The foundations of economics
UK Prime Minister Margaret Thatcher once defended her economic policies by saying “there is no alternative”. And in a field as enigmatic as economics, a lot of people simply accepted that as fact. But the Iron Lady’s understanding was perhaps a tad rusty – there are in fact loads of alternative ways to interpret economics. It’s a field that’s been filled with lively debate from the beginning and – luckily for us – there’s no signs of that slowing down anytime soon. Let’s enter the ring.
What is economics? Economists love debating what economics is almost as much as they love debating economics itself – they just really, really love talking... Some will tell you that it’s the study of rational choice, i.e. how individuals make decisions. But that’s a bit broad. We prefer the definition from economist Ha-Joon Chang: economics is the study of the economy (lesson #1: a lot of economics is stating the obvious 🙃).
That still covers a lot of bases. The money in your pocket, the jobs you apply for, the complex web of international trade that resulted in you reading this on your smartphone… all these fall under the economic umbrella.
Governments and central banks have control over these things through policies like minimum wages, taxation, and spending. And depending on their preferred economic theories, they might implement different policies. Examples include hands-off conservative approaches, or full-on communism that abolishes private property.
Why do I need to know this? The decisions made by people in power directly affect you. Economics seeps into every aspect of your daily life: from the price you pay for groceries to how easy it is for you to find a job. And seeing as there are multiple ways to skin an economic cat, each way will impact you differently.
If you live in a democratic country, you probably have some kind of say in its economic policies. Different political candidates may support different economic theories. In the upcoming 2020 US presidential election, the diversity of economic opinion is staggering. By understanding the different theories, you can make an informed decision when you vote – picking the candidate and theory that appeal to you the most.
In this Pack, we’ll take a look at the big economic theories you need to know about, ranging from Milton Friedman’s hands-off economy all the way to Bernie Sanders’ MMT. But first, hold onto your kilts – let’s take a trip to 18th-century Scotland.
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