Why do we need to know economics?

Why do we need to know economics?

Published 1 month ago in category Economy

I wanted to share a few words on this topic for a while, and while I admit that in no way I am an expert on this topic nor I have advanced knowledge on it, I am studying it for quite some time now and I truly believe that everybody needs to know a thing or two about it. It is the single very most important thing that affects our life the most and we are a participant in it whether we like it or not.

As I like to say, life is a game which you are playing whether you like it or not, so the least you can do is to learn its rules. It is crucial for us to know how the economic machine works in order to answer some basic question about our lives.

I am going to point out a few basic concepts I find most interesting and useful to know about and in the end I will leave some resources that might (or not) interest you which helped me understand this topic better.

First things first

So, what is the economy anyway? When people hear about it, they instantly think about stock markets, banks, governments that move around huge quantities of money, big corporations or math that is just impossible to comprehend. But in fact, the things are far more simpler.

The economy is when we make transactions with money and studying the dynamics of them. Having a more formal definition, we can say that economics study how goods and services are produced, exchanged and consumed at big scale (macroeconomics) or at a lower scale (microeconomics).

What makes people want to buy something? Why do we buy something? Why do companies pay people for their work? Why do some products cost more money that other products? Why the same product cost more or less, depending on the region? What is money anyway?

There are a lot of questions like these that at first seem trivial, but as we try to come up with a decent answer, we discover that we don't really know it or put it into words. We have a hunch what the answer might be, but in fact we are clueless. Unfortunately the system fails to educate its people on these topics.

The fundamental idea behind the economy is supply and demand and that price is demand divided by supply. That's it. If you transpose anything in terms of supply and demand, you can figure out pretty much anything from an economics point of view.

The economic machine

The economic machine is huge and is composed of many markets. There are markets for basically anything and we need to figure out how some markets evolve over time and how we can profit out of them. By profiting out of them I don't mean to speculate, I mean to use that knowledge in our advantage.

For example, we know that technology is booming right now, so the demand for technology specialists is rising. We can pursue a career in technology knowing that we will have higher and higher wages as the demand is rising and the supply is rising at a slower rate and can't keep up.

This is already happening in Romania where companies basically fight each other over programmers. Having an eye over the main economic indicators can help us predict where the national or global economy is leading to and we can use that to make better choices. For example, by tracking the inflation rate, we can predict if the interest rates are going to rise or fall, and decide to take more advantageous loans.

By tracking how the housing market evolves, we can make a decision if it is the proper time to buy a house or we should wait for a few more years and so on. Of course, there is much more on this, but I am not going to cover everything in this post. as there is much more to say. I attached at the end of the article the "How The Economic Machine Works by Ray Dalio" video which helped me understand the basics of this topic and sparked my interest in in.

Resources

How The Economic Machine Works by Ray Dalio - https://www.youtube.com/watch?v=PHe0bXAIuk0