Economists are in the midst of another revolution, even more dramatic than the one they went through in the 1930s and 1940s. Economists have abandoned their widely accepted view of how economies work, and it’s as if workers no longer own their tools.”I don’t care about economics. Enterprise software is built around thousands of predefined business processes that reflect: “The way the company does things” instead of the new world order of “The way things get done.” Economics is a fascinating subject. People tend to either love economics or hate it, and it plays an important part in society. Unfortunately, it’s currently being taught incorrectly at most universities around the world, and this article aims to clear up some misconceptions about how economies really work.
15 Things You Need To Know About Economists Today :
1. Economists have abandoned the idea of saving and investing.
In the old days of the Industrial Revolution, economists held a view of economies that led to much prosperity. Economists assumed that individuals voluntarily save and invest money, such that savings and investment push up wages and prices. This was based on a simple calculation: If about half of all income goes to purchase goods, then about half of all income is left over for consumption, which means only a little more than half of total income flows into consumption over time. As Keynes put it: “Savings are made when there is unused disposable income.
2. Now, the prevailing view is that savings are bad.
Over the decades, economists have come to accept another view of the economy: that savings are a bad thing. Work results in saving. As Keynes once said: “Save, and you’ll spend more; spend less, and you’ll save more.” Economists refer to this as the “wealth effect,” because it means: “Saving increases wealth.” The problem is that most economists no longer believe in a fixed amount of money entering into consumption over time from savings.
3. We use more than half of all income for consumption.
Most people assume that they only spend 50% of their income! But this is not the case at all. Economics textbooks tell a story of people saving and investing their money, which is based on an old-fashioned model of saving and investment in place through the 19th century. In this view, each year about half of our income goes to purchase goods, so 60% is left over to pay taxes (on top of which we save as well). In other words, in the old-fashioned view, each year we consume less than half of our total income.
4. Savings rates are too low for spending increases on new capital equipment.
We don’t use about half our income for consumption—we use more than that! Only a small percentage of our income goes into savings and only a small portion of this ever gets saved up into capital equipment, never mind whether or not it will ever get invested (which is unlikely). In the 21st century, the financial system spends most of its income on interest payments and fees, so “There isn’t enough left over to invest,” as economist J.M. Keynes said: “We are being afflicted with a new disease…that of believing that an epoch which has had no returns to savers is necessarily a bad one for investment.”
5. Technology is responsible for most economic growth today.
During the Industrial Revolution, economic growth was caused by savings and investment in capital equipment: machines replace human labor only to increase productivity (and thus increase wages). This led economists to assume that savings and investment were needed for growth. Today, most economists believe that economic growth is caused by technology. This means we don’t need savings or investment capital to determine our wages and prices. This encourages people to work longer and harder, thinking they will get higher wages.
6. The global standard of living has been flat for 70 years.
In the 1950s and 1960s, economists assumed that the global standard of living was rising (as indicated by economic growth), which led to widespread optimism in society. But since then, there has been a lot of flatness in wages and prices. In this respect, economists have abandoned their widely accepted view of how economies work, and it’s as if workers no longer own their tools.
7. Economists are trained to believe that full employment is impossible.
University economists have been trained for decades to believe that the global standard of living is increasing, but the truth is that most people are not benefiting from this new economy. Economists are constantly taught to believe in “supply-demand” economics, which means they think all markets should be in equilibrium at all times and if they aren’t then something must be wrong.
8. Jobs today are not well paid compared to the 1970s and 1980s.
If we are not working as much as before, then it is no wonder that wages have not kept up with prices for decades. Economists believe it is impossible for jobs to pay less after full employment ends because if they did then wages would fall and people would lose their jobs (this is called “the Invisible Hand”). The problem is that economists assume full employment will be achievable at all times, even when unemployment actually hovers above 10% in the USA.
9. Most workers are getting paid on average less each year.
This is not easy to admit for economists, but most people assume their standard of living should be increasing over time (and they assume this is due to their own hard work). But this is not the case for most people. The last six decades here in the USA have been marked by slow growth, deflation, and stagnation. There are many reasons why this has happened, but none of them fit into most economists’ understanding of how economies work.
10. We cannot grow without increasing debt.
Economists believe that economic growth may only occur when we solve the “too much debt” problem. They think that governments cannot spend enough to expand the economy unless they first reduce their debt and taxes (which reduces the amount of money flowing into government coffers).
11. Social Security could be a problem for future generations.
The financial crisis of 2008 made it evident that the Baby Boomers (born between 1946 and 1964) are going to be retiring en masse in the coming years. As a result, the IOUs they have accumulated will be flooding the market, and this could make prices fall because they will need to be paid back with fewer dollars (because there is less money than before).
12. Most economists are ignorant of the reality of technological unemployment.
Most economists think that if we are not working as hard, then our wages should be increasing. But in reality, most people aren’t working less because they want to work less—it is because they cannot find jobs! Few people realize that technological unemployment does not lead to an increase in wages or prices when we are already at full employment (this is likely to be a surprise for economists).
13. Most people assume there will be a replacement for them when they stop working.
This is especially true for former industrial workers. Many workers are afraid they will not have a job to go to when they retire, which makes them desire to work hard and keep the “economic engine” running. But the truth is that most people in the 21st century cannot expect to shop, visit friends, or get groceries at their local supermarket when they stop working (at least until a lottery happens).
14. The economic system is the problem and not the solution.
Economists believe that their job is to make governments work better. So they go to work every morning thinking that their main purpose in life is making their governments better. But this is a false belief because governments do not cause or cause problems—the economy causes both problems and solutions! As such, I would argue that everything we struggle to fix in politics today (economic inequality, food insecurity, social problems, etc.) can be fixed through a better economy—not a government program.
15. Economists have been lying for years about the “full employment” myth.
There is a deep-rooted belief in prominent economists that full employment should be possible at all times. They believe this because they believe we can create jobs at will (even when there are millions of them). But the reality is that full employment can only be achieved when we have a free market economy with as little government intervention as possible.