[READ DOWNLOAD] Understandable Economics: Because Understanding Our Economy Is Easier Than You

2. Understandable Economics: Because Understanding Our Economy Is Easier Than You Think and More Important Than You Know To live in a just and productive society, we ALL must understand the economy. I believe that if more of us were armed with a better understanding of how the economy works, more constructive solutions for the problems we face would be implemented and we would finally see the economy improve for the average person. Whether your own goal is to change the world, to better evaluate candidates for public office, or simply to be better informed, my hope is that this book will help you assess what is possible and inspire you to make our nation more equitable and productive. As people often correctly say, democracy is not a spectator sport. Its health depends upon the participation of well-informed people like yourself. Part I: The Economic System In order to start understanding the economy, we need to begin with the most fundamental economic questions: Who gets what? and Who does what? Today, with so much stuff to allocate (such as cars, phones, college educations, and books on economics) and so many things to do (such as building cars, assembling phones, teaching, and writing books on economics), countless decisions have to be made. How can we make these decisions? Part II: People One of the most fundamental relationships in economics is the one between what people spend and what people earn. Every economics textbook has an equation with several different variables to show this relationship in a formal way. In my opinion, this equation, like so many others that appear in books on economics, doesn’t

3. aid (and may actually diminish) most people’s understanding. The key to understanding what’s going on in the world is to focus on what’s going on in the world. Part III: Business What’s important to understand is that the many buyers and sellers in the market nudge the value of corporate shares (as well as every other asset, for that matter) to a value that reflects a general consensus, however imperfect, as to its value. Some people may think they can outsmart the market and identify instances where the market got the face value wrong and profit when the market corrects itself. But they are the exception. Consistently outsmarting the many analysts and investors carefully assessing the value of a share is a trick that is rarely successful. Part IV: The Economic Cycle Generally, a “recession” is defined as a decline in output (in other words, the GDP) for two consecutive calendar quarters. So, if output drops from the last calendar quarter and this happens again in the next calendar quarter, the economy is usually viewed as being in a recession. The term “depression” doesn’t have a widely accepted definition like the term “recession,” but it generally refers to a particularly severe recession. How severe? In the last hundred years, only the “Great Depression” that occurred in the 1930s is consistently referred to as a depression. Part V: The Government Policies that have the potential to achieve our goal of greater equity and productivity fall into two categories. The first is policies that enable people to earn more money from their work (as well as to have work to start with), which are discussed in this chapter. The second is policies that alter the distribution of income through taxes, spending, and transfers, which are discussed in the next chapter.

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