Economic illiteracy permeates modern society. From the everyman to the highly educated, economic fallacies are regularly repeated, resuscitated, and released into the public discourse. The effects are pernicious. For example, in New York, policymakers continue to enact rent controls, even though most economists agree they are harmful.
As Henry Hazlitt states in Economics in One Lesson, “Economics is haunted by more fallacies than any other study known to man. This is no accident.” Our understanding of math and physics are not influenced, as Hazlitt describes, by “the special pleading of selfish interests.”
In addition to Hazlitt’s classic, many recent books detail common examples of economic illiteracy. James Otteson describes seven persistent fallacies in Seven Deadly Economic Sins. Caleb Fuller’s No Free Lunch: Six Economic Lies You’ve Been Taught And Probably Believe also comes to mind. Among such fallacies are the belief wealth is zero-sum, economies can be planned by great minds, protective tariffs are useful, economic “self-sufficiency” is good, and “price gouging” is harmful.
The root of the problem is clear: we are not learning sound economics.
Per Bylund’s latest book, How to Think About the Economy, A Primer, expands on Hazlitt’s foundation to tackle this problem.
Bylund’s primer offers a different framework than describing economic fallacies or focusing on one lesson. It is more ambitious. Instead, he uses three sections, economics, market, and intervention, each containing chapters about different economic concepts, to impart basic economic literacy to readers. The primer is barely over 100 pages long and written in plain English, making it accessible to readers from all backgrounds.
Beginning from sound first principles, Bylund describes what economics is, so the readers can understand the scope of what they will learn. Economics is a way of thinking, not a set of tools. If economics were merely a toolkit, it would be indistinguishable from applied statistics.
Alternatively, Bylund paints studying economics as understanding an ongoing process where humans use means to attain ends. He states, “the task of an economist is not to predict the specifics of the future but to uncover the underlying processes that produce the economic outcomes that we observe.”
Next, Bylund takes the reader to where economics happens, the market. He begins by detailing the economy as a process, not a factory. If we look at economies as mere snapshots of production, we understand little about how they work. As Bylund states, “without recognizing the process, it can be easy to conclude that a specific situation is inefficient, wrong, or unfair and also to think that it is easy to improve upon it, right the wrong, or calculate the outcome that is less unfair.”
Put differently, if we miss the process, we ignore why and how things work, leaving conclusions and policy prescriptions ill-informed.
Further, the economic process is coordinated. Goods and services emerge through countless individuals and institutions working together. And, perhaps most important, the process is continuous. Businesses produce goods for present and future consumers, succeeding or failing based on our demand for their services.
Importantly, Bylund does not forget the star of the economic process: the entrepreneur. In modern economics, the role of the entrepreneur is understudied, underappreciated, and abstracted away by models and statistics. But, to understand economics, one must respect the role entrepreneurs play in driving production in market economies.
Beyond entrepreneurship, Bylund shows how to measure value and the emergence and importance of money and prices. Money and prices set the stage for the following topic, economic calculation, the core of any functional economy.
The third and final section of the book deals with where things go wrong: intervention. Bylund covers two forms of intervention, regulatory and monetary. In doing so, he provides explanations not usually found in mainstream economics texts, let alone primers. These chapters elucidate the actual cause of boom-bust cycles (monetary intervention) and uncover the hidden costs of regulatory intervention.
Although the reader would naturally be depressed after reading about the harms done by monetary and regulatory interventions, Bylund’s conclusion is uplifting. He reminds readers of what they have just learned, a robust thought process for understanding the world.
Economic literacy can create positive change, as it shapes our decisions and opens our minds. Here’s hoping this short book finds its way into many hands for years to come.