The Most Important Lesson Of Economics

Economics is a broad and vast field comprising intricate areas that would take years to master. This makes it very hard to summarise or reduce it to a simple point. However, if there was one simple lesson that I wished everyone knew about economics, one easy sentence or sound bite that could explain the essential core to people who know nothing else about economics, it would be: “My spending is your income”. This simple point, properly understood, explains everything you need to know about the important policy issues of the economy. It doesn’t explain everything, but it explains the important parts.

My Spending Is Your Income

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It’s Expensive To Be Poor

Being poor is expensive. Not only do you have less money to get by with but everything also costs more. The secret to getting rich is in economies of scale and bulk buying, something the poor simply can’t afford. As they’re stuck trying to make ends meet day-to-day, they can’t invest in the future and so are stuck with false economies that cost them more in the long run. This is the source of the counter-intuitive saying that “You have to be rich to be poor.”

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In The Right Place At The Right Time

A while ago I read Outliers by Malcolm Gladwell. It is a book about very successful people and tries to find out what makes them so special. Surprisingly, he does not conclude that it is due to superior skill or talent. In fact he argues that there is no such thing as natural talent, rather all skill derives from practice. Instead it is luck that allows people to achieve enormous success. People become successful because they were in the right place at the right time. Continue reading “In The Right Place At The Right Time”

Rich Get Richer – Poor Get Poorer

It is often claimed that this recession is hitting all of us. It is said that the rich suffer just as much as anyone else, if not more. It is argued that we all must make a sacrifice as we are all in this together. However this simply isn’t true. In fact this crisis is resulting in even further increases in the gap between rich and poor. Inequality and poverty are rising to even higher heights. Austerity is making the poor suffer the most while leaving the rich untouched. Quite simply the rich are getting richer while the poor are getting poorer. Continue reading “Rich Get Richer – Poor Get Poorer”

How Rich Countries Got Rich . . . And Why Poor Countries Stay Poor

I have just finished reading How Rich Countries Got Rich . . . And Why Poor Countries Stay Poor by Erik Reinert. The book is interesting for it engages what should be the main question of economics, why are some countries rich and other countries poor? This crucial question is woefully under researched and barely discussed in mainstream economics. I have completed two years of economics study in university without yet having heard an explanation for this phenomenon.

Reinert’s main argument is that the wealth of a nation is based upon the economic activities it specialises in. Poor countries are poor because they specialise in agriculture and the production of raw materials. This is an economic dead end as it does not allow for increases in productivity or innovation, which is how countries get rich. On the other hand, rich countries got rich by industrialising and building up a manufacturing base. Continue reading “How Rich Countries Got Rich . . . And Why Poor Countries Stay Poor”