policy, but macro models are less important, in my opinion. Here are some texts on the micro front. Alchien and Allen are particularly readable, but somewhat dated. Note that there are basically no high school level economics texts listed there; I am not familiar with a single good high school text either.
You should ignore most popular books like Freakonomics. They are good, but in my experience don't give readers enough of a general idea of the underlying concepts. An exception is Landsburg's The Armchair Economist, which has popularized explanations of utility, opportunity cost, indifference, and efficiency, all of which seem very difficult for the public to grasp.
Likewise don't read "the classics," unless you're specifically studying history of economic thought. Smith, Ricardo, and so on are too much of a chore for material that is thoroughly dated. We know much more now and we know how to say it better.
Some essays are often much better textbook discussions. Here is an example; I would assign that essay for an intro micro class any day.
Edit: I should say "select chapters" of Landsburg's book are good. Some quite miss the point of the arguments he's trying to rebut. It might be hard for a beginner to tell which chapters are which.
I'm flipping through my Alchien and Allen book again and still seems perfectly relevant and mostly accurate. They've got all the theory down pat and explain it fantastically, it's just that it's missing a few more decades of empirical evidence, so every time they say, "X is what we find in the real world," you have to take it with a grain of salt.
Edit again: Durr. I should note I'm looking at the second edition, 1977.
Likewise don't read "the classics,"
Possible exception: "What is Seen, and What Is Not Seen".
For popular accounts, I highly recommend Tim Harford's Undercover Economist. I warn against Landsburg, but what I've read does not include his book.
I'm sorry that I can't find the original article, but it's not that simple. Who's our largest trading partner? Canada. Now, honestly, what does Canada produce that a) we can't make here for the same or lower cost and b) is worth 224 billion dollars? It is vastly more likely that the trade happens simply because shipping is cheap and profit margins outweigh it by enough that Canadian companies will sell inside the U.S.. Ricardian exchange does not represent how we trade, and so arguments from it without deeper analysis, like the one Krugman uses for trade with countries with cheap labor, will not assuredly apply to the real world.
Who's our largest trading partner? Canada. Now, honestly, what does Canada produce that a) we can't make here for the same or lower cost and b) is worth 224 billion dollars?
You're not entirely wrong about that...
Often things are made somewhere simply because that's where they were made in the past, and, as you said, it's easier to ship the goods than to set up shop somewhere else. In the case of trade between the United States and Canada, most of the relevant comparative advantages occur on the level of firms and individuals, not nations.
I agree, but I don't see how that supports free trade in quite the way Krugman used it. When the countries are outwardly similar, the partner's "comparative advantage" is then often an economy of scale, which is a good reason to centralize, or a capital investment, which isn't necessarily. Then free trade is made a bit more transparent and we can start arguing about what we want to maximize - efficiency or [insert metric here].
But sadly, I'm pretty sure that sometimes there's no comparative advantage at all. Sometimes trade is profitable even if you don't have any advantage, so long as the cost of shipping is less than the profit margin at the market price. People are irrational, and squeezing even a little extra profit out of this fact would allow for all sorts of semi-useless trade.
Note that I agree that there is still "ordinary" comparative advantage out there, among this other stuff. But I think that this other stuff, while fairly indifferent to efficiency, can be harmful to [metric of choice] (say, assign negative value to burning fossil fuels).
Sometimes trade is profitable even if you don't have any advantage, so long as the cost of shipping is less than the profit margin at the market price.
If the cost of shipping is less than the profit margin, that means that someone is willing to buy something from you for more than it costs you to make it - which, in an ideal market, is pretty much equivalent to having a comparative advantage. (I think.)
Sometimes. The existing competitors might lose more profit by dropping price to drive out the newcomer than they would by just allowing the competition. This should become more common as the cost of shipping becomes smaller relative to the profit margin.
If by competitive you mean "competition drives down prices as far as they will go," I would disagree that that's how the world works.
I'm not sure I'm afraid. I quite like David Friedman's Intermediate Price Theory, but it's a little less technical than I recall.
Microeconomics
Beginner: Hidden Order: The Economics of Everyday Life by David Friedman.
Intermediate: Intermediate Microeconomics: A Modern Approach by Hal Varian.
Advanced: Microeconomic Analysis by Hal Varian.
Macroeconomics
I would avoid macroeconomics until you grok microeconomics (and maybe even then), but if you must read something, read Macroeconomic Patterns and Stories by Edward Leamer.
I second hidden order as a great introduction to microeconomics. If you're a true beginner, read that first and THEN jump into a textbook with math.
I also second everyone suggesting that you avoid macro for a bit until you understand micro. Macro seems to have much less settled theory than micro.
Varian's Intermediate Microeconomics is good. I haven't read Microeconomic Analysis which is apparently more advanced.
The reason I found Varian useful is that principle is paired with math; fairly rigorously up until the later chapters. I also read Mankiw's Principles of Economics, but you don't finish that book able to do any economic number crunching.
On the math side it's mainly differential calculus and algebra. If you have a base there already I suspect it will actually be easier and quicker to absorb the principles from a text with math - since they derive from it.
I second the suggestion to avoid macro for a long time since there is so very much confused macro writing. It is a field in need of rationalists.
I also used Varian's book for intermediate macro (EDIT: micro), and I thought it was decent.
Me too. I found it to be the finest propaganda I've ever read. (And I mean that as a compliment.) It really did give me a whole new perspective with which to see the world.
Seriously, if you want to learn economics, I highly recommend it.
I'm learning and learning to learn economics too. If they're not a primary source for learning, I still find textbooks useful as references. A detailed table of contents and explanations of each concept can be useful when concepts or explanations are omitted from another source. And, if you don't mind reading textbooks cover-to-cover, they tend to be complete.
Here are some free online economics texts. Other commenters are suggesting micro before macro, so go with that. They should all be useful for optimizing the world in specific ways. Reading the introductions of more advanced texts should tell you about how the field is divided and may guide you to realize what you want to study in particular.
Generally, reading criticisms of other theories will save you a lot of time. It protects you from wasting your time reading those other theories. This site is run the the people who organized the occupy wallstreet protests. There's plenty of criticism. I hear they are coming out with a textbook soon.
If you want to learn some clever and useful ways of economic thinking, I highly recommend "Freakonomics" and "Superfreakonomics," google them for details. They are fun and they figure a lot of unusual stuff out thinking like econmists.
If you want something more orderly, start at the Wikipedia article on economics and keep thrasing around with links from that, including the reference list.
Among the most important principles that may not leap out at you from starting at Economics, I would look at http://en.wikipedia.org/wiki/Comparative_advantage
I'd like to advise some caution of Freakonomics - they set off a BS-detecting heuristic that I learned from a book on the epistemology of aliens and bigfoot... next time I visit my parents I'll have to type up the story for you guys.
Anyhow, the heuristic is this: if the amount of BS you detect is proportional to how well-versed you are in the current topic, it's probably that bad for all topics and you just don't know it. Their chapter on climate science was pretty bad, so I thought about it more critically and noticed a clear case of this in their second book. Not necessarily that bad factually, but similar levels of rigor.
Seconded. The result that made the book popular- abortion reduces crime- was so strongly contested by Steve Sailer (debate here) and others that I'd call it refuted.
In the book, Levitt makes a comment at some point that he wasn't good at the mathematics side of economics, but was great at the unconventional thinking side. That set my alarms blaring, because thinking unconventional things is no credit when you screw up the math. Which Levitt appears to have done at least once.
For the parts of microeconomics and game theory which abut on the decision theory discussed here, I would suggest some of these free online textbooks. Registration required, but is apparently fairly painless - even spam-free.
ETA: One branch of microeconomics that I think is particularly important is "information economics". In the course of Googling to find resources on this topic, I ran into this useful encyclopedia.
Here's what I did, which is all I know how to recommend:
0) Absorb liberalism by osmosis.
1) Learn neoclassical economics - price curves, opportunity cost, many of the basic arguments of politicized economics.
2) Learn how especially the politicized stuff is incomplete (should see it coming if you read LW) - evidence for and basics of Keynesian economics, read economic analyses of past trends (growth of trusts, great depression, WW2, silicon valley, banking crisis), economics of public and common goods.
3) Study the world a bit, try and find out what other countries are doing well and how we can copy them. My one book recommendation: Deep Economy by Bill McKibben - excellent book, even if you partly disagree you will be very glad you read it.
Starting with behavioral economics could be a good place, since the applications to daily life are obvious.
some possible books include:
Predictably irrational by Dan Ariely Why Smart people make Big Money Mistakes - Gary Belsky Nudge - Richard Thaler
I would like to learn more about economics but I don't know where to start. Can lesswrong suggest specific areas of economics that are particularly useful for understanding and optimising the world? Specific suggestions such as reading lists and resources would also be much appreciated.