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Introduction
T
alking about the wisdom of economists in polite company is like talking about the honesty of politicians or the lips of chickens. Yet in the face of this prejudice, I maintain that economics has useful lessons for understanding the world. My wife says I hold this belief because I am an evangelist, with economics as my religion. Perhaps so, but I have also been asked many times, by many people—at venues as diverse as conferences and cocktail parties—to recommend “just one book” that explains economics. These people aren’t looking for a treatise on the beauty of the free market, or for a lecture on the need for government regulation. They have their own views on politics and policy, but they are self-aware enough to recognize that at least some of their views are built on a shaky or nonexistent understanding of economics. I can sympathize. There are dozens of books out there on economics—freaky and otherwise—but I’m hard-pressed to point to a readable non-textbook that would give a soup-to-nuts understanding of the key principles of economics. I hope that the book you’re reading will impart a working understanding of both micro- and macroeconomics, not enough to prepare you for setting up your own economic forecasting business, but enough that you can read and speak about economics topics with greater confidence and conviction.
I know what you’re thinking. You’re wondering if I’m out to push a certain set of economic policies, and if so, whose side of the political fence I’m on. Such skepticism is understandable, but here’s the honest truth: If you’re wondering whether this book’s contents are slanted toward liberal or conservative economic policy—or toward the Democratic or Republican Party—the short answer is
no
. Professional economists of all political leanings use the tools and concepts I will discuss here. Economics is not a set of answers, but a structured framework for pursuing those answers. For example, we can divide the study of economics into two big chunks—microeconomics and macroeconomics. Microeconomics is the view of the individual actors, whereas macroeconomics takes an overall view of the economy. To refer to an old but apt metaphor, macroeconomics is looking at the forest and microeconomics is looking at individual trees. The trick is to build up an overall understanding that encompasses both the forest and the trees. The first eighteen chapters of this book are largely devoted to building up a microeconomic understanding of the economy. To begin, I’ll discuss how markets work in the context of goods, labor, and financial capital. Then I’ll broaden the lens to discuss situations in which unregulated markets may run into issues, including monopoly and lack of competition; pollution and environmental harms; lack of sufficient support for new technology, innovation, and infrastructure; persistent or rising levels of poverty and inequality; and dysfunctional insurance markets. Each of these issues provides a potential rationale for government action, but to temper such enthusiasms, the final chapter of the microeconomics discussion is a reminder of the possibilities that democratic government can also fail when seeking to address these issues. In the second half of the book, I’ll tackle topics in macroeconomics, including economic growth, unemployment, inflation, international trade, and monetary and fiscal policy.
Whatever your beliefs about the respective roles of markets and government, I hope this book will challenge them. I hope it will also give you language and structure for articulating your beliefs more clearly and for becoming a more sophisticated participant in the economic disputes of our time.
