Difference between revisions of "Economics"

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[[Image:NYSE-floor.jpg|right|thumb|Face-to-face trading on the [[New York Stock Exchange]]'s trading floor.]]
 
[[Image:NYSE-floor.jpg|right|thumb|Face-to-face trading on the [[New York Stock Exchange]]'s trading floor.]]
 
'''Economics''' is the study of opportunity.  More specifically, economics is the study of the opportunities made possible by the [[production]], [https://freeenterprisecenter.net/freedom-of-exchange distribution], and [[consumption]] of [[goods]] and [[services]]. 'Because of its primary application to government policy, it is understandable why the subject was originally known as political economy, which was its name from the time of [[Adam Smith]] to the last quarter of the nineteenth century, when the change to "economics" took place.' <ref name="capitalism.net">http://www.capitalism.net/Capitalism/Economics%20and%20Capitalism.htm</ref>
 
'''Economics''' is the study of opportunity.  More specifically, economics is the study of the opportunities made possible by the [[production]], [https://freeenterprisecenter.net/freedom-of-exchange distribution], and [[consumption]] of [[goods]] and [[services]]. 'Because of its primary application to government policy, it is understandable why the subject was originally known as political economy, which was its name from the time of [[Adam Smith]] to the last quarter of the nineteenth century, when the change to "economics" took place.' <ref name="capitalism.net">http://www.capitalism.net/Capitalism/Economics%20and%20Capitalism.htm</ref>
−
Economics attempts "to explain the way in which individuals interact with one another, to use their limited resources to satisfy their alternative ends." <ref>http://www.pbs.org/wgbh/commandingheights/shared/minitext/int_miltonfriedman.html#10</ref>
+
Economics attempts "to explain the way in which individuals interact with one another, to use their limited resources to satisfy their alternative ends." <ref>https://www.pbs.org/wgbh/commandingheights/shared/minitext/int_miltonfriedman.html#10</ref>
 
It is a social [[science]], concerned with how people produce, distribute, and consume.   
 
It is a social [[science]], concerned with how people produce, distribute, and consume.   
 
Governments can be classified by their economic policy.  The [[U.S. Constitution]] provides basic protections for [[private property]] that are the foundation of American economic policy.
 
Governments can be classified by their economic policy.  The [[U.S. Constitution]] provides basic protections for [[private property]] that are the foundation of American economic policy.
  
−
George Reisman, Professor of Economics at [[Pepperdine University]], wrote
+
George Reisman, Professor of Economics at [[Pepperdine University]], wrote: "Economics, as the science which studies the production of [[wealth]] under a system of division of labor, is actually the science which studies the production of wealth under [[capitalism]]."<ref name="capitalism.net">http://www.capitalism.net/Capitalism/Economics%20and%20Capitalism.htm</ref>
−
{{cquote|Economics, as the science which studies the production of [[wealth]] under a system of division of labor, is actually the science which studies the production of wealth under [[capitalism]].<ref name="capitalism.net">http://www.capitalism.net/Capitalism/Economics%20and%20Capitalism.htm</ref>}}
+
  
−
C. Lowell Harriss, a professor of economics at Columbia, describes economics as the study of the allocation of scarce goods and services.  In market economies, this is determined by [[supply and demand]].<ref>[http://www.nytimes.com/2008/07/13/business/13every.html?em&ex=1216440000&en=a9a6d3e97f11545f&ei=5087%0A Lessons in Love, by Way of Economics]</ref>
+
C. Lowell Harriss, a professor of economics at Columbia, describes economics as the study of the allocation of scarce goods and services.  In market economies, this is determined by [[supply and demand]].<ref>[https://www.nytimes.com/2008/07/13/business/13every.html?em&ex=1216440000&en=a9a6d3e97f11545f&ei=5087%0A Lessons in Love, by Way of Economics]</ref>
  
 
==Why it should be studied==
 
==Why it should be studied==
−
* Feelings pertaining to the alleged chaos of economic activity rest on ignorance of the knowledge economics provides of the benevolent role of such institutions as the [[division of labor]], [https://freeenterprisecenter.net/freedom-of-ownership private ownership] of the [[means of production]], [[exchange and money]], [[economic competition]], and the [[price system]].<ref name="capitalism.net">http://www.capitalism.net/Capitalism/Economics%20and%20Capitalism.htm</ref>
+
* Feelings pertaining to the alleged chaos of economic activity rest on ignorance of the knowledge economics provides of the benevolent role of such institutions as the [[division of labor]], [https://freeenterprisecenter.net/freedom-of-ownership private ownership] of the means of production, exchange and money, economic competition, and the [[price system]].<ref name="capitalism.net">http://www.capitalism.net/Capitalism/Economics%20and%20Capitalism.htm</ref>
 
* The actual basis of "alienation" resides within the psychological makeup of those who experience the problem. Ignorance of economics reinforces feelings of [[alienation]] and allows the alleged deficiencies of the economic system to serve as a convenient rationalization for the existence of the problem [ibid]
 
* The actual basis of "alienation" resides within the psychological makeup of those who experience the problem. Ignorance of economics reinforces feelings of [[alienation]] and allows the alleged deficiencies of the economic system to serve as a convenient rationalization for the existence of the problem [ibid]
−
* [[Prepper]]s and [[survivalist]]s study economics to aid in being prepared for any potential [[depression]], [[recession]] or [[economic crash]].
+
* Preppers and survivalists study economics to aid in being prepared for any potential [[depression]], [[recession]] or economic crash.
  
 
== Issues in economics ==
 
== Issues in economics ==
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* [[Theory of value]]: What are things worth?  How do we compute value?
 
* [[Theory of value]]: What are things worth?  How do we compute value?
 
* [[Economic justice]]: How are resources distributed in society?  What is the ideal distribution?
 
* [[Economic justice]]: How are resources distributed in society?  What is the ideal distribution?
−
* [[Economic prosperity]]: Which policies encourage economic growth and development?
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* Economic prosperity: Which policies encourage economic growth and development?
−
* [[Economic prediction]]: How can we use economic information from today to predict future results?  Which [[econometrics]] are leading indicators?
+
* Economic prediction: How can we use economic information from today to predict future results?  Which [[econometrics]] are leading indicators?
 +
* [[Labor productivity]]. According the U.S. Labor Bureau of Statistics, labor productivity is a measure of economic performance that compares the amount of output with the amount of labor used to produce that output."<ref>[https://www.bls.gov/k12/productivity-101/content/what-is-productivity/what-is-labor-productivity.htm Productivity 101],  U.S. Labor Bureau of Statistics</ref>
  
 
== Disciplines within economics ==
 
== Disciplines within economics ==
 
Economics is a very broad discipline, and involves the following other disciplines as well:
 
Economics is a very broad discipline, and involves the following other disciplines as well:
−
* [[Moral philosophy]]: How ''ought'' a society produce and distribute goods and services?
+
* [[Moral]] philosophy: How ''ought'' a society produce and distribute goods and services?
 
* [[Psychology]]: What principles underlie human economic decision-making?
 
* [[Psychology]]: What principles underlie human economic decision-making?
 
* [[Mathematics]]: What mathematical models can predict economic outcomes?
 
* [[Mathematics]]: What mathematical models can predict economic outcomes?
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== History of economics==
 
== History of economics==
−
{{Main|History of economics}}
 
  
 
Economic thought originated with the rise of the state.  Classical economics, or the long-run model, was articulated by [[Adam Smith]] and has since fomented the rise of free-market capitalism in economic thought.<ref>http://cepa.newschool.edu/het</ref>
 
Economic thought originated with the rise of the state.  Classical economics, or the long-run model, was articulated by [[Adam Smith]] and has since fomented the rise of free-market capitalism in economic thought.<ref>http://cepa.newschool.edu/het</ref>
 +
 +
== Labor productivity ==
 +
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''See also:'' [[Labor productivity]] and [[Labor productivity rate of the United States]]
 +
 +
Investopedia says about the importance of labor productivity to an economy, "Labor productivity is largely driven by investment in capital, technological progress, and human capital development. Labor productivity is directly linked to improved standards of living in the form of higher consumption. As an economy's labor productivity grows, it produces more goods and services for the same amount of relative work. This increase in output makes it possible to consume more of the goods and services for an increasingly reasonable price."<ref>[https://www.investopedia.com/terms/l/labor-productivity.asp Labor Productivity: What It Is, How to Calculate & Improve It], Investopedia</ref>
 +
 +
The Organisation for Economic Co-operation and Development states concerning labor productivity: "Labour productivity is a key precondition for high growth of output, employment and wages and central to long-term growth in living standards."<ref>[How does Russia compare?], Organisation for Economic Co-operation and Development</ref>
 +
 +
According to Yahoo Finance: "Efficiency in production, also coined as productivity, is one of the major driving forces behind economic resilience in a country."<ref>[https://finance.yahoo.com/news/25-most-productive-countries-per-185738034.html 25 Most Productive Countries Per Capita], Yahoo Finance</ref>
 +
 +
Investopedia indicates: "[[Education]] tends to raise productivity and creativity, as well as stimulate entrepreneurship and technological breakthroughs. All of these factors lead to greater output and economic growth."<ref>[https://www.investopedia.com/articles/economics/09/education-training-advantages.asp#:~:text=Education%20tends%20to%20raise%20productivity,greater%20output%20and%20economic%20growth. How Education and Training Affect the Economy]</ref>
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== Diversified economies, resilience and stability ==
 +
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''See also:'' [[Diversified economies, resilience and stability]]
 +
 +
Countries with diversified economies are more resilient and stable.
 +
 +
Booz & Company was a global strategy consulting team established in the United States in 1914. The firm was acquired by PwC on April 4, 2014.
 +
 +
Below is the executive summary of their report entitled ''Resilient, stable, sustainable: The benefits of economic diversification''
 +
{{Cquote|The effects of the recent global economic crisis were allpervasive, and demonstrated that no economy is safe from destabilizing external events. Resource-dependent countries, with their narrow base of economic activity, are particularly vulnerable, but all countries may have vulnerabilities stemming from a lack of diversification in one or more economic dimensions, and they must be more vigilant in managing risks to their economies. Not only must a country’s gross domestic product (GDP) be balanced among sectors, but key elements of its economy must be varied, flexible, and readily applicable to a variety of economic opportunities, and areas of overconcentration must continually be identified and mitigated. Policymakers should work to achieve greater economic diversification, in order to reduce the impact of
 +
external events and foster more robust, resilient growth over the long term.
 +
 +
For resource-rich, developing economies, the immediate imperative is to diversify export-oriented sectors, but for the benefit of long-term sustainability, they must also look
 +
at the larger picture. A strong institutional and regulatory framework and workforce development initiatives are indispensable to the diversification effort; and proper management of human capital is key, especially in those countries experiencing a “demographic dividend.” Implementing such comprehensive diversification and risk management strategies won’t be easy, but the result—a
 +
diverse, stable, and growing economy—is worth the effort.<ref>[https://www.strategyand.pwc.com/m1/en/reports/strategyand-resilient-stable-sustainable-benefits-economic-diversification.pdf ''Resilient, stable, sustainable: The benefits of economic diversification''], Booz & Company, 2011</ref>}}
 +
== Economic forecasting and economic recessions/depressions ==
 +
 +
''See also:'' [[Economic forecasting]] and [[Forecast]]
 +
 +
According to Investopedia, "[[Economic forecasting]] is the process of attempting to predict the future condition of the [https://www.investopedia.com/terms/e/economy.asp economy] using a combination of important and widely followed [https://www.investopedia.com/terms/e/economic_indicator.asp indicators]."<ref>[https://www.investopedia.com/terms/e/economic-forecasting.asp#:~:text=Key%20Takeaways-,Economic%20forecasting%20is%20the%20process%20of%20attempting%20to%20predict%20the,plan%20future%20operating%20activities%2C%20respectively. Economic Forecasting: Definition, Use of Indicators, and Example], Investopedia</ref>
 +
 +
=== Economic Forecasting: Definition, Use of Indicators, and Example ===
 +
 +
*[https://www.investopedia.com/terms/e/economic-forecasting.asp#:~:text=Key%20Takeaways-,Economic%20forecasting%20is%20the%20process%20of%20attempting%20to%20predict%20the,plan%20future%20operating%20activities%2C%20respectively. Economic Forecasting: Definition, Use of Indicators, and Example], Investopedia
 +
 +
=== Inverted yield curves and upcoming recessions ===
 +
 +
*[https://www.doughroller.net/investing/what-you-need-to-know-about-the-inverted-yield-curve/ What You Need to Know About the Inverted Yield Curve]
 +
 +
*[https://www.gurufocus.com/yield_curve.php US Treasury yield curve]
 +
=== Volatility Index (VIX) ===
 +
 +
*The Volatility Index, or VIX, measures volatility in the stock market. When the VIX is low, volatility is low. When the VIX is high volatility is high, which is usually accompanied by market fear.
 +
 +
The Chicago Board of Options Exchange (CBOE) creates and tracks an index know as the Volatility Index (VIX), which is based on the implied volatility of S&P 500 Index options.
 +
 +
*[https://www.investopedia.com/articles/optioninvestor/09/implied-volatility-contrary-indicator.asp#:~:text=Key%20Takeaways,usually%20accompanied%20by%20market%20fear. The Vix Index - Investopedia] - The VIX is used as a contrary market indicator, how institutional sentiment can be measured by VIX, and why an understanding of the VIX tends to favor long and short puts.
 +
 +
'''Key takeaways about the Volatility Index (VIX):'''
 +
 +
*The Volatility Index, or VIX, measures volatility in the stock market.
 +
*When the VIX is low, volatility is low. When the VIX is high volatility is high, which is usually accompanied by market fear.
 +
*Buying when the VIX is high and selling when it is low is a strategy, but one that needs to be considered against other factors and indicators.
 +
 +
Tools and tips:
 +
 +
*[http://finance.yahoo.com/echarts?s=^VIX+Interactive#{%22allowChartStacking%22:true} VIX Chart]
 +
 +
*[http://www.investopedia.com/articles/optioninvestor/03/091003.asp Determining market direction with VIX]
  
 
==Quotes==
 
==Quotes==
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*[[Average propensity to consume]]
 
*[[Average propensity to consume]]
 
*[[Behavioral economics]]
 
*[[Behavioral economics]]
 +
 +
Terms:
 +
 +
*[[Diversification]]
  
 
== References ==
 
== References ==

Revision as of 02:12, February 6, 2024

Face-to-face trading on the New York Stock Exchange's trading floor.

Economics is the study of opportunity. More specifically, economics is the study of the opportunities made possible by the production, distribution, and consumption of goods and services. 'Because of its primary application to government policy, it is understandable why the subject was originally known as political economy, which was its name from the time of Adam Smith to the last quarter of the nineteenth century, when the change to "economics" took place.' [1] Economics attempts "to explain the way in which individuals interact with one another, to use their limited resources to satisfy their alternative ends." [2] It is a social science, concerned with how people produce, distribute, and consume. Governments can be classified by their economic policy. The U.S. Constitution provides basic protections for private property that are the foundation of American economic policy.

George Reisman, Professor of Economics at Pepperdine University, wrote: "Economics, as the science which studies the production of wealth under a system of division of labor, is actually the science which studies the production of wealth under capitalism."[1]

C. Lowell Harriss, a professor of economics at Columbia, describes economics as the study of the allocation of scarce goods and services. In market economies, this is determined by supply and demand.[3]

Why it should be studied

  • Feelings pertaining to the alleged chaos of economic activity rest on ignorance of the knowledge economics provides of the benevolent role of such institutions as the division of labor, private ownership of the means of production, exchange and money, economic competition, and the price system.[1]
  • The actual basis of "alienation" resides within the psychological makeup of those who experience the problem. Ignorance of economics reinforces feelings of alienation and allows the alleged deficiencies of the economic system to serve as a convenient rationalization for the existence of the problem [ibid]
  • Preppers and survivalists study economics to aid in being prepared for any potential depression, recession or economic crash.

Issues in economics

Economics deals with a large number of issues:

  • Theory of value: What are things worth? How do we compute value?
  • Economic justice: How are resources distributed in society? What is the ideal distribution?
  • Economic prosperity: Which policies encourage economic growth and development?
  • Economic prediction: How can we use economic information from today to predict future results? Which econometrics are leading indicators?
  • Labor productivity. According the U.S. Labor Bureau of Statistics, labor productivity is a measure of economic performance that compares the amount of output with the amount of labor used to produce that output."[4]

Disciplines within economics

Economics is a very broad discipline, and involves the following other disciplines as well:

  • Moral philosophy: How ought a society produce and distribute goods and services?
  • Psychology: What principles underlie human economic decision-making?
  • Mathematics: What mathematical models can predict economic outcomes?
  • Ecology: How and in what quantities do households consume goods?

Branches of economics

  • Microeconomics: the study of economic decisions of firms and households acting in markets.
  • Macroeconomics: the study of aggregate economic decisions and the results of those decisions in a local, national, or world economy.

History of economics

Economic thought originated with the rise of the state. Classical economics, or the long-run model, was articulated by Adam Smith and has since fomented the rise of free-market capitalism in economic thought.[5]

Labor productivity

See also: Labor productivity and Labor productivity rate of the United States

Investopedia says about the importance of labor productivity to an economy, "Labor productivity is largely driven by investment in capital, technological progress, and human capital development. Labor productivity is directly linked to improved standards of living in the form of higher consumption. As an economy's labor productivity grows, it produces more goods and services for the same amount of relative work. This increase in output makes it possible to consume more of the goods and services for an increasingly reasonable price."[6]

The Organisation for Economic Co-operation and Development states concerning labor productivity: "Labour productivity is a key precondition for high growth of output, employment and wages and central to long-term growth in living standards."[7]

According to Yahoo Finance: "Efficiency in production, also coined as productivity, is one of the major driving forces behind economic resilience in a country."[8]

Investopedia indicates: "Education tends to raise productivity and creativity, as well as stimulate entrepreneurship and technological breakthroughs. All of these factors lead to greater output and economic growth."[9]

Diversified economies, resilience and stability

See also: Diversified economies, resilience and stability

Countries with diversified economies are more resilient and stable.

Booz & Company was a global strategy consulting team established in the United States in 1914. The firm was acquired by PwC on April 4, 2014.

Below is the executive summary of their report entitled Resilient, stable, sustainable: The benefits of economic diversification

“ The effects of the recent global economic crisis were allpervasive, and demonstrated that no economy is safe from destabilizing external events. Resource-dependent countries, with their narrow base of economic activity, are particularly vulnerable, but all countries may have vulnerabilities stemming from a lack of diversification in one or more economic dimensions, and they must be more vigilant in managing risks to their economies. Not only must a country’s gross domestic product (GDP) be balanced among sectors, but key elements of its economy must be varied, flexible, and readily applicable to a variety of economic opportunities, and areas of overconcentration must continually be identified and mitigated. Policymakers should work to achieve greater economic diversification, in order to reduce the impact of

external events and foster more robust, resilient growth over the long term.

For resource-rich, developing economies, the immediate imperative is to diversify export-oriented sectors, but for the benefit of long-term sustainability, they must also look at the larger picture. A strong institutional and regulatory framework and workforce development initiatives are indispensable to the diversification effort; and proper management of human capital is key, especially in those countries experiencing a “demographic dividend.” Implementing such comprehensive diversification and risk management strategies won’t be easy, but the result—a diverse, stable, and growing economy—is worth the effort.[10]

”

Economic forecasting and economic recessions/depressions

See also: Economic forecasting and Forecast

According to Investopedia, "Economic forecasting is the process of attempting to predict the future condition of the economy using a combination of important and widely followed indicators."[11]

Economic Forecasting: Definition, Use of Indicators, and Example

Inverted yield curves and upcoming recessions

Volatility Index (VIX)

  • The Volatility Index, or VIX, measures volatility in the stock market. When the VIX is low, volatility is low. When the VIX is high volatility is high, which is usually accompanied by market fear.

The Chicago Board of Options Exchange (CBOE) creates and tracks an index know as the Volatility Index (VIX), which is based on the implied volatility of S&P 500 Index options.

  • The Vix Index - Investopedia - The VIX is used as a contrary market indicator, how institutional sentiment can be measured by VIX, and why an understanding of the VIX tends to favor long and short puts.

Key takeaways about the Volatility Index (VIX):

  • The Volatility Index, or VIX, measures volatility in the stock market.
  • When the VIX is low, volatility is low. When the VIX is high volatility is high, which is usually accompanied by market fear.
  • Buying when the VIX is high and selling when it is low is a strategy, but one that needs to be considered against other factors and indicators.

Tools and tips:

Quotes

"Economics is haunted by more fallacies than any other study known to man. This is no accident. The inherent difficulties of the subject would be great enough in any case, but they are multiplied a thousandfold by a factor that is insignificant in, say, physics, mathematics or medicine – the special pleading of selfish interests." - Henry Hazlitt, Economics In One Lesson[12]

See also

Terms:

References

  1. ↑ 1.0 1.1 1.2 http://www.capitalism.net/Capitalism/Economics%20and%20Capitalism.htm
  2. ↑ https://www.pbs.org/wgbh/commandingheights/shared/minitext/int_miltonfriedman.html#10
  3. ↑ Lessons in Love, by Way of Economics
  4. ↑ Productivity 101, U.S. Labor Bureau of Statistics
  5. ↑ http://cepa.newschool.edu/het
  6. ↑ Labor Productivity: What It Is, How to Calculate & Improve It, Investopedia
  7. ↑ [How does Russia compare?], Organisation for Economic Co-operation and Development
  8. ↑ 25 Most Productive Countries Per Capita, Yahoo Finance
  9. ↑ How Education and Training Affect the Economy
  10. ↑ Resilient, stable, sustainable: The benefits of economic diversification, Booz & Company, 2011
  11. ↑ Economic Forecasting: Definition, Use of Indicators, and Example, Investopedia
  12. ↑ http://www.fee.org/library/detail/economics-in-one-lesson-pdf-doc-audio#axzz2KvMNXzEn
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