What Is Economics Whether one is a conservative or a...

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What Is Economics? Whether one is a conservative or a radical, a protectionist or a free trader, a cosmopolitan or a nationalist, a churchman or a heathen, it is useful to know the causes and consequences of economic phenomena. George J. Stigler Understanding most of the economic issues discussed in the media and in politics requires knowledge of only the most basic principles of economics----and yet these principles are unknown to most of the public, and are widely ignored by politicians and journalists, and even by many scholars outside the field of economics. Principles of economics apply around the world and have applied over thousands of years of recorded history. They apply in many very different kinds of economies---capitalist, socialist, feudal, or whatever---and among a wide variety of peoples, cultures, and governments. Policies which led to rising price levels under Alexander the Great have led to rising price levels in America, thousands of years later. Rent control laws have led to a very similar set of consequences in Cairo, Hong Kong, Stockholm, Melbourne, and New York. So have similar agricultural policies in India and in the European Union countries. Differences in economic practices from one country to another are also revealing. There were economic reasons why manufacturing enterprises in the days of the Soviet Union kept almost enough inventory on hand to last a year, while inventories of supplies in some Japanese companies like Toyota are only enough to last a matter of hours, with new parts and equipment arriving at the factory at various times during the day, to be unloaded from trucks and installed immediately on cars as they are being assembled. Both of these very different inventory policies had a rational basis, given the very different kinds of economic systems in which they existed. Economics is more than just a way to see patterns or to unravel puzzling anomalies. Its fundamental concern is with the material standard of living of society as a whole and how that is affected by particular decisions made by individuals and institutions. One of the ways of doing this is to look at economic policies and economic systems in terms of the incentives they create, rather than simply the goals they pursue. This means that consequences matter more than intentions---and not just the immediate consequences, but also the longer run repercussions of decisions, policies , and institutions. Nothing is easier than to have good intentions but, without an understanding of how an economy works, good intentions can lead to disastrous consequences for a whole nation. Many, if not most, economic disastrous have been a result of policies intended to be beneficial—and these disasters could often have been prevented if those who originated and supported such policies had understood economics.
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