"Well Brian keeps the economy humming," I giggled to my husband as we talked late one evening. Our friend, Brian, had dropped in to show us his latest purchases that included a dart gun, a music CD, and a new amp for his guitar.
Where the money came from was a mystery. He worked for Kohl's, drove a motorcycle, and lived in his own house. His checking account hovered near zero and he didn't even have a savings account.
We are told by politicians that people spending money is a sign of a "healthy economy." But is it? What is a healthy economy in God's eyes? And what is economics anyway?
What is Economics?
Economics is the study of the production, distribution, and consumption of goods and services according to Webster's dictionary.
Goods are products such as televisions, ships, jeans, jewelry, ice cream, or bikes.
Services include hair styling, banking, cleaning, interior decorating, or teaching.
People make, sell, and buy goods and services day in and day out. In the process of all this producing, selling, and buying, money is exchanged.
You see, economics is simple. It is just studying what people make and do and how those things are sold. Daily life is full of buying things. We go to work and produce things (goods) or do things (services) to make money.
Money is constantly flowing from one place to another. Imagine the dollar bill in your purse. Where has it been? Where is it going? Maybe it was a little boy's allowance and he used it to buy a candy bar at 7-11. The cashier gave it as change to your daughter when she bought a Big Gulp. Your daughter used it to pay your husband back the dollar she owed Daddy, but then he needed larger bills and traded you all the ones and fives in his wallet for a twenty dollar bill.
Studying how, why, and where money goes is another part of economics.
In Heaven, there will be enough of everything, but here on earth there are not enough goods and services to go around. If there were, we would all own beach houses in Hawaii. So, how who will decide who gets what? That is the question that economics tries to answer. As Christians, we want the solution to be righteous, just and compassionate.
Economics is the study of who ends up with what!
Macroeconomics focuses on the big picture, while microeconomics focuses on the details of the big picture.
In macroeconomics, we would study economics systems (socialist, capitalist, mixed), national economies (Swiss, US, English), sections of the economy (Housing, Wall Street, Farming), and how economics spheres interact (big layoff by an automotive company on the stock market). Don't let these big words throw you because the concepts are simple.
Macroeconomics looks at the economy as a whole and the factors that cause or inhibit growth.
In other words, what is happening in the world that makes people buy more stuff?
Macroeconomics studies how groups and nations manage the flow and distribution of wealth.
Wealth includes money, land, "stuff" (possessions), houses, skills, education, and products.
Does the government determine who gets what (socialism)? Do people make their own decisions and manage their own businesses (capitalism)? Supply and Demand are studied too, but as part of the overall picture.
In microeconomics, the focus is more on the laws of supply and demand.
Supply is how much of something there is. If a shoe company in Michigan has 5,000 pairs of shoes for sale, those 5,000 shoes are his supply.
Demand is if people want something, how much they want it, and how much they are willing to pay for it. If there are only ten people in Michigan who want the shoe company's shoes, there is not a big demand.
Microeconomics studies consumer behavior and how individual businesses make decisions about production and cost. Why do people buy what they buy? What makes people want to buy something? What determines how much people are willing to spend on something they want? How much does a business need to charge to cover expenses and make a profit?
Microeconomics helps businesses and individual people manage their wealth, making wise decisions. When we talk about business budgets or personal budgets, we are talking microeconomics.
Economics looks at how people get what they want, who gives it to them, how they get it, and how much they get.
Have you heard people mention the GNP (Gross National Product) or the GDP (Gross Domestic Product)? This is simply the total amount of all the good and services that are sold. The GNP or GDP includes every ice cream cone, hot dog, cell phone, hair cut, car, house, book, pedicure, or car wash.
When people (consumers) start buying more and more, the economy is growing, or expanding. Conversely, when people (consumers) buy less and less, the economy is in a recession, or depression.
The problem with defining a growing economy by increased spending is that when consumers stop spending and save (a good thing to do according to Scripture!), then the economy is "needing to be fixed."
The economy goes in cycles of growing and recessing. This cycle, if not tampered with, is natural and normal. People go through seasons of spending and saving. A healthy economy has seasons of expanding and decreasing flowing gently from one to another. We will talk more about this cycle next time.
Until then, don't let the term economics scare you anymore!
Do you need to learn more about economics? We have resources for you: Economics, Finances, and Business is a one-credit high school economics course that covers the basics of economics, financial management, and how to start your own business. Economics, Finances, and Business is available at Amazon. You can purchase the E-book at PayHip. An Answer Key is available.
Merey (Meredith Ludwig Curtis)