Economics: The User’s Guide Book Summary - Economics: The User’s Guide Book explained in key points

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Economics: The User’s Guide summary

Name: Economics: The User’s Guide
Rating: 4.3 (151 reviews)
Author: Ha-Joon Chang

Ha-Joon Chang

Everything you need to know about economics.

4.3 (151 ratings)

31 mins

Topics

Wealth US Economics International Economics Economic Theory Capitalism & The Free Market

Table of Contents

Economics: The User’s Guide
Summary of 13 key ideas

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What’s in it for me? Learn the foundations of economic theory and how it affects your daily life.

Did you snooze through your economics class in college? You’re probably not alone. Yet economics is more than just a bunch of boring numbers – it plays a critical, intimate role in our day-to-day lives.

From the clothes on your back to the screen on which you’re reading this text – literally everything we interact with – is the result of a series of economic transactions that end with a product in your hands.

In these blinks, you’ll learn how economics molds our lives and how it has also changed over the last few centuries. With an in-depth look at the history of economics, you’ll better understand how our society has been sculpted by its laws and practices.

Moreover, you’ll get a crash course on the specific mechanisms that shape economic behavior, and gain the knowledge necessary to examine a country’s economic health.

In the following blinks, you’ll also discover:

why we shouldn’t really worry about why and how sumo wrestlers cheat;
why a plane made of solid gold might not be worth that much; and
how spending less at the grocery store could mean a pink slip for the cashier.

Economic theory can be applied in many places, but it’s best used in the study of the economy.

If you’ve ever read the book Freakonomics (as many millions of people have) then you’ve seen the variety of ways that economics can be applied to situations not directly related to “the economy.”

For example, the book’s authors attempt to explain why sumo wrestlers might cheat by using the economic theory of rational choice, which assumes that each person’s decisions are calculated to produce the best possible outcome.

But why would a sumo wrestler cheat? Imagine that two sumo wrestlers are facing each other in a match. They also happen to be best friends. However, since one has already qualified for the next tournament, it’s rational for him to lose on purpose to increase the odds that his friend advances.

This is merely one example. In fact, economic theories have been used to describe a whole host of phenomena.

And while interesting, we shouldn’t neglect the most important application of economics: studying the economy. Indeed, among the most important elements of economics is the way in which money makes economic systems function.

In essence, money is the measurement of what society owes you, usually as a result of your labor.

However, sometimes money is given away freely, through a process called money transfer. In welfare systems, for example, money is usually transferred from those who have it to those who don’t, to provide for basic needs, such as shelter or food.

Money can be used toward the consumption of goods and services produced by organizations that have a specific combination of labor (workers) and capital (machines and tools necessary for production).

Your mobile device, for example, came to be through this combination: its processors were invented by workers (labor) and then produced with the help of machines (capital).

It is these types of relationships, far more than the dilemma of a sumo wrestler, which are the heart of economic theory.

From medieval village blacksmiths to multinational companies: the capitalist economy has changed radically.

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?

Trade policy and boom-and-bust cycles give us insight to how our economic system was shaped.

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.

With its stress on limited economic intervention, the Neoclassical School dominates today’s economic thought.

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.

Keynesian economists stress the importance of government spending in difficult economic times.

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.

A country’s economic health can be determined by looking at key measurements, GDP and GDI.

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.

GDP growth isn’t the whole story; a country needs to invest to have a healthy economy.

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.

When a country has more “have-nots” than “haves,” then its economy isn’t healthy.

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.”

Through fiscal policy and monetary policy, a country’s government can influence the markets.

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?

Financial products first deemed clever turned out to be toxic and helped cause the financial crisis.

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.

Company downsizing, technological advancements and economic crises all cause unemployment.

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.

A company seldom acts alone when it comes to decision making, as many actors hold voting power.

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.

International trade is increasingly important, for both established and developing countries.

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.

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What is Economics: The User’s Guide about?

Economics: The User’s Guide lays out the foundational concepts of economics in an easily relatable and compelling way. Examining the history of economics as well as some critical changes to global economic institutions, this book will teach you everything you need to know about how economics works today.

Best quote from Economics: The User’s Guide

Few thought that there was anything wrong with hiring children.

—Ha-Joon Chang

Who should read Economics: The User’s Guide?

Anyone interested in the history of economics
Anyone interested in the intersection of politics and economics
Anyone who dozed through Economics 101 in college

About the Author

Ha-Joon Chang is the author of the bestseller 23 Things They Don’t Tell You About Capitalism (also available in blinks) and writes a regular column for The Guardian. He has advised a number of national and international banks, and teaches economics at Cambridge University.

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