Wednesday, July 18, 2012

Why Study Economics? - Robert P. Murphy

One reason to study economics is that it’s simply interesting. When you stop and think about what happens every day in a modern economy it should take your breath away. Consider the bustling metropolis of Manhattan: Millions of people work on this tiny island that is less than 23 square miles in land area. Obviously there is not enough food produced on the island itself, to feed these hordes. At first some readers may not understand this claim—some of the finest restaurants in the world are in Manhattan! But these exquisite restaurants rely on vendors to give them the raw materials to produce their very expensive dishes. If invading Martians placed an impenetrable plastic bubble around Manhattan (with small holes in the plastic to allow for ventilation), within two months hundreds of thousands of New Yorkers would be dead from starvation.
Yet in the real world—where no Martian bubble obstructs trade—farm produce, refined gasoline, and other items are shipped into Manhattan on a daily basis, allowing the inhabitants to not only eke out a bare survival, but actually to thrive. The workers on the tiny island of Manhattan transform the materials at their disposal into some of the most highly valued goods and services on the planet—think of the expensive jewelry, clothing, financial services, legal work, and Broadway performances “produced” in Manhattan. When you consider the incredible complexity of these processes, it is a wonder that its operation is normally so flawless that we take it for granted. The lessons in this book will shed some light on how the market economy achieves such feats, day in and day out.
Another reason to study economics is that it will help you make decisions in your personal and professional life. Of course, the lessons in this book will not by themselves make you rich. Rather, they will give you a framework to help analyze your plans so that you are more likely to achieve your objectives. For an analogy, studying geometry alone will not allow you to become a professional engineer, designing four-lane bridges. But nobody would want to drive on a bridge designed by someone who is ignorant of geometry.
Beyond its intrinsic beauty and practical applications to your own life, economics is a crucial topic because we live in a society plagued by an activist government. Unlike other scientific disciplines, the basic truths of economics must be taught to enough people in order to preserve society itself. It really doesn’t matter if the man on the street thinks quantum mechanics is a hoax; the physicists can go on with their research without the approval of the average Joe. But if most people believe that minimum wage laws help the poor, or that low interest rates cure a recession, then the trained economists are helpless to avert the damage that these policies will inflict on society.
For this reason, it is the young adult’s duty to learn basic economics. The lessons in this book will show you how.

Lesson Recap...
This book will teach you to think like an economist. Different subjects (chemistry, biology, etc.) offer different perspectives on the world. Some perspectives are more useful in certain situations than others. Economics is a distinct field, or science, and it has important insights on how the social world works.
Economics is the study of exchanges. In a modern economy, the most familiar exchanges involve money, but economic principles apply to any type of exchange.
Every citizen should understand basic economics because of the danger of destructive government policies that ignore the lessons in this book.

Barter: A situation where people exchange goods and services directly, rather than using money in an intermediary transaction.
Scarcity: The condition of desires exceeding the available resources to satisfy them. Scarcity is a universal fact requiring people to make exchanges.
Tradeoffs: The unfortunate fact (caused by scarcity) that making one choice means that other choices become unavailable.

Can economics make you rich?
Is economics a science? Why or why not?
Does scarcity affect everyone?
Do the laws of economics still work inside a maximum security prison?
*Isn’t it just as important for the average person to understand particle physics, since much of the funding for this research comes from government grants.

Lessons for the Young Economist

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