Economics for dummies - Part 1

( - and for economists and politicians)

Despite widely different models for society, the world now has the global economy and its basic rules of the game in common.

We are continuously exposed to news about the economy. The news and most public and political publications and debates see the economy, the framework and concepts used for describing it, and its effects, as something self-evident or even law of nature.

For politicians a growing economy is their top priority. The economy at large also has clearcut consequences experienced by most people.

To be clear from the start, this is not a call for abandoning market economy. It is a call for seeing the market economy in a wider perspective, for better to be able to understand and deal with its both good and bad consequences for society, human welfare, climate, and nature at large.

What I try to do is to facilitate a more basic debate about the economy, that tries to look behind the veil consciously or unconsciously provided by economists, politicians, and the press. The understanding, voices and doings of most men and women are important.

It is necessary to discuss several important aspects of the economy, and it is necessary to try to see the whole picture put together. It is also important to avoid economists’ tribal language.

This is done in a mini-series of five parts that are interlinked.

·        Part 1   Back to Basics

·        Part 2    What has Value?

·        Part 3    Finance+

·        Part 4    Labor+

·        Part 5    So what?

Part 1    Back to Basics

Economy is basically about household. That means it is about the best use of our total resources for our short-term living needs and well-being, but also for our long-term survival. 

Housekeeping with our total resources is much more than housekeeping with our money.

The market economy of today, however, rest on the assumption that only what can be measured in money in the market is what has value. It is only money circulating and aggregating that matter.

This is really a very crude assumption. It is, however, a practical assumption for effective handling of the market economy, but it leaves out important basic economic issues important for society such as nature, commons and the full scale of human welfare and our best use of human resources for the common good.

Inherent in the assumption that only what can be measured in money has value, is that the ultimate goal of the society is to produce, distribute and consume as much goods and services as possible that somebody is willing to pay for. Economic growth is seen as unequivocally positive and necessary.

Market economy has, indeed, proved very efficient for the production, distribution and consumption of goods and services. It is the basis for the modern industrial society providing the goods and services needed for the prosperity of the society. Up to a certain point few disputed this simple picture as only positive.

Now, however, it becomes more and more evident that we produce masses of products that are superfluous, products that have inferior quality or products being directly harmful. This is also achieved by exploiting people in many parts of the world, maintaining, and worsening the global climate crisis and massive overuse of nature.

A market economy that is not wisely regulated and balanced, will also have certain inherent consequences for society such as centralization and unequal distribution. These consequences are easily observed today.

Questioning the basic assumption that only money matter, provides more options and more elbowroom for creating and maintaining a good society for all, not for the few.

One of the essential tasks for economists is to keep the economy stable and predictable. This will remain a very important task whatever changes that should be made in economic theory and practice.

Economy should be closely related to political priorities. Economy should ideally start where the political priorities are determined, not the other way around as is the case today.

Economy as a discipline should have a more modest position in the total political process, and economical advice should be questioned more often.

One interesting example illustrating the shortcomings of a stand-alone market economy is the Infrastructure Plan launched by President Biden. It basically tells us that market economy, as it has been practised in the US for years, has «forgotten» to handle a lot of important tasks for maintaining a well-functioning and sound society. What about regularly doing the necessary priorities and adjustments on a smaller scale instead?