Economics is not just a dry subject for academics and financial gurus. When we understand the implications of economics, we understand that it holds the potential to lift people out of poverty, unlock innovation, and spur growth.
A free and bustling market is a powerful force for progress. Buyers have choices and sellers succeed only by satisfying the needs or desires of customers. With each voluntary transaction, both parties gain value—overall wealth actually increases as goods are exchanged. Free markets also produce prices that allow people to make wise cost-benefit decisions. And free markets don’t just make societies and individuals richer, they also protect individual rights.
Free markets create incentives to discover, invent, and improve. To do these things well, people often create corporations or partnerships. Others, hoping for a return, invest—that is, they risk their money by putting it to work in a way that they believe will create enough value for others that they will receive some value in return. American history bears witness that these incentives and structures do create value and wealth, just as world history shows the costs of allowing government to stifle them.
Are ATM machines bad because they reduce employment for bank tellers? New efficiencies may create a tough patch for certain workers, but they free up capital to create even more value somewhere else. What about a broken window—is it a kind of economic stimulus since it will need to be replaced with a new one? The window-maker gets a little more business, but the window-owner has lost the full value of a window, which is a real economic loss. Understanding destruction is key to good economics.
Marxism—the economic scheme that promises the very most—produced during the 20th Century poverty, starvation, and deaths in the tens of millions. Other milder attempts at central planning have led to shortages, “bubbles,” and unemployment. Government overregulation of the American economy causes tremendous drag on our ability to create jobs and wealth. Yet so many of the fallacies are known and can be avoided as more Americans understand basic economics.