Author: Jacques Delacroix
This period of economic turmoil and controversial government intervention is a good one to improve one’s understanding of some basic words. So, here is an easy assignment. Let me know if you want more of the same, please.
There are some technical terms used and misused in the media all the time and that most people don’t understand and/or also misuse. If you learn them, you will quickly appear better informed than 90% of the population. In the not-so-long run, you will actually greatly improve your real grasp on the news. The list is in no particular order except where it’s obviously useful to impose some order.
I put in my own comments about some of these terms because of stuff I learned while teaching undergraduate students.
Here is the learning approach I recommend: Saturation works. It works best when you look at the same thing from different angles. Look up these terms in different sources. The shortest definitions are not necessarily the worst. If what you read is too hard for you, switch to another source and go back to the first source later. Don’t get a headache for nothing!
The point is not to memorize but to understand.
Gross Domestic Product (GDP)
Gross National Product (GNP) is a similar term you don’t need to understand right away.
Gross Domestic Product per capita
American GDP per capita was bout $46,000 in 2008.
That’s a useful thing to know because it allows you quickly to put large numbers in perspective, your share of the Pelosi-Obama stimulus package, for example. I don’t mean how much you will get but how much of a debt you will be responsible for as a result.
Recession.
There is a clear, widely accepted technical definition. Find it. Don’t use the word like a fool.
GDP growth
Orders of magnitude: 3% per year (annual) is good for a rich country. 1% is mediocre. It’s a percentage so, small differences in the rate of growth result in big differences in absolute terms. That’s just like the % the bank pays you on your savings deposit.
6% annual growth is common for poor countries. 0% is also common for poor countries.
Federal Budget
Who decides what the Federal Budget will be in a given year?
The US Federal Budget eats up what percentage of the US GDP, on the average?
Line-Item Veto
Federal Deficit
National Debt
Calculate it as a % of your income. Don’t be shocked if it’s more than 100%.
Taxes: A tax is money taken from individuals and organizations to support government programs. In the United States, all government entities have the power to tax. In many but not all countries, there are different tax rates for different kinds of people. Pay attention to this.
What % of the money Americans earn goes to the several levels of government, total?
What’s the % like in other countries?
Trade Deficit
Don’t confuse the Trade Deficit with the Budget Deficit (see above). There is no connection between the two or, if there is one, it’s complicated and controversial. Forget it. Just don’t mistake one for the other.
Export/ Import: An export is something of value produced in one country (generally) and sold in another country. That something is viewed as an import in the country where it is sold. Each country keeps track of its exports and of its imports. When a country’s value of imports is higher than the value of its export, that country has a Trade Deficit. Why anyone cares about Trade Deficits is a complicated story, and controversial. Keep this concern for later.
Warning: Although people talk that way all the time, countries, such as the US, Mexico, France, etc, don’t really produce much of anything. So, they don’t “export.” Rather economic actors in those countries produce and export. Those economic actors are organizations and individuals.
Quiz: Does France produce and export wine?
Money
That’s the most important word, actually.
It’s worth a lot of reading.
What features must an object possess to be used as money?
If you are interested in this subject, look up, “cowrie shells.”
Monetary Policy
Federal Reserve System
That’s a big chunk. Deal with it on a rainy Sunday, or two. Yet, it’s essential. Many people think money’s value goes up and down according to supply and demand, like the cost of apples. Many people think the value of money is decided by government. Both are right and therefore, both are wrong.
World Bank (IBRD: International Bank for Reconstruction and Development)
International Monetary Fund (IMF)
Commentators often confuse IBRD and IMF. They are similar but distinct, like two sisters.
Currency
Monies used by different countries are called “currencies,” for no particular reason. The American national currency is the US dollar. The currency of Mexico is the Mexican peso. The currency of several European countries (but not all) is the Euro.
Many countries pretend to have a currency but don’t. Look up “pegged currencies.”
Exchange Rates
Usually, the term has to do with national currencies (see above). The term raises the question of how many pesos you can get for a US dollar, or how many pesos you have to give to get a US dollar. Or, how many fractions of a US dollar (cents) a peso will buy you.
It’s an interesting topic. It tells you a great deal about many different things.
Common fallacy #1: Once you know how many of the currency of one country it takes to buy something, a good, or a service, you know nothing about the cost of living in that country, contrary to a common perception.
Quiz: In India, it takes about fifty thousand Indian rupees to buy a small car. Are cars expensive in India?
Common fallacy #2: Once you know how many of one currency it takes to buy another currency you have learned little or nothing about the cost of living in the country that uses the first currency.
Quiz: It takes about 120 Japanese Yens to buy a single US dollar. What does this tell you about the cost of living in Japan?
There is a little more to this story. I hope you learn it.
Inflation
Where does it come from? What are its most frequent causes?
“Laissez-Faire”
It’s a French term. Make sure you say it right. There is no “z” sound in it. It’s pronounced like the “s” in “solution.” If you mispronounce it, I will find you and treat you contemptuously.
The Doctrine (or “Law”) of Comparative Advantage
It’s both tremendously important and difficult for most people.
Yet, if you don’t understand it, you probably don’t understand the real reason there is trade between countries. You also probably don’t understand the economy in general. Many politicians don’t get it. Most college professors who are not in Economics don’t get it either.
Here is a lighthouse to help you navigate this rough spot of sea:
If I stop doing what I am doing badly and switch to what I do well, my productivity will rise.
If everyone stops doing what he is doing badly and switches to what he does well, everyone’s productivity will improve.
Quiz: Canadians like bananas. Should Canadians grow their own bananas in Canada?
Quiz: What does the search for national self-sufficiency do to the economy of a country?
“Buy American” policies.
There is a limited “Buy American” clause in the Pelosi-Obama stimulus package of Presidents’ Day 2009. It’s obviously intended to save American jobs from foreign competition. Yet, I am very opposed to it.
Would you guess what my objection is? Hardness of heart? Indifference to unemployment? Or something else?
*Check my credentials on the long vita linked to my blog at: jacquesdelacroixliberty.wordpress.com
**I got the idea for this list from a brief conversation with an intelligent, curious, and well-mannered young man named “Rudy” at my local branch of Wells Fargo.
(To be continued.)
Money She Wrote Blog 