Basic Economic Understanding

It's not that hard

If you just turn the key

--Madonna

It takes no genius to observe that degree of financial literacy is low in the US. Despite hundreds of millions of dollars of training and classroom activity, financial literacy measures along with general financial behavior of the citizenry remains far below levels that suggests ability to navigate personal financial challenges.

Part of the problem is people generally lack understanding of axiomatic principles that provide the foundation for economic decision making at the individual, organizational, and national levels. Lacking a solid foundation, it should be of little surprise that we consistently make questionable financial decisions.

Toward the end of this missive, the author notes a few of the axioms essential to fundamental literacy of markets (emphasis mine):

"Of course, dividing the stock of goods and services by a larger quantity of money does not create wealth. One of the most important lessons of economic theory is that the only way for a society to generate economic growth is to consume less than it produces. The surplus (real savings) can be invested in the production of capital goods (and innovation) that allows for greater production in the future.

"Conversely, one of the oldest economic fallacies is the idea that the economy sometimes gets 'stuck' with low production and high unemployment due to a shortage of money, and that the way to get it unstuck is to print more money to increase 'total spending' - to consume more than the economy produces. Some 60 years ago Ludwig von Mises ridiculed this as the 'spurious grocer philosophy' (the merchant's view that his products aren't selling because his buyers lack enough currency), noting that this fallacy is essentially the philosophy of Lord Keynes, the 20th century apostle of central banking and macroeconomic stabilization policy."

If only students could grasp these simple axioms, then financial literacy would improve dramatically in the US.