This is a little off topic, but many of you know that I have a fascination with economics, or perhaps a better way of saying it is that I have a fascination with why many people don’t understand even basic economics. And those people vote, which is sometimes a scary thought… regardless of political affiliation as both sides often get it wrong.
Over the last few days some of my favorite economists have posted their "top three economic concepts." Sort of a strange list, as how do you rank concepts? Favorites? Most impact? But in any case the lists are intriguing.
First off, Jeff at Jeff’s Garage and Ale House, where his tag line is "ExxonMobile profit: 9 cents per dollar, government gas tax: 20 cents per dollar, who’s gouging?":
- The understanding of wealth transfer vs. wealth creation, and that the latter is applicable to the real world.
- Comparative advantage and the benefits of free trade.
- Elasticity of Demand and its relationship to increase in price (especially artificial increases due to tax policy).
Its debatable whether or not items 1 and 2 are prioritized correctly. A rejection of Zero Sum economics cannot be overstated, in my opinion. Its ignorance of the first point that continues to empower a certain political party through class envy, that’s why I kept it at number one.
Greg Mankiw weighs in on his blog with his top three:
- Comparative advantage and the gains from trade.
- Supply, demand, and the efficiency of market equilibrium.
- Market failure, such as externalities, and the role for government.
The lesson is that we can all gain from economic interdependence and that markets are a good, but not always perfect, way to coordinate people in an interdependent world.
Mark Steckbeck at The Liberal Order chimes in with his three:
- Comparative advantage
- The role of incentives and opportunity costs
- How markets spontaneously coordinate individual behavior and improve the human condition.
Craig Newmark of Newmark’s Door posts his three:
- People tend to respond to incentives.
- Scarcity, and its important corollary, opportunity cost.
- Markets tend to be low cost allocators of goods and services.
I’d put "Voluntary trade is mutually beneficial" at #4.
I personally like Jeff’s #1, Greg’s #2, and Mark’s #3. Greg’s #2 actually plays into several of the others, which is probably indicative of how powerful that concept is. So my three, admittedly simply lifted from the minds of real economists, are:
The understanding of wealth transfer vs. wealth creation, and that the latter is applicable to the real world.
Supply, demand, and the efficiency of market equilibrium.
How markets spontaneously coordinate individual behavior and improve the human condition.
From a true lean perspective I’d also add the value of knowledge and creativity of people. Maybe some day that will hit the radarscope of a real economist.