Now maybe this was starting to sound really good until we mentioned the word "economics." After all, economics doesn't enjoy the best of reputations. In what other field can two people be awarded Nobel Prizes for saying the opposite things? George Bernard Shaw proclaimed, with characteristic wit, that "if you placed all the economists in the world from end to end they wouldn't reach a conclusion." Economists are frequently the butt of derisive jokes and clever putdowns. (Our personal favorite: "Economists are people who didn't have the personality to be accountants.") Well, what can we say? Economics does have a bad reputation, and economists haven't always helped.
And that's too bad. Because few would deny the importance of economics. Look at the front page of your daily newspaper. Economic growth, federal spending, international trade, unemployment, and environmental issues consistently fill up the column inches. On every issue there is a cacophony of arguments that try and explain why one policy is good and another is bad. The person who is able to understand economics is in a unique position to sift through these arguments and objectively evaluate the merits of conflicting policy positions.
But perhaps economics has always been a subject that put you to sleep. There is a general perception that economics is about things like economic efficiency, benefit-cost analysis, capital investment, and marginal tax rates. Don't be fooled. Economics is a much broader subject than the dry statistics and complicated terms that those bland talking-heads on television would lead you to believe. You see, economics is bigger than interest rates. Its bigger than the money supply. Its bigger than the GDP (the gross domestic product). It's even bigger than the federal deficit! As important as these are, they are not the main issues. They are the potatoes, not the meat.
First and foremost, economics is about the quality of life experienced by ordinary people. It is about having a society that produces things like multimedia personal computers, blockbuster movies, hot dance clubs, and enough leisure time to be able to enjoy these things. It is about having health care, education, and a warm bed to sleep in at night. It's about having enough prosperity so that parents can provide the basic necessities for their children, and still have enough left over for a family vacation. In short, it is about the ability of the citizens of a nation to enjoy the highest quality of life that is humanly possible given the technology and resources at their disposal. The person who understands economics understands more than the latest news story on unemployment or corporate earnings. The person who understands economics has insight into the process of wealth creation that makes it possible for us to afford all those things that make our lives enjoyable and satisfying.
It might surprise you to know that there is a simple formula, a single recipe if you will, for understanding economics. We would be lying if we said that it didn't require some exercising of the brain. But it's not rocket science. Free trade, the balanced budget amendment, the spotted owl, child care, and military spending--believe it or not, all of these seemingly different issues can be understood using one, straightforward framework. We like to think of it as the unifying field theory of economics. Only there is no need for any higher level mathematics, algebra, or even graphical analysis. That is what you will learn from this book. By the time you finish reading this you will be a bona fide expert on all economic topics imaginable. And it will not be because you are smart (though you might be), or because you have done a lot of research (because you probably don't have time). It is because you will have mastered an incredibly fruitful way of thinking.
You are probably thinking this is too good to be true. How can we promise to teach you a simple system of economic thinking when so many people disagree about economics? This leads us to a great insight about the nature of economics itself. While it is true that economics is relatively easy to understand, it also relatively easy to screw up. Of course, there are legitimate reasons why well-informed, reasonable people disagree about economic policies. You will learn these reasons in this book. Nevertheless, it is our judgement that most disagreements about economic policies have their source in incorrect economic thinking.
Henry Hazlitt began his classic work on economics by writing "Economics is haunted by more fallacies than any other study known to man."1 Those words were penned in the 1940s. They are just as true today. Economics does seem to attract a disproportionate number of bad ideas. Fortunately, these bad ideas often stem from common errors that are easily identified...and corrected. In this book we will not only discuss how to think correctly about economics, we will also point out some fundamental mistakes that cause people to get tripped up when they think about economic subjects.
One thing you should know before you read any further. There are times when this book will infuriate you. You will become frustrated with our simplistic analysis and feel as if we have ignored some obvious criticisms. Let us encourage you...hang in there! While our framework ends up being a simple one, it does require a lot of separate pieces to make it work. In particular, before we can address the major objections to the "free market" approach to organizing economies, we need to fully understand what makes unregulated markets so attractive. Only then will we be in a position to appreciate the relevant criticisms. So please be patient with us. The last section of this book is specifically designed to address the major criticisms of unregulated markets. It is our experience that most people find that their objections get addressed in this section, if not earlier.
Why should you read this book? Because this book will teach you the economic way of thinking. You will be amazed by how different the world looks once you learn to view it through "economic glasses." By understanding the principles in this book, you will be able to confront and deflate a vast array of economic fallacies. You will be able to point out the economic blunders of your favorite, nightly newsperson. You will dazzle your friends and associates with your insightful comments on current events. You will be a hit at cocktail parties.
CONTINUE
ON TO THE NEXT CHAPTER
Notes
1 Henry Hazlitt. Economics
In One Lesson. New York: Crown Publishers, Inc., 1979, page 9.