Economics 101

Economics quick links:

• Economics prints, photos, and posters.
• Economics books.
• Economics DVDs.

So-called "theories of economics" such as Keynesian "economics" assume you can boost an economy by draining it of capital. Here's an experiment. Grab an empty plastic jug and fill it with water. Note the water level, in fact mark it with a marking pen. Now, drain off some of that water and measure the level again. Did it go up or down? Now you understand why government "stimulus" retards the economy.

Economics is really the study of allocation of resources. You need to understand this is a zero sum game, except when wealth is created. The theory of infinite supply does not even pass the smell test. All resources are limited. Allocation of those resources, then, becomes a trade-off between opportunities not taken and the choices you make with the resources under your control.

So when government reallocates resources, it's diverting them from uses that many individuals would have decided upon (such as companies deciding to hire employees) to some other use decided upon by a few people in a bureaucracy or, more often, a political spoils arrangement. Typically, that use is a wealth transfer to an individual party such as Goldman Sachs. In other words, it's theft.

Much of what is touted as "economic policy" in the USA assumes the government creates wealth (by definition, governments do not do this; they govern), that you can create something from nothing, and that you can spend the same $10 bill ten times to pay a $100 tab. This is all nonsense, of course. But the lunacy is couched in strange terminology such that the stupidity is not exposed to the light of day. Another problem is the "economists for hire" who will spew any number of lies to justify some scheme or another (Alan Greenspan, for example, assured the nation that derivatives were safe and should not be regulated--only weeks before the 2008 financial meltdown).

If you want to understand economics, then, you need to understand a few concepts such as:

• Wealth. This is the body of all products, services, and possessions of value.
• Resources. These are products, services, and materials that can be used for a purpose--productive or otherwise. Resources can be hoarded, invested, or squandered.
• Market. This term has many meanings, but most of those center on the concept of two parties entering into an exchange of goods and/or services.
• Money. A medium used for the exchange of goods or services.
• Currency. A flexible type of money that can grow or shrink as needed to maintain (or abuse) monetary value relative to the basket of goods and services.
• Inflation. When the supply of money grows faster than the supply of goods and services, you have inflation. The currency is debased proportionate to the change. Because propagandists have abused this word to mean "price increases," economists now call it "monetary inflation." It's actually a stealth tax, and it's one of the largest federal taxes Americans pay.

When people speak of "the economy," they often don't know to what they are referring. Similarly, when people say "the stock market" (there are dozens of stock markets in the world), they are clueless as to what they actually mean. In both cases, it's a way of making noise instead of speaking knowledgably. There are many economies, including local economies, national economies, the world economy, and underground economies.

Economics is pretty much common sense. The complex theories that get trotted out are seldom based in reality. If you can view economic pronouncements through the lens of common sense, you can avoid being duped into accepting propaganda as fact. Here are some questions to ask:

• Where will the money to pay for this come from?
• How will the costs be allocated?
• What are the other uses this money could have been put to (economists call this "opportunity costs")?
• What other uses would people make, if given this choice personally with their own funds?
• Is this function the proper role of government, and if so where is the authorization?
• What about the commons?

This last question brings us to another aspect of economics. The "commons" is something worth studying all on its own. Property rights advocates sometimes forget that one person's liberty infringes on another person's liberty. That why, for example, it's illegal for you to dump toxic waste into a river (but if you're GE, you can dump toxic waste in the Hudson because the government officials on your payroll are economically better off by accepting your bribes and turning a blind eye to the crime).

The commons includes areas that are common to all (or most) of the people. Things like water rights, clean air, and uncontaminated soil are often mentioned when economists try to teach on this subject. Things that are "commons" need to be regulated by a third party (government), not individuals.

Where did this concept of the commons get started? One explanation is sheep farmers had unlimited grazing rights. Their sheep began to overgraze. But for an individual farmer to cut back, he'd suffer a loss. So all of the farmers kept their flocks overgrazing until the common pasture was destroyed.

We see this same pattern repeating in many other areas of society today. It's tricky ground, legally and in other ways. There's not a big sign saying, "This border marks the commons." The situation often must be determined in court.

As you continue your study of economics, keep in mind this concept of the commons and of the other bulleted points mentioned above. Don't fall for facetious arguments, non-sequitors, and statements based on the infinite supply theory.