Ten Key Principles of Economics

1. Everything has a cost. There is no free lunch. There is always a trade-off.
2. Cost is what you give up to get something. In particular, opportunity cost is cost of the tradeoff.
3. One More. Rational people make decisions on the basis of the cost of one more unit (of consumption, of investment, of labor hour, etc.).
4. Incentives work. People respond to incentives.
5. Open for trade. Trade can make all parties better off.
6. Markets Rock! Usually, markets are the best way to allocate scarce resources between producers and consumers.
7. Intervention in free markets is sometimes needed. (But watch out for the law of unintended effects!)
8. Concentrate on productivity. A country’s standard of living depends on how productive its economy is.
9. Sloshing in money leads to higher prices. Inflation is caused by excessive money supply.!!
10. Caution: In the short run, falling prices may lead to unemployment, and rising employment may lead to inflation.



Tuesday, June 22, 2010

Roosevelt Recession Reprise?

In 1937, thinking the economy was back on its feet, the Roosevelt administration began a return to austerity after the "extravagant" spending of the New Deal. The result was a double dip with unemployment levels returning to 17% and the GDP contracting. The mood in Washington now is to reign in deficits and roll back the stimulus. The author of this article believes it to be premature and that it will stir the ghosts of 1937.
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