Why it’s important to understand economics.
First, watch this short video:
Mostly from article: Why it's Important to Understand Economics
William Walstad, University of Nebraska , December 1, 1998
George Stigler, a Nobel Laureate in economics, probably stated it best almost three decades ago when he wrote:
"The public has chosen to speak and vote on economic problems, so the only open question is how intelligently it speaks and votes."
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In Stigler's view, economic literacy is special because it contributes to two classes of knowledge.
#1 First, it serves as a "means of communication among people, incorporating a basic vocabulary or logic so frequently encountered the knowledge should be possessed by everyone."
#2 Second, it is a "type of fundamental knowledge frequently needed and yet not susceptible to easy transmission from experts."
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Re #1 Economic literacy and communication.
People like to think and talk about the economic issues that affect them as consumers, workers, producers, investors, citizens and in other roles they assume over a lifetime.
Economic literacy gives people the tools for understanding their economic world and how to interpret events that will either directly or indirectly affect them.
Nations benefit from having an economically literate population because it improves the public's ability to comprehend and evaluate critical issues, in both the short run and long run.
This understanding is especially important in democracies that rely on the active support and involvement of its citizens.
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Re #2 Fundamental knowledge is frequently needed.
For some economic decisions, such as buying a home or investing in the stock market, it is possible to hire professional or technical help when making a choice.
But in most cases it is neither economical nor practical for an individual to hire a skilled professional every time an economic decision needs to be made.
Even when such advice is given, the final choice must be made by the individual, not the adviser.
What this means is each person must ultimately serve as his or her own economist in making many economic choices.
This is whether those choices involve buying a product, getting a loan, voting on candidates and economic issues, and many more.
Economic literacy improves the competence of each individual for making personal and social decisions about the multitude of economic issues encountered over a lifetime.
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However, whether there is a case for economic literacy is not the most important question that needs to be answered.
The more essential question to be asked is: How can we improve economic literacy in our society?
Answering that question naturally turns the focus to economic education.
The development of economic literacy must begin in the schools.
Even young children are capable of learning basic economic concepts that help them understand their economic world.
In the secondary years, that initial foundation can be expanded to include instruction in a broader set of economic ideas and concepts.
This additional education gives students greater capacity to understand more complex personal or national economic issues.
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Given the situation of fewer than half of high school graduates take a course in economics it should not be surprising many studies show there is widespread economic illiteracy among youth and the American public.
In one such study covering basic economic concepts administered to 11th and 12th grade students nationwide and found students supplied correct answers to less than half the questions.
The question that can be asked at this point in the discussion is "So what?" Why does it matter whether a student has taken an economics course or knows something about basic economic concepts?
The answer is economic knowledge has a direct and substantive effect on people's opinions about economic issues.
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The development of basic economic literacy is an important goal for a democratic society that relies heavily on informed citizenry and personal economic decision-making.
To achieve that goal will require the significant gaps in the economic education of youth be closed by giving economics a more central place in the school curriculum.
More economics coursework at the precollege level sets a foundation for economic literacy.
(end of article section)
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Re the scarcity problem discussed in the video:
As the economy grows, caused by increasing business profits, more products are developed, then improved and prices are lowered, all due to the profit motive and competition.
As a result of business profits our living standards increase, each generation lives better than the previous one.
Intergenerational large improvements in living standards did not begin until the 1800s as wealth-increase capitalism replaced wealth-horde mercantilism, see Figure 1 and Figure 2.
Among these products are time-saving devices and services including household appliances and instant access to information, helping alleviate the time scarcity problem.
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How do business profits grow the economy and improve living standards?
For example, inputs into a business cost $100, mostly wages for workers.
The product created from those inputs sells for $110.
Where the economy had $100 of wealth before, it now has $110.
Where the economy had 100 businesses it now has 110.
Where the economy had 100 employees it now has 110.
Where the workers made $100 before they now make $110.
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