So we all know what the economy is, right? But how much do we know about economics? A survey in 2016 asked the UK public if they felt “politicians and the media talk about economics in an accessible way”. 12% answered yes.
What is economics? The simple definition is ‘the study of the production, distribution and consumption of goods and services’. Which sounds pretty dull. It gets more relevant when you look at the two scales of economics – small and big. Microeconomics looks at the small end, individuals, households, small businesses. Macroeconomics deals with the whole economy, looking at big issues such as growth of the economy, inflation, unemployment and such like.
The basic problem that economics seeks to deal with is that us human beings live in a world where we have unlimited wants – and limited means. This is the basis of our standard of living. If we (on the macro scale) can increase productivity, use limited resources more efficiently, we will (in our micro world) have a higher standard of living.
How to achieve this is the subject of a continuing debate around two conflicting theories. Classical economic theory says that free markets are the best way to allocate those scarce resources. Government becomes the referee in this, not a player. On the other hand, Keynesian economics (named after John Maynard Keynes, a famous economist who died in 1946) argues that you can’t rely solely on markets alone and that government must step in from time to time and help allocate resources efficiently.
In looking at all of this, the basic building blocks are labour, and trade. Because we can’t be experts in all things, we specialise – and then trade our skills to make use of other’s expertise. This applies to both the micro and macro level. If we have skills as, say an accountant, we will always need the skills of a plumber when the heating breaks down. On a national scale, we can’t grow lettuces all year round so we import them, exporting our expertise in financial services – which achieves some sort of balance of payments, positive or negative.
Economics explains the way we live our lives. We may not be experts in things like money flow or capacity utilisation but we all know how we can afford to live and how we spend our money. You might not think you know what economics are, but actually – you do. And to find out more, in a way which is clear, and real, using understandable words, check out the economy website site here.