Citizens of the greatest economy in the world don’t know economics. This comes at a high price when we’re duped into accepting bad economic policies.
We’re GenBiz because no one is teaching economics
The public school system in the United States fails to communicate economics to the rising generation of citizens, leaving them (and us) financially vulnerable. A study from the St. Louis Federal Reserve showed that though all states have an economics course in their K-12 curriculum, only 16 of those states have any kind of economics standardized test.
Though we’re not huge fans of any kind of standardized test, it’s difficult to assess how students are learning without them. That said, if there is one subject that should have a standardized test, economics is the one. Unfortunately, that’s not the case. Hence, GenBiz.
Having a few economic concepts under your belt helps when trying to sift through the changing economic landscape and the political circus we see in the news. It’s hard to understand the strategy behind the policymaking of the new Trump administration, but by using the economic way of thinking, it’s easier to decipher between good (and bad) policies.
Concepts you should know
- Scarcity — There isn’t enough stuff in the world to satisfy everyone’s wants and needs. This is a fact of life and the fundamental issue behind economics. We are constantly trying to find the best way to allocate and use our limited resources
- Supply and Demand — A natural way of allocating and using our limited resources is through markets and prices. When the price of something goes up, people buy less of it. That’s demand. Conversely, producers want to produce more of that something. That’s supply. These opposing forces are what naturally determine the “market price” of stuff. If we place controls or mandates on prices, we don’t allow the natural price mechanism to work itself out, distorting supply and demand and ignoring scarcity.
- Opportunity Costs — Every activity we decide to partake in has a cost. Literally everything. To illustrate, a four-year degree costs around $40,000. But, if I can make $40,000 per year mowing lawns (my dream job), which doesn’t require a college education, then the cost of going to school is actually much higher.
Going to school would cost the listed price of $40,000 plus the $160,000 I could have made in the four years I went to college. We can also include the forgone job experience, the value of doing anything else other than studying, and so on. Yep, a college degree is actually much more expensive than just the sticker price. Because of the hidden nature of the opportunity costs, we often overlook them when making decisions.
- Comparative Advantage — Produce things that have the lowest opportunity cost to produce; leave the rest to others. That’s having a comparative advantage. This doesn’t necessarily mean to be the best at producing the thing. The United States is arguably the best at producing most of the stuff in the world, yet we still import and outsource a whole bunch of the stuff we consume.
Trump ran a campaign promising to bring all the jobs back to the U.S. He warned Ford that he would place a 35 percent tax on cars sent to the U.S. from a plant in Mexico. He pledged to “get Apple to start building their damn computers and things in this country.” Though noble, this completely ignores comparative advantage and will end up making the stuff we consume more expensive in the long-run.
- Incentives Matter — This is the most important concept people forget about. Simply put, when the cost of an activity increases, or the benefits fall, we are less likely to engage in the activity. For example, by making people pay fines for speeding, you increase the cost of that activity. However, costs are often subjective because opportunity costs are specific to each individual’s own circumstance. Every single person, including the compassionate politician and the “greedy” CEO are shaped by incentives. Having a clear understanding of the incentives at play when decisions are being made allows everything in the world to make sense.
Takeaway
These boring concepts taught by boring teachers in boring electives are arguably some of the most important concepts to internalize as humans. Every action or decision we make has an underlying economic implication. The same goes for policies that are spewed by politicians on both sides of the aisle. Don’t get swindled into believing in backward policies because of your lackluster knowledge in economics.
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