Economics teaches two very important lessons. Everything else in economics is based off these two things.
The first thing is that: People only look at the consequences of a policy to one group not all groups.
I’ll give you an example of this. I think this one is the easiest to understand. This example is called the Broken window fallacy. A boy destroys the window of a baker. The baker has to use his money to replace the window, which the glazier has to fix. This causes the glazier to get more business and money than if the boy hadn’t destroyed the window. It might seem like, the window getting destroyed had actually benefitted the community. If you look at all the groups it shows a different picture. The money that the baker used on fixing the window, was going to get used for a new suit. The community is actually one suit poorer. This is not completely obvious, because the tailor, never enters the picture. You only see the glazier and the baker. The broken window fallacy is the essence of the first lesson. But it can get much more complicated.
The second thing is that: People only look at the short-term consequences of a policy, not the long-term consequences.
This can be illustrated by printing money. The short-term effect of this is, that the government can spend more money on the things they want. This might seem good at first, but if you look closer it shows the true picture. In the long-term, the value of the money goes down. This is what they inflation. If you have too much inflation, your currency will eventually become practically worthless. This is what happened to the Zimbabwean dollar. The currency gets devalued because of the supply of the currency increases. The prices also skyrocket. Because they have to accommodate for the increased supply.
If you want to learn more about, Economics and how these two things interact with economics in its entirety. You get the book from HERE.
December 22, 2018 at 17:17
Good examples!