Economics for Everyone

A Short Guide to the Economics of Capitalism

Jim Stanford

• Publisher: Pluto Press
• Year: 2015
• ISBN:
  9781783713271
• Edition: 2
• Topic: Economia
• Subtopic: Teoria economica

Economics is too important to be left to the economists. This book provides the information you need to understand how capitalism works (and how it doesn't). Through clear bite-sized chapters interspersed with illuminating illustrations, this is an antidote to the abstract and ideological way that economics is normally taught and reported on in in media. Key concepts such as finance, competition and wages are explored, and their importance to everyday life is revealed. It answers questions such as 'Do workers need capitalists?', 'Why does capitalism harm the environment?', and 'What really happens on the stock market?'. The book is supported with a comprehensive set of web-based course materials including videos for popular economics courses.

Part One

Preliminaries

1

The Economy and Economics

Take a walk

The economy must be a very complicated, volatile thing. At least that’s how it seems in the business pages of the newspaper. Mind-boggling stock market tables. Charts and graphs. GDP statistics. Foreign exchange rates. It’s little wonder the media turn to economists, the high priests of this mysterious world, to tell us what it means, and why it’s important. And we hear from them several times each day – usually via monotonous “market updates” that interrupt the hourly news broadcasts. Company X’s shares are up two points; Company Y’s are down two points; the analysts are “bullish”; the analysts are “bearish.”

But is all that financial hyperactivity really what the economy is about? Is economics really so complex and unintelligible? Should we trust the “experts” and analysts at all? Maybe we should find out what’s going on for ourselves.

Forget the market updates. Here’s a better way to find out about the economy – your economy. Take a walk. And ask some questions.

Start at the front door of your own household. How many people live there? What generations? Who works outside the household, and how much do they earn? How long have they been working there? How long do they plan to keep working, and how will they support themselves when they retire? What kind of work goes on inside the household? How many hours? Is it paid or unpaid, and who does it? Who does which chores? Are there any children? Who cares for them? Does anyone else in your home require care? Do you own your house or apartment, or do you rent it? If you rent it, from whom? If you own it, how did you pay for it? What shape is it in?

Now walk through your neighbourhood, and the next neighbourhood. Are the homes or apartments all roughly the same, or different? Does everyone have a home? Are the homes well-cared-for, or falling apart? Do most people have jobs? What sorts of jobs? Are they well off? Can they comfortably pay for the things they and their families need?

Watch your neighbours going off to work, school, or other destinations. How are they travelling? In their own cars? On public transport? Walking? How much money, time, and physical space is devoted in your neighbourhood to “getting around”?

Is there a school in your neighbourhood? A hospital? A library? Who pays for those buildings? Who works there? How do those public facilities compare with the private homes and businesses around them? Are they newer, or older? Nicer, or shabbier? Is there anywhere a person can go inside in your neighbourhood (other than their own home) without having to pay money or buy something?

Are the streets clean? If so, who cleaned them? Is the air fresh or smoggy? Are there any parks in your neighbourhood? Is there anywhere to play? Can people in your neighbourhood safely drink the water from their taps? How much do they pay for that water? And to whom?

Walk through the nearest shopping district. What kinds of products are displayed in the windows? Were any of them produced locally (say, within 100 miles of your home)? Elsewhere in your country? In another country? Can your neighbours afford what they buy? Are they usually happy with their purchases, or disappointed? Do they pay with cash, bank cards, or credit cards?

Now walk to a local bank branch and see what’s happening inside. Compare what you see (deposits, withdrawals, home loans) with the activities you read about in the business pages of the newspaper (leveraged buyouts, financial speculation, foreign exchange). Which matters more to day-to-day life in your neighbourhood?

This is a good time to stop at a café. Pull out a pencil and paper. List your approximate monthly income. Then list how much of it goes to the following categories: rent or mortgage (including utilities); income taxes; car payments or public transport; groceries; other “stuff” (merchandise); and going out (entertainment). Can you comfortably pay your bills each month? Do you regularly save? Is your income higher than it was five years ago, lower, or about the same? Has your income increased faster than the prices of the things you buy? If you had a little more income, what would you do with it? If you walked back to that bank and asked for a loan, would they give you one?

Apart from the places we’ve mentioned (schools, stores, and banks), what other workplaces are visible in your neighbourhood? Any factories? What do they produce, and what shape are they in? Any professional or government offices? Other services? Can you see any office buildings from your neighbourhood? Who works there? Can you guess what they do? Imagine the conditions in those offices (spaciousness, quality of furnishings, security, caretaking), and compare them to conditions inside your local school. Which would be a nicer place to spend time?

Have any new workplaces opened up recently in your neighbourhood? If so, what do they do? Or did you see any businesses that have closed down? Did you see any “help wanted” signs posted in local workplaces? What kinds of jobs were they advertising for?

Now you can return home. Congratulations! You’ve done a lot more than just take a stroll. You’ve conducted a composite economic profile of your own community. It has no statistics, charts, or graphs (though you could add those if you wish, with a bit of work at the local library). Nevertheless, just by walking around your neighbourhood, asking questions, and taking notes, you have identified the crucial factors determining economic affairs in your community:

•	Work Who works? Who works inside the home, and works outside the home? Are they employed by someone else (and if so, who?), or do they work for themselves? Do they get paid, and if so, how much? What tools do they use? Are they productive and efficient? Is it hard to find a job?
•	Consumption What do people need to buy, in order to stay alive? What do they wish for, to make their lives better? Can they afford it all?
•	Capital and Investment What kinds of tools and technology do people use in their work? And who buys them? Private companies and public agencies must spend money maintaining and expanding their facilities and workplaces (this is called investment), or else the economy (and your neighbourhood) goes quickly downhill. Is that happening? Or is the state of these different “tools” being run down?
•	Finance Most economic activity (but not all) requires money. Where do people get money? How is it created and controlled? Who gets to spend it? What do they spend it on?
•	Environment Everything we do in the economy requires space, air, and inputs of natural materials. What’s the state of the natural environment in your neighbourhood? Is it valued by the community, or taken for granted? Are there strict rules regarding pollution, dumping, and land use? Or can people and businesses treat the environment as they please?

These are the building blocks from which the most complicated economic theories are constructed: work, consumption, capital (or “tools”), finance, and the environment. And they are all visible, right there in your neighbourhood. As we go through this book, we will build a simple but informative economic “map” that includes all of these elements.

Don’t ever believe that economics is a subject only for “experts.” The essence of economics is visible to everyone, right there in your own ’hood. Economics is about life – your life.

What is the economy?

The economy is simultaneously mystifying and straightforward. Everyone has experience with the economy. Everyone participates in it. Everyone knows something about it – long before the pinstripe-wearing economist appears on TV to tell you about it.

The forces and relationships you investigated on your walk are far more important to economic life than the pointless ups and downs of the stock market. Yet our local economic lives are nevertheless affected (and disrupted) by the bigger and more complex developments reported in the business pages.

At its simplest, the “economy” simply consists of all the work that human beings perform, in order to produce the things we need and use in our lives. (By work, we mean all productive human activity, not just employment; we’ll discuss that distinction later.) We need to organize and perform our work (economists call that PRODUCTION). And then we need to divide up the fruits of our work (economists call that DISTRIBUTION), and use it.

What kind of work are we talking about? Any kind of work is part of the economy, as long as it’s aimed at producing something we need or want. Factory workers, office workers. Executives, farmers. Teachers, nurses. Homemakers, homebuilders. All of these people perform productive work, and all of that work is part of the economy.

What do we produce when we work? Production involves both goods and services. GOODS are tangible items that we can see and touch: food and clothes, houses and buildings, electronics and automobiles, machines and toys. SERVICES are tasks that one or several people perform for others: cutting hair and preparing restaurant meals, classroom instruction and brain surgery, transportation and auditing.

Where do we perform this work? Productive work occurs almost everywhere: in private companies, in government departments and public agencies. Work also occurs in the home. In cities, in towns, on farms, and in forests.

Why do we work? We must survive, and hence we require the basic material needs of life: food, clothing, shelter, education, medical care. Beyond that, we want to get the most out of our lives, and hence we aim for more than bare-bones subsistence. We want a greater quantity, and a greater variety, of goods and services: for entertainment, for travel, for cultural and personal enrichment, for comfort, for meaning, for security. We may also work because we enjoy it. Perversely for economists (most of whom view work solely as a “disutility”), most people are happier when they have work to do – thanks to the social interaction, financial well-being, and self-esteem that good work provides.

How do we distribute, and eventually use, the economic pie we have baked together? In many different ways. Some things are produced directly for our own use (like food grown in a garden, and then cooked in a household kitchen). Most things we must buy with money. We are entitled to consume certain products – like walking down a paved street, listening to the radio, or going to a public school – without directly paying anything. Importantly, some of what we produce must be re-invested (rather than consumed), in order to allow for more economic activity in the future.

So when you think about the “economy,” just think about work. What work do we do? What do we produce? And what do we do with what we’ve produced?

The economy and society

The economy is a fundamentally social acti...