Monday, April 30, 2007

Understanding Economics

Understanding economics is essential to be able to understand politics. Economics makes it possible to not only understand reality, but also predict the consequences of a potential policy.

Economics is not hard to understand when presented properly. Most of what the average citizen needs to know is contained in this series.

Incentives
This is the key concept in economics. Analyzing incentives is a powerful tool to predict the consequences of actions.

Value
Economic value is subjective. People value things differently. Trade establishes a market value. Value does not depend on cost of production.

Money
Money is a good used as a store of value. It several desirable qualities. Increasing the money supply, which is called inflation, reduces the value of the money already in existence.

Prices
In the free market, prices reflect reality. Price controls lead to shortages or surpluses.

Property
Private property rights are essential for economic growth. Collective and government ownership are wasteful.

Profits
Profits reward behavior that serves consumers well. Losses penalize such behavior.

Growth
Economic growth happens because of increases in productivity driven due to new technology. Investment, not spending, is essential to growth.

Competition
Competition benefits consumers by promoting the creation of better, cheaper products. Government-enforced monopolies hurt consumers.

Trade
Trade benefits both parties and is essential to both parties. It sometimes has negative political effects. "Free trade agreements" contain government regulations.

Resources:
Basic Economics by Thomas Sowell
Applied Economics by Thomas Sowell
Economics in One Lesson by Henry Hazlitt

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