I love #economics because its basic principles are so powerful and generalisable (ie, it’s not just “about #money”).
I started using Greg #Mankiw’s very popular textbook “Principles of Economics” as a reference a few years ago, and since then I find myself applying its “ten principles of economics” often in everyday life.
This week I learnt that David #Henderson has been teaching his own “ten pillars of economic wisdom” for decades. Those seem good, too.
So I decided to merge both!
Hereby I present the main insights of economics condensed in fourteen principles of economics. Even if you don’t like econ as a subject, you’d do well to heed these ideas:
👉 In common (Mankiw ≃ Henderson):
- Rational people think at the margin. ≃ Economic thinking is thinking on the margin.
- People respond to incentives. ≃ Incentives matter; incentives affect behavior.
- Trade can make everyone better off. ≃ The only way to create wealth is to move resources from a lower-valued to a higher-valued use. Corollary: both sides gain from exchange.
- A country’s standard of living depends on its ability to produce goods and services. ≃ The only way to increase a nation’s real income is to increase its real output.
- Markets are usually a good way to organize economic activity. ≃ Competition is a hardy weed, not a delicate flower.
- Society faces a short-run trade-off between inflation and unemployment. ≃ Creating jobs is not the same as creating wealth.
👉 Mankiw’s:
- People face trade-offs.
- The cost of something is what you give up to get it.
- Governments can sometimes improve market outcomes.
- Prices rise when the government prints too much money.
👉 Henderson’s:
- TANSTAAFL: There ain’t no such thing as a free lunch.
- Information is valuable and costly, and most information that’s valuable is inherently decentralized.
- Every action has unintended consequences; you can never do only one thing.
- The value of a good or a service is subjective.
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