How to Educate Yourself on Economics
In his classic book "Economics in One Lesson," Henry Hazlitt said that the reason there are more fallacies in economics than any other study is because of the "special pleading of selfish interests." If you do not educate yourself in economics, you will fall into countless economic fallacies, such as the idea that an economy can spend itself out of a recession -- a special pleading often made by politicians. Economics is the science of production and consumption, and it can be learned if you educate yourself appropriately.
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Instructions
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Learn about the concept of scarcity. British economist Lionel Robbins defined economics as the "study of the use of scarce resources which have alternative uses." Scarcity means that there is a finite number of goods and services in existence, a number lower than the amount of goods people want. If there were unlimited resources, there would be nothing to economize and, therefore, no need for economics.
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Distinguish between alternative uses of resources. Economics would be a simple subject if it were only concerned with the scarcity of one-dimensional objects. However, each resource has many different potential uses. Economists call these "alternative uses." Economics studies how resources are allocated and helps to determine where each one can be put to the most efficient use. This information is important to businesses and organizations that must make choices about how to use scarce resources.
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Look at price as a messaging system. The central question in economics is: "How does an economy allocate scarce resources?" In a command economy, the answer is that central planners in the government decide how they want to allocate resources based on their own interests. In a market economy, however, the mechanism of price is a complex messaging system that helps people determine how much of each resource gets used and where exactly it is used. Economist Thomas Sowell says that prices guide both consumers and producers in their economic decisions. If the price of steel rises, for example, producers will act on this price message to economize their use of steel and perhaps use an alternative resource. Consumers likewise make buying decisions based on price.
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Anticipate the secondary and long-term consequences of every economic decision in addition to the more obvious immediate consequences. Economist Henry Hazlitt says that bad economists only look at the direct consequences of an economic proposal. But to educate yourself on economics, you must look at the longer and indirect consequences of every economic decision. For example, loose monetary policies and cheap credit help to increase investment in the economy, but these investments are unsustainable in the long term. According to Hazlitt, neglecting long-term consequences is the chief error in the field of economics.
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References
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