Will someone teach me the basics of economics?

[Spark]

I am very eager to take a Macro course which will probably be next year.

[Blue3]

People have limited resources. (supply)
People have unlimited wants. (demand)
This is the problem of Scarcity.
It means we must make Choices.
The social science of Economics is dedicated to how we make choices under these conditions.

A few other basics: the smaller the supply of something, the more scarce something is, and that usually makes it more valuable.

Economic policy is divided into 3 parts
 1. Fiscal policy (the budget, controlled by Congress)
 2. Monetary policy (the currency, controlled by the Federal Reserve)
 3. Trade policy (controlled by Congress, free trade versus tariffs)

There are two main schools of economic thought in the United States:
1. Classical economic theory
2. Keynesian economic theory

A brief history of economic theories:
I. Mercantilism (1492-1776)
II. Classical Economic Theory (1776-1929)
III. The Fall of Classical Economic Theory, the Rise of Communism, and the Rise of Keynesian Economic Theory to rescue Capitalism (1929-1971)
IV. The Fall of the Keynesians (1971-1980)
V. Supply-side Economics, aka the return of Classical Economic Theory (1980-2008)
VI. The Present Crisis (2008-now)

I'd also recommend reading about Bretton Woods and what came out of it: the International Monetary Fund, the World Bank, and the World Trade Organization.

I'd also recommend reading about the old gold versus silver debate, and how Nixon upended the monetary system (also around the same time as the Oil Shocks) and how that changed things.

[136or142]

I am very eager to take a Macro course which will probably be next year.

Re: Will someone teach me the basics of economics?

First lesson: if you pay for it. 

[136or142]

People have limited resources. (supply)
People have unlimited wants. (demand)
This is the problem of Scarcity.
It means we must make Choices.
The social science of Economics is dedicated to how we make choices under these conditions.

A few other basics: the smaller the supply of something, the more scarce something is, and that usually makes it more valuable.

Economic policy is divided into 3 parts
 1. Fiscal policy (the budget, controlled by Congress)
 2. Monetary policy (the currency, controlled by the Federal Reserve)
 3. Trade policy (controlled by Congress, free trade versus tariffs)

There are two main schools of economic thought in the United States:
1. Classical economic theory
2. Keynesian economic theory

A brief history of economic theories:
I. Mercantilism (1492-1776)
II. Classical Economic Theory (1776-1929)
III. The Fall of Classical Economic Theory, the Rise of Communism, and the Rise of Keynesian Economic Theory to rescue Capitalism (1929-1971)
IV. The Fall of the Keynesians (1971-1980)
V. Supply-side Economics, aka the return of Classical Economic Theory (1980-2008)
VI. The Present Crisis (2008-now)

I'd also recommend reading about Bretton Woods and what came out of it: the International Monetary Fund, the World Bank, and the World Trade Organization.

I'd also recommend reading about the old gold versus silver debate, and how Nixon upended the monetary system (also around the same time as the Oil Shocks) and how that changed things.

Macro classical economic theory and Keynesian theory were both altered  by Milton Friedman and his (and some others) Monetarism. 

This has resulted in the new term Neo Classical Economics.  I personally would have gone with Neo Keynesianism but, it's all good.

[Mr. Reactionary]

Macro tends to heavily focus on gdp which is good, because it involves real numbers unlike micro.

The formula for GDP is: GDP = C + I + G + (Ex - Im), where “C” equals spending by consumers, “I” equals investment by businesses, “G” equals government spending and “(Ex - Im)” equals net exports, that is, the value of exports minus imports.

Transfer payments like welfare are not factored in at this stage.

[136or142]

Macro tends to heavily focus on gdp which is good, because it involves real numbers unlike micro.

The formula for GDP is: GDP = C + I + G + (Ex - Im), where “C” equals spending by consumers, “I” equals investment by businesses, “G” equals government spending and “(Ex - Im)” equals net exports, that is, the value of exports minus imports.

Transfer payments like welfare are not factored in at this stage.

I find a lot of people focus on doing the calculations and don't really understand the concepts behind them.

Both quantitative and qualitative data are important.

[136or142]

I am very eager to take a Macro course which will probably be next year.

Micro-economics focuses on the aggregate supply and demand curves.

The aggregate supply curve is based on 'the theory of the film.'  (not my favorite term)
The aggregate demand curve is based on utility theory.

These aggregate curves are the aggregation of every individual curve.

Macro economics also focuses on price in the four types of markets: perfect competition, monopolistic competition, oligopoly and monopoly.

Only with perfect competition is the price point where the aggregate supply curve meets the aggregate demand curve.

Second level micro economics largely goes over the same concepts but with calculus.

Macro economics is about fiscal and monetary policy.

Fiscal policy is the role of elected politicians, monetary policy is the role of the Federal Reserve.

Monetary policy focuses on such things as the velocity of money (probably the worst term in economics as it makes a very simple concept sound very complicated) and the money creation process.

Fiscal policy is, of course, government spending and taxation as well as regulations and maybe even trade policy can be included in that.  Ricardo's comparative advantage is also covered in macro economics.

Edit: Blue3 above wrote trade policy is separate from fiscal or monetary policy, so I'll go with that and state my above comment is wrong.

Fiscal and monetary policy are both covered with a discussion on Keynesian economics vs. Monetarism and the debate over whether or not the multiplier effect is zero in the long run.

The multiplier effect is also a simple concept of the basic idea that if an already existing dollar is spent by the government, that dollar will be re-spent and result in higher aggregate spending (aggregate demand.)  Most mainstream economic teaching states that, unless the economy is in a recession, that dollar spent by the government as it recirculates and is spent over and over again (which is all the 'velocity of money is' except, that the velocity of money is the number of times the dollar is spent over a given period of time) will either result in inflation or simply displaces money that would have been spent by some other economic actor anyway.  So, mainstream economics mostly teaches that, except during recessions, the long run multiplier is zero.

This debate was a major part of the downfall of Keynesianism that Blue3 outlined above.  However, I disagree that Keynesianism is no longer followed or that Monetarism is a complete return to classical economics.  Keynes himself only argued for government deficit stimulus spending during times of recession.  It wasn't really his fault that politicians altered his theories to call for deficit spending at all times (he died before deficit spending really took off) and stimulus spending is still largely advocated during recessions.

Also, I disagree that the role of the Federal Reserve proposed by Monetarists is the same as that advocated by classical economics.  For instance, as far as I know, classical economists advocate for the Gold Standard while most Monetarists don't.

If you have a good teacher and are interested, you should ask that teacher to provide some material on the back and forth arguments between John Kenneth Galbraith and Milton Friedman during the 1960s and 1970s. 
http://economistsview.typepad.com/economistsview/2006/12/friedman_and_ga.html

Both of them had PBS programs in the late 1970s, probably the last time academic economists of the day were household names.

Galbraith, as the first article points, out was regarded more as a social commentator or economic historian though than as a respected economist by his peers.

As far as I know, there really isn't a second level macro economics course, but most of the higher level macro economics courses are focused on a specific topic that are largely based on macro economics (labor economics, money, banking and financial institutions, environmental economics...)

Behavioral economics is likely largely a followup to micro economics as many of the concepts in behavioral economics challenge many of the assumptions in micro economics (economic actors make rational decisions.)

[Blue3]

I am very eager to take a Macro course which will probably be next year.

Have we answered your questions? Do you have questions, Spark498?

[Illini Moderate]

Try reading "Naked Economics" by Charles Wheelan. Very good and simple overview

[Shadows]

There is always some multiplier effect for any government spending & it can truly never be 0. It can high or low depending on many things. Infra & other job creating plus asset creating investments tend to have a high level of multiplier effect which determines the consumption function "C" of GDP which the government can influence through "G" in GDP = C + I + G + NX(Ex-Im)

Keynesian economics is followed by every government in the world because it is one of the few things statistically proven. But in times of recession or poor economic scenario, government steps in & spends in infra, assets & job creating sectors to push the demand line rightwards - That is not debatable! The debate could be how much to spend, in what areas, how to finance it, how to cut down on the deficits, etc.

Keynes never told to give 100's of Billions in bailouts or run 100's of Billions in deficits years after the recession.

[pbrower2a]

The most basic three lessons:

1. There is no such thing as a free lunch.

Everything has a cost. Nobody gives one anything except in return for something else. Even something offered for free is done for the good of the giver. (Thus if Microsoft gives you a security patch for your computer it is to keep you as a consumer).

2. The only good deal is quality-for-quality.

Trash for trash is futile. My non-working Chevrolet Vega for your non-working Yugo isn't worth the effort.   

Fleece deals leave the person fleeced with no further objects of exchange.

Quality for quality -- that's good for repeat business in the form of more exchanges.

3. The Second Law of Thermodynamics applies to economic reality.

You can't get something for nothing; everything takes energy just to keep it as it is. Rot and decay are the norms in life.

[Technocracy Timmy]

Learn it in only 15 minutes.

[Blue3]

1. Don't go to a politics forum to ask this question.

We have several very economically literate posters here, but I don't know how someone with no background would distinguish them from the charlatans.

What did you think of my summary?

[136or142]

1. Don't go to a politics forum to ask this question.

We have several very economically literate posters here, but I don't know how someone with no background would distinguish them from the charlatans.

If you want to ignore my first point of advice, I think it's good to start reading from a variety of perspectives without venturing too far from the field's mainstream.

Maybe books or lectures are closer to your learning style, but for me it was easiest to start by reading a few econ-heavy blogs, e.g. something like Marginal Revolution on the libertarian-right or Jared Bernstein on the center-left. Follow the sources and debates that they reference and eventually you will have a solid grounding in the field to supplement what you are learning in class.

Avoid econ commentators that are critical of the mainstream without really engaging with it (e.g. "Austrians," most Marxists, anyone who recommends reading Henry Hazlitt) and avoid anyone who tends to be too overtly partisan in how they pitch economic arguments toward non-academic audiences (e.g. Ezra Klein, Paul Krugman, Matthew Yglesias, that guy who advised Bernie Sanders, Bryan Caplan, anyone who was overly defensive of Mitt Romney).

1.Micro economics is mostly common sense (and the counter intuitive things can be explained) so a person with common sense should be able to follow the logic and see if what a person claims makes sense or not.  But, yes, macro economics does require some study to understand things like the money creation process.

2.Not that I'm an economist myself, but I find that if you explain economic concepts point by point, most people understand them.  I read an article by one economics professor about his first level class.  He taught economics in the standard academic way for a number of years, then when he did a test of their general comprehension of the concepts at the end of the semester (as opposed to the Final that asked based on the standard teaching) he found they hadn't learned a thing (they were just able to regurgitate what he had said to them for the test.)  I believe that article said that a surprising number of PhD economists also failed tests that asked about the general concepts rather than about specific number crunching or what have you.

So, like the best teachers, he started teaching by asking concrete questions based on real world scenarios. The example given in the article was 'why don't movie theaters charge higher ticket prices for the more popular movies?'  Anybody who goes to the movies or understands a bit about the film industry should be able to come up with logical answers for that whether they've studied (micro) economics or not.

3.There certainly is a lot of nonsense when it comes to macro economics.  Pretty much all conspiracies theories are based on the false belief that the Federal Reserve is really a 'private bank that prints up money any time it wants for the benefit of its members' and a great deal of supply side economics  also rests on nonsense ('tax cuts pay for themselves'...)

4.There are also several twitter feeds worth reading.  Mark Thoma and Economy World are worth following.

[136or142]

4.There are also several twitter feeds worth reading.  Mark Thoma and Economy World are worth following.

^I like Mark Thoma a lot.

I would like to think that you're right about micro. I remember a lot of people having more trouble with interpreting graphs than they did understanding the core concepts.

Among students in majors that don't involve much math, a large chunk of them will struggle with anything quantitative. This makes it particularly difficult to understand anything involving change and multiple relationships - I remember elasticity confusing a lot of students.

Not that I can pretend to have too much perspective on this - I only took a handful of econ courses as an undergraduate and a couple more in grad school.

What did you think of my summary?

I'm not the best person to ask. We could discuss some of your definitions, but the biggest problem that I see originates in the original post - i.e. he's apparently jumping straight into macro. I know that some departments allow you to do this but I'm not sure why. I imagine that studying macroeconomics without doing micro first would be a lot like taking a course in theology.

I don't know.  If everybody had common sense then behavioral economics wouldn't keep showing ways that people behave irrationally.   Economic concepts can be applied to pretty much everything in daily life, not just the economy so you'd like to think that people would understand these concepts intuitively, but clearly quite a lot of people don't.

However, even though many people don't seem to understand them intuitively, I'm not sure they can't be taught effectively and the same goes for math.  I think, again, the problem there in high schools is the focus is on 'academic math' and treating mathematics as a technical 'number crunching' exercise rather than explaining the core concepts and patterns that underlie mathematics.

Just to add: I went to high school about 30 years ago now and I understand that in same places mathematics is being taught quite differently than the essentially technically process I learnt.  I don't know if that's helped improve understanding of mathematics or not. 

Given how important doing rough calculations of probabilities is, you'd think that people would be hard wired to understand basic mathematics concepts if not precise calculations.

[mencken]

Here ya go

[TheDeadFlagBlues]

I'm not sure why the old bromide that economics is just "common sense" continues to be used when that's clearly not the case considering the inordinate math demands placed upon aspiring economists. To the laymen who has taken econ 101, this statement makes a great degree of sense but it makes no sense to me because I've encountered graduate-level econ, which is totally detached from what they teach you at the undergraduate level.

If I have pointers, they are as follows:
1. recognize that outside of banal and straightforward theories that are understood by 3rd graders (higher prices -> less quantity of a good demanded by a consumer) that economic theory consists of a series of interpretative devices that help you make sense of the world. they do not describe the world, they help you understand it. do not try to cite economic theories when arguing for or against something. do not do this: micro/macro theorists know nothing about the world, they simply know how to make models that could prove to be useful in understanding the world. if you recognize this, you will have taken away what i see as the purpose of the field. economics at the undergraduate level can provide students with a set of tools/mindset that allow them to "think like an economist".
2. if you want to understand recessions, do not take economics courses. the average person thinks that economists can explain why recessions occur or can predict them and can give a great deal of insight into how they should be addressed. the former is nonsense, economists tend to treat recessions as short-run fluctuations rather than as events that are part of some cycle. the latter is true but it's critical to recognize that short-run macroeconomic policymaking can be based on, as stated above, many different lenses. if you take an international macroeconomics or international economics course, you'll learn that the flow of capital and goods between countries can explain recessions and ought to guide the response to recessions and this might point in the direction of pursuing deflationary policies that would never be prescribed in the classroom by a professor teaching an undergraduate macro course, which deals with closed economies.

Of course, the above post relates to the field of economics, which is, without question, a social scientific field of study that has practitioners in high places and powerful methodologies/tools. The above post bears little relation to the economy. If you want to understand "the Wealth of Nations", and the traditionally outsized questions of political economy, I recommend reading a lot of economic history books, history books in general, anthropological studies of trade etc. The economy is a subject studied by many fields and there are many authors who write about the economy who aren't economists. Some of these authors have more profound things to say about the economy than the vast majority of economists.

Some examples of topics that are poorly understood/researched by economists:
-the role of the household/"household economics". Much of economic life is governed by non-market forces of the family/kinship groups. In the past, the household was the economy(hence the term, which is derived from the term "oikos", greek for household). Economists lack the tools to discuss or research household management, deliberation etc. Becker did a fine job at proposing an Econ-type way of studying these issues and his "shadow price of children" model of fertility is excellent but, look, there's a lot to be desired here.
-more generally, economics are good at fashioning terms that describe causal factors + variables that govern how we marshal our resources and make choices as individuals but they don't even pretend to be able to explain why these factors/variables matter. as an example, economists will use the term "moving costs" to describe both the intangible/tangible factors that prevent people from seamlessly moving from one place to another in search of better living standards + jobs. that's fine when constructing a model but it doesn't really help us understand immigration/migration.

I've probably made a fool out of myself here but ag isn't around anymore so w/e.

[vanguard96]

Micro-economics focuses on the aggregate supply and demand curves.

The aggregate supply curve is based on 'the theory of the film.'  (not my favorite term)

Also, I disagree that the role of the Federal Reserve proposed by Monetarists is the same as that advocated by classical economics.  For instance, as far as I know, classical economists advocate for the Gold Standard while most Monetarists don't.

If you have a good teacher and are interested, you should ask that teacher to provide some material on the back and forth arguments between John Kenneth Galbraith and Milton Friedman during the 1960s and 1970s. 

Both of them had PBS programs in the late 1970s, probably the last time academic economists of the day were household names.

Galbraith, as the first article points, out was regarded more as a social commentator or economic historian though than as a respected economist by his peers.

As far as I know, there really isn't a second level macro economics course, but most of the higher level macro economics courses are focused on a specific topic that are largely based on macro economics (labor economics, money, banking and financial institutions, environmental economics...)

Behavioral economics is likely largely a followup to micro economics as many of the concepts in behavioral economics challenge many of the assumptions in micro economics (economic actors make rational decisions.)
[/quote]

I think you meant 'theory of the firm', right?

I majored in econ and at the time we did not cover environmental economics - that's a more recent interdisciplinary development. Our school was most focused on the data driven economics, finance, and statistics that was more popular at places like Harvard and MIT rather than Friedman's Chicago school. We covered only a little of the classical economists. I don't know if there was a course at the time on the history of economics. I don't remember a specific separate course in the department covering the 'great books' of economic theory either. We did read a bit of Adam Smith, Locke, Keynes, Galbraith, and unfortunately Paul Krugman.

Of course Friedman's Free to Choose book with his wife became a 10-part series aired on PBS in 1980 with discussions from many public figures of the time from many different fields - national and local government, professors in economics, social sciences, business and labor leaders, and for me two other considerable figures in free-market Friedman inspired economics - Thomas Sowell and Walter Williams. The first half of the video has a video lecture where Milton is discussing education or welfare or some broad topic - traveling round the world to Hong Kong, India, Japan, and the US. Then they have Milton, a moderator and few guests. Great format.

Even if one does not agree with Friedman his straight ahead style of speaking is very clear & confident. Amazingly he did not regularly use the Leonard Reed "Pencil" speech from the video. Maybe since it was not his but it's a great way to look at how many factors go into making all the things in our lives.

I would have loved to have him for a high level econ course - no easy A that's for sure.

I highly recommend both the series and the book. Of course it comes at a time of stagnant growth and high inflation - a much different situation than now - and it is valuable as both a discussion on economic topics and a historical view of the late 1970's when it was filmed.

Amazingly at the same general time period Friedman and Ayn Rand both appeared on Donohue (separately of course). I could not imagine something like that nowadays.