8 Truths About The Economy That Everyone Should Know
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?
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..."
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
Stays The Same
Stays The Same
Stays The Same
Stays The Same
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.
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...
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