Economics: The User’s Guide summary

The pros and cons of capitalism is a hot topic. Indeed, in recent years an ideological war has raged, with statements such as “Capitalism is in crisis” or “Capitalism creates jobs” parried back and forth.

But what exactly is capitalism?

We’ve seen just how significantly the global economy has changed in the last few centuries. But which events helped bring about this change?

Importantly, the politics of powerful Western nations at the time of the Industrial Revolution led to the rapid development of the economies of these countries.

When you watch the news, often you’ll witness two economists arguing over which theory should guide government economic policy. But why are there so many differing viewpoints?

The science of economics has been divided into many different schools of thought, simply because the workings of any economy is inherently complex and often difficult to understand.

But if the market works so perfectly – as Neoclassical economists suggest – why are so many people out of work? This is where the Keynesian School steps in.

According to the Keynesian School, long-term unemployment as well as products that cannot be sold, such as our solid gold airplane, contradict the Neoclassical insistence on markets’ self-equilibrating power.

As individuals compete on a sports field, countries compete against each other in global markets. Some countries are seen as economic champions, others as struggling. Yet how do we determine exactly how well a country performs economically?

The prevalent measure of a nation’s economic health is its Gross Domestic Product, or GDP.

Now that we know that GDP is one of the main indicators of economic health, what exactly can we say about a country’s economy with reference to its GDP growth? Not much.

Sometimes GDP growth isn’t a good indicator of a country’s economic development.

The pursuit of equality is intrinsic to human nature, and people instinctively try to avoid situations in which a few lay claim to all the resources we collectively need to live.

Indeed, our shared history is full of examples where people have fought for equality. The French Revolution is just one poignant example, with its motto: “Liberty, equality, fraternity or death.”

Despite a majority opinion among economists that the economy works best when it’s left alone, there are some instances that make government action mandatory.

In a completely free market, for example, there would be no taxation. However, if a government needs to build a road, it needs money to do so. So who will pay for the road?

You may think of a bank as simply the place you go to deposit a paycheck or open a savings account. Today’s banks however are far more varied.

In fact, there are two different kinds of banks.

Although we now spend most of our time at work, we actually spend far less time in the office than workers did less than two centuries ago.

Up until the nineteenth century, people typically worked between 70 and 80 hours per week. Today those numbers are much smaller: in Greece, the average person works nearly 40 hours per week, compared to only 35.6 hours in Germany.

When you decide how to spend your money – for example, by buying a new home, a car or even an ice cream sandwich – you essentially make that decision yourself.

How companies decide to spend money, however, is generally far less straightforward.

Have you noticed that wherever you may be in the world, you can still find a can of Coca-Cola?

The reason for this is international trade, or the exchange of capital, goods and services across international borders. In fact, international trade has increased dramatically in the past 50 years.