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8 Truths About The Economy That Everyone Should Know

Updated on May 21, 2014

I’ve always tried, with my writing, to make Economics something that everyone can understand, because I firmly believe that Economics is one of, if not the most, important things people can study- not because of the dollars and cents, but because it teaches us so much about ourselves, and human nature in general.

In order to teach economics, the first thing we need to do is correct some of the misconceptions you may have picked up over the years; as Yoda would say: “you must unlearn what you have learned”, so that’s exactly what we’re going to do today. In this article, I’m going to help you get past some of those misconceptions by covering 8 truths about the Economy that everyone should know.

These are in no particular order.

1. The Economy Is Not A “Thing”

The way most people talk about the Economy, you might think it’s a big computer somewhere, beeping and whirring all day long, spitting out long tickertapes of numbers. The truth is, the Economy isn’t a “thing” at all, the Economy is you… and me, and your neighbors, your mailman, your butcher- pretty much everyone you know. The Economy is people.

Economics is nothing more than the study of choices; specifically, it’s the study of how we choose to spend what we have to get the things we need/want. That’s it, that’s all Economics is: the study of how we make decisions.

Now I know some of you are asking “why is how we make decisions important”? It’s simple, because as Shakespeare wrote: “What’s past is prologue”, meaning that the best way to predict what choices we’ll make in the future, is to understand the choices we’ve made in the past.

Who Do You Think Is More Accurate: An Economist, a Doctor, or a Meteorologist?

See results

2. Economists Have More In Common With Meteorologists Than We Do With Doctors.

Now I know some of you are confused by this, so let me explain. Like Economists, both Meteorologists and Doctors collect and review data to get an accurate picture of what’s actually going on in any given situation: Doctors take X-Rays, run labs, and do all sorts of tests to figure out what’s wrong with their patients, just like Meteorologists take samples and readings to get an accurate view of what’s going on with the weather. The difference is in what comes next, once the data is collected.

Doctors come up with a treatment plan- they might prescribe medication, or perform surgery, or do any number of things to try to improve the patient’s condition. Meteorologists and Good Economists take their collected data and use it to build models and make predictions about the future- they don’t attempt to “fix” things (I’ll talk more about this later), they simply report on how things are, and how they’re likely to be in the future.

"One Law To Rule Them All..."

Source: I_Believe_, CC:BY, via Flickr
Source: I_Believe_, CC:BY, via Flickr

3. Supply & Demand Is The “One Ring” Of Economic Laws: It Rules Them All.

As I’ve written about previously (and extensively), Supply & Demand is the bedrock upon which Economics is built- it’s the one fundamental law that governs every other aspect of the Economy. Everything that happens in the Economy, without exception, can be traced back to Supply & Demand. If you wanted to put it another way, Economics is really just the study of the relationship between Supply & Demand.

Prices, wages, interest rates, inflation, jobs, the movies you watch, the food you eat, the music you listen to, the clothes you wear- absolutely, positively everything, can be traced back to Supply & Demand. Some of our biggest Economic problems come when we either ignore (the Great Depression), or attempt to circumvent (the Great Recession) this law.

The Essence Of Supply & Demand

Supply
Demand
Price
Increases
Stays The Same
Decreases
Decreases
Stays The Same
Increases
Stays The Same
Increases
Increases
Stays The Same
Decreases
Decreases

4. Being Selfish Is Actually A Good Thing.

By being selfish, I mean prioritizing one’s own self-interests ahead of any other concern. The father of modern Economics, Adam Smith, taught us that:

“It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest”

Businesses exist to make money for their owners, and that’s the only reason they exist; any business that doesn’t exist to make money, isn’t a business, it’s a charity. To put it another way, you go to work every day to make money to serve your own self-interests, if you weren’t interested in serving your own self-interests, then you’d work for free, and you wouldn’t be an employee, you’d be a volunteer.

Now some people might think that this all sounds a little cold-hearted, but it’s not- not even a little. Doctors open their practices to make money, by doing so, they provide a valuable service to the community; it’s the same with grocers, tailors, and any other business: they serve their own interests by making money for their owners, but they also serve the interests of the community by fulfilling a specific need. It’s a win-win scenario.

Source: Chris Potter, CC:BY, via Flickr
Source: Chris Potter, CC:BY, via Flickr

5. Recessions Are Not Always A Bad Thing.

This one always freaks people out, hearing an Economist say that recessions aren’t always bad. Think of a recession like a fever when you’re sick: it’s unpleasant, and no one likes having one, but it serves an important purpose, and prevents a greater illness. It’s the same thing with a recession.

A recession is an indicator that there is something wrong, somewhere in the Economy, something that needs to be corrected (sound familiar); that’s what a recession does. The big problems come when someone **cough**thegovernemnt**cough** tries to “fight” a recession by manipulating the market. Now this isn’t to say that there aren’t times when you do need to intervene, but most recessions would be far less painful in the long run, if they were allowed to serve their purpose and correct problems in the Economy.

6. Debt & Credit Are Only Tools.

Far too many people have no idea what debt and credit are, and as such, they have no idea how to make educated decisions when choosing how to best use these Economic tools. For too many families in America today, the words Credit and Debt are interchangeable, that causes big problems… very big problems.

There are certainly times when Credit and Debt are not only good options, they’re the best option. It’s important though to be able to recognize the difference between those times, and times when Credit and Debt can destroy your finances. This is something I plan to go over in much greater detail in a future article.

A Little Economic Humor From Jay Leno

7. It's Not All About The Benjamins

What if I told you that the most valuable resource we study in Economics isn't money. It's not gold, or silver, or any other precious metal; and it's definitely not Diamonds or rare gems. The most valuable resource we study in Economics... is time. Time is the most valuable because it's the one resource that everyone has, but they only have a limited supply, and that limit is unknown.

When you're born, you're essentially given a debit card from the Universe: you get 24 hours to spend each day as you see fit, but there is a set limit, and once you hit it, you're done... literally. That's why Economics is as much a study of time management as it is anything else, because time is the one resource that you can't beg for, borrow, or steal: you get what you get, and that's it.

Nope, Not Even Him...

Source: Maryland GovPics, CC:BY, via Flickr
Source: Maryland GovPics, CC:BY, via Flickr

8. No one can “fix” the Economy

If you only remember one thing from any of my articles, please let this be it, because it’s the most important thing anyone can ever learn about the Economy: no one- not me, or you, or any Economist, or Banker, certainly no Politician, not Congress, not even the President, can ever, in any way, “fix the Economy”.

Remember earlier when I told you that the Economy isn’t a “thing”, well this is why that’s so important to understand. The best- the absolute best that you can hope for, when you start trying to manipulate the Economy, the best possible result is that you don’t make things any worse; there is nothing, and I mean nothing that anyone can do to ever improve the Economy: that must, must, must happen organically.

The Economy is 1,000 times smarter than the smartest Economist out there, and it does not like to be messed with. Anything that you do to the Economy, must be balanced out somewhere, there are no exceptions. Now Politicians (and more than a few “Economists) like to give the illusion that they’re influencing the Economy, but that’s all it is… an illusion. It’s no more real than when David Copperfield made the Statue of Liberty “disappear”.

© 2014 Shawn McIntyre

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  • Chinaimport profile image

    Kamal Mohta 3 years ago from Guangzhou

    Interesting hub! I liked the way you have drawn parallel between economists and meteorologists, both doing post facto analysis based on limited data available to them. I would look forward to your hub on credit & debts.

    Giving you thumbs up and following you on hubpage from now on.

  • Shawn McIntyre profile image
    Author

    Shawn McIntyre 3 years ago from Orlando, FL.

    @Chinaimport Thanks for taking the time to read my article, I'm glad you enjoyed it.

    Yeah, I think there is a pretty pervasive misconception about what Economists can and (more importantly) can't do. A lot of that comes from Politicians and Econometricians, who are trying to forward their specific agenda, passing off their opinions as Economic fact.

  • savvydating profile image

    savvydating 3 years ago

    You never disappoint, Shawn. Your articles are wonderful... so very useful and informative. I can't say enough good things about your writing style. Also, at what point does an organic economy need to be interfered with and how--generally speaking? If you don't mind, which of your articles best answers my question?

    Up and interesting.

  • Shawn McIntyre profile image
    Author

    Shawn McIntyre 3 years ago from Orlando, FL.

    @savvydating Thanks for taking the time to read my article, it's always nice to hear that someone actually enjoyed my writing.

    That's an excellent question, and one that I don't believe I've covered in an article (Note to Self: Cover that in an article). The Federal Government should basically set the ground rules, and then stay out of the way; the Economy will take care of the Economy, it always has, and it always will. Every time the Government gets involved, bad things happen: minor corrections turn into Recessions, and Recessions turn into Depressions.

  • savvydating profile image

    savvydating 3 years ago

    Thanks, Shawn. I'll be back.

  • heidithorne profile image

    Heidi Thorne 3 years ago from Chicago Area

    Oh, Shawn, another stellar hub on the realities of economics! I have to laugh when people believe the myth that any politician can "fix" anything with the economy. Sorry, it's not possible in our complex economic structures. Wish you could have been teaching some of the economic classes I had to go through! Would have been much more enlightening. Good stuff as always. Voted up and sharing!

  • Shawn McIntyre profile image
    Author

    Shawn McIntyre 3 years ago from Orlando, FL.

    @heidithorne I'm glad you enjoyed the article, always nice to hear from you.

    The biggest problem with Economics is that so many of our truths are counterintuitive, whereas the myths seem like common sense. Politicians (and more than a few Economists) exploit this to make really bad decisions seem like great Economics.

  • Usemybee profile image

    Jozef 3 years ago from Slovenia

    Everything is good for something.

  • Shawn McIntyre profile image
    Author

    Shawn McIntyre 3 years ago from Orlando, FL.

    @Usemybee Thanks for taking the time to read my article,

  • profile image

    brandon tart 2 years ago

    Needed! Necessary! Nuanced! Great hub, sir!

  • heidithorne profile image

    Heidi Thorne 2 years ago from Chicago Area

    So, SO well deserved Hub of the Day Award! Always love your econ posts, Shawn. Congrats and keep the good stuff coming!

  • starstream profile image

    Dreamer at heart 2 years ago from Northern California

    Thanks for writing this hub. It seems like whenever we focus on the fun and games of the day instead of planning for our economic future then we so easily get into wasting money. Our media promotes way too much materialism on ads in America.

  • Nadine May profile image

    Nadine May 2 years ago from Cape Town, Western Cape, South Africa

    Shawn your hub reminds me of THE POWER BEHIND WORDS and the meanings given to them by clever marketers. Your topic on Economics reminds me only of the corruption due to pure greed and the need people have for power over others through using the structure of economy as I understand it to be. There is dishonesty on how 'MONEY' is actually created into existence, not to mention the usury by banks for charging interest on promissary notes.

    You wrote: - the most valuable resource we study in Economics isn't money. It's not gold, or silver, or any other precious metal; and it's definitely not Diamonds or rare gems. - ( I do agree. Money is NOT backed up by these resources like they were in Roman times) It’s created into existence by the Federal Reserve!

    You wrote: - The most valuable resource we study in Economics... is time.

    Indeed that is true. The labour of millions of people who get paid peanuts for their TIME! This global kind of Economy is indeed thriving, but it harms a lot of people.

    My perception or understanding about the word Economy - which I see as a form of exchange between people’s skills and talents, has become a toxic poison that has gripped our planet. The Power of Words you have used in your hub has been a stumbling block for me.

  • profile image

    cjbehr 2 years ago

    Congratulations on HOTD! Very easy to understand, timely article.

  • cperuzzi profile image

    Christopher Peruzzi 2 years ago from Freehold, NJ

    Congrats on the HOTD!

    Just remember: If you took all the economists in the world and lined them up end to end, they'd all point in different directions.

  • John Sarkis profile image

    John Sarkis 2 years ago from Los Angeles, CA

    Interesting Hub. Congrats on winning HOTD!

    You did a good job discussing "capitalism," but I didn't see where you discussed other economic systems e.g., communism, socialism, monarchy, etc., Can we expect a future article on these economic systems?

    Take care

    John

  • Jackie Lynnley profile image

    Jackie Lynnley 2 years ago from The Beautiful South

    No one can do anything about the economy? There is no use for anyone to even try? Never heard of such a notion! Well don't think anyone needs to worry that anyone will try, do we?

  • RTalloni profile image

    RTalloni 2 years ago from the short journey

    Congrats on your Hub of the Day award for this thoughtful post.

  • Shawn McIntyre profile image
    Author

    Shawn McIntyre 2 years ago from Orlando, FL.

    @RTalloni, @cjbehr, @brandon tart,

    Thank you all for stopping by and taking the time to read my article. =)

  • Shawn McIntyre profile image
    Author

    Shawn McIntyre 2 years ago from Orlando, FL.

    @Jackie Lynnley

    As I said in the article, the Economy isn't a "thing" so there's nothing there to actually "fix". If your car breaks down, you can take it to a mechanic and they can work on things to try and get it running again, with the Economy, since it's made up of people interacting with each other, there's nothing to "work on". All we can do is set the right conditions and hope for the best.

  • Shawn McIntyre profile image
    Author

    Shawn McIntyre 2 years ago from Orlando, FL.

    @John Sarkis Thanks for taking the time to read my article. =)

    There is definitely a "Capitalist-y" feel to the article, but the main focus is on the Economics behind it. The same principals that I discuss here would apply to communism, socialism, and monarchies, just in different ways. It's hard to discuss those various systems without it taking a much more political slant, and I'm just a numbers guy, I try to stay out of politics as much as possible.

  • Shawn McIntyre profile image
    Author

    Shawn McIntyre 2 years ago from Orlando, FL.

    @cperuzzi lol,

    Here's a little Economist Humor:

    Q: Why did God create economists?

    A: In order to make weather forecasters look good.

  • Shawn McIntyre profile image
    Author

    Shawn McIntyre 2 years ago from Orlando, FL.

    @heidithorne Thank you very much. It's always nice to know that someone actually reads my madness, lol.

  • secularist10 profile image

    secularist10 2 years ago from New York City

    Shawn:

    Congratulations on being featured. I like your writing style, it's very clear, straightforward and to-the-point. I think you make some good points in this article. I like #1, #2, #3 (supply and demand), your point about recessions.

    I do want to qualify the issue of selfishness: on some level, selfishness is useful in business. However, as a small business person I can tell you (and this is especially true these days with the way our economy and consumer culture are going), most business people who lack the desire to truly serve their customer will fail in the long run. Business is as much about giving as it is about receiving, in most industries.

    The big mistake you make is here:

    "there is nothing, and I mean nothing that anyone can do to ever improve the Economy"

    Unfortunately, you are way off the mark.

    Governments can and have had a powerful impact on the fates of economies. I'm sure you would agree governments can screw things up royally, right? Well, if they can screw things up, that means they can also go in the other direction and help it.

    There are countless examples in history of governments facilitating growth and prosperity. The history of the US alone is a prime example. I wrote a series of hubs on this topic, which I can provide links to if you are interested.

  • Shawn McIntyre profile image
    Author

    Shawn McIntyre 2 years ago from Orlando, FL.

    @secularist10 Thanks for readin my article, I sincerely appreciate you taking time out of your day to do so. =)

    Quote: "Unfortunately, you are way off the mark."

    Believe me, I truly wish I were, but hundreds of years of evidence has shown otherwise. Governments simply do not have the capacity to alter the natural forces that drive the market, no one does.

    Quote: "Governments can and have had a powerful impact on the fates of economies. I'm sure you would agree governments can screw things up royally, right? Well, if they can screw things up, that means they can also go in the other direction and help it."

    The capacity for destruction is easy, the ability to "undo" that destruction is another matter; it's not nearly as easy to "un-break an egg". Economics is no different.

    Like Physics, there are basic laws that govern the Economy (chief among them being supply & demand), and they are immutable. Governments influence the Economy by trying to manipulate those laws, and while it doesn't always end in total disaster, the results are never "net gain".

    Quote: "There are countless examples in history of governments facilitating growth and prosperity. The history of the US alone is a prime example. I wrote a series of hubs on this topic, which I can provide links to if you are interested."

    I think it's a great idea. Write a "Second Opinions" type section and include your links and I'd be happy to add it to this article. I think it would be of great value to my readers.

  • My Esoteric profile image

    My Esoteric 2 years ago from Keystone Heights, FL

    Yes, interesting article, but I have to go along with @seculurist to some degree.

    From roughly 1770 to 1933, with minor exceptions the federal government neither used monetary nor fiscal policies to any great degree to effect the economy; essentially, the economy ran free-wheeling. The federal government did promote business, however, via the legal system by working against State and labor efforts to control abuse of labor which has a significant impact on the mechanics of the economy.

    Nor, did the federal government, during the same period, provide any relief to the American citizenry who suffered through the major financially-based recessions, depressions, and panics that occurred roughly every six year. This doesn't count the minor recessions and recessions or depressions that happened for other reasons, like war.

    In short, the American economy was racked by frequent and terrible boom-bust cycles for over 160 years.

    Beginning in 1933 until 2001, the federal government became actively involved in both fiscal and monetary policy and effectively put control mechanisms in the economic process. The result was a complete halt to the boom-bust cycle of the previous 160 years. Those were replaced by a series of minor, manageable recessions which occurred around every 9 - 10 years. In 2001, the final controls were removed or not applied which led to the first major recession and near depression, save for the reapplication of those controls, in 70 years.

    It is that history that makes me doubt your assertion that "Governments do not have the capacity to alter the natural forces that drive the market." History shows governments clearly do, either by action, or in the case of the first 160 years of our history, lack of action.

  • Shawn McIntyre profile image
    Author

    Shawn McIntyre 2 years ago from Orlando, FL.

    @My Esoteric Thanks for stopping by, always nice to see a fellow Floridian here on HubPages.

    This is a fairly popular response, and one deserving of a more comprehensive reply than is possible here in a comment. The short answer is: the Economic situation we're in now is a direct result of, both the Federal Government, and the Fed's policies since the end of WWII and it is hard to find any measurable standard by which you could judge the current situation as "good". I'm sure I don't need to go down the laundry list of economic challenges we're facing at the moment.

    To put it simply, starting with the establishment of the Fed in 1913, through FDR and the "New Deal", through the Stagflation of the 70s, the "trickle down" '80s, or the sowing the seeds of the Great Recession in the '90s, Government has proven time and time again that even its "biggest wins" have disastrous consequences down the road.

  • secularist10 profile image

    secularist10 2 years ago from New York City

    Shawn:

    As you know, we are talking about human beings, not inanimate objects. So there may be general patterns to human behavior, but we cannot talk about ironclad laws that are "always" true.

    In the physical world, there are no exceptions to anything. In the economic world, there are ALWAYS exceptions. The most self-interested, selfish S.O.B. will still, at the end of the day, put his kid's health above his own and make sacrifices accordingly. And those sacrifices will affect the economy.

    Governments have contributed to economic growth in many ways over the centuries, and continue to do so.

    Governments generally do stuff that is essential to private economic activity, but which few or no private actors are willing or able to do.

    Examples include universal education, infrastructure (railroads, ports, airports, etc), pollution controls, banking regulations, minting and controlling the currency, healthcare and healthcare regulations, and food regulations.

    These are all things that private businessmen and investors either cannot do because they are not profitable, or for which the ultimate payoff is so far off (50 or 100 years later) that it makes no sense from an individual investor's point of view to pursue them.

    In addition, measures like protectionism and subsidization can have positive or detrimental effects, depending on the circumstances.

    Here is my series of hubs on the economic history of several countries (these are old hubs, from several years ago if I remember, but still quite relevant!):

    First the US (this one is fairly short):

    https://hubpages.com/politics/Capitalism-Myth-and-...

    The United Kingdom:

    https://hubpages.com/politics/Capitalism-Myth-and-...

    Hong Kong, South Korea and Singapore:

    https://hubpages.com/politics/Capitalism-Myth-and-...

    And Japan:

    https://hubpages.com/politics/Capitalism-Myth-and-...

    I've also written hubs about economic myths in general, some of which are relevant here, but that's another discussion.

  • My Esoteric profile image

    My Esoteric 2 years ago from Keystone Heights, FL

    4th paragraph: Basic R&D, for example. the short term bottom line self-interest drove private business from providing around 70 - 80% of basic R&D in 19th and early 20th centuries down to around 30% today.

  • My Esoteric profile image

    My Esoteric 2 years ago from Keystone Heights, FL

    I am happy to stop by and read good hubs like this. It does seem a lot of Floridians take up Hubpages judging from who reads me.

    I guess I have to take the opposite view on what has happened since 1913. As I cover in https://hubpages.com/politics/A-Short-History-of-S... Parts 1 and 2, the 20 or so financially-based major recessions prior to 1933 had four things in common:

    1. No or "asleep-at-the-wheel" Federal Reserve

    2. Little or no Federal or State regulation of financial institutions or enforcement of existing regulations

    3. An asset or assets, in some cases, that was prime for speculation

    4. Easy credit which allowed rampant speculation to create an asset bubble or bubbles.

    All four of those were also present in the Great Recession of 2008. The first two of the four, however, were missing from 1950 through 2000 which is one of the primary reasons there were no major recessions during that 50 period; the first time America has gone that long without at least two major recessions, one of which was probably a depression.

    To me, that is very hard to explain away.

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