The Street Economist: 15 Economics Lessons Everyone Should Know

By Axel Kaiser

"If you read only one book on economics in your life, it should be Alex Kaiser's. Beautifully written and elegantly argued, it will change your mind, and maybe your life, certainly your politics. Kaiser takes you out of the lecture room and into the street, where the economy actually happens."—Deirdre McCloskey.

In The Street Economist, Axel Kaiser offers basic lessons in economics that should be part of everyone's education. It is an effort to correct the mistake of " ivory tower economists" who conceive this science as an oracular discipline that can only be properly discussed by experts. Crucial concepts such as prices, capital, demand and supply, labor, inflation, value, and innovation, among others, are explained in simple and direct language in order to make them understandable to the general public.

The Street Economist has been a best-selling book in almost all countries where it has been published. In Chile, it sold more than 50.000 copies in a year, and it is still the most sold nonfiction book after a year of its publication. It is now being published in 5 different languages.

• Language: English
• Publisher: Republic Book Publishers
• Release date: Jul 11, 2023
• ISBN: 9781645720829

Book preview

PREFACE

This book is the product of several years of studying the giants of economics, whose most relevant teachings I have synthesized here in a simple, direct style for the nonspecialist reader and the general public. Among these figures are Friedrich Hayek, Ludwig von Mises, Joseph Schumpeter, Deirdre McCloskey, Milton Friedman, Frédéric Bastiat, James Buchanan, Henry Hazlitt, Jean-Baptiste Say, Jesús Huerta de Soto, Adam Smith, and Israel Kirzner. Concepts such as innovism and creative destruction are drawn from the work of economists like McCloskey and Schumpeter, while the ideas on entrepreneurship, prices, capital, demand, work, and free trade, among many others addressed in this work, are based on the writings of Hayek, Smith, Huerta de Soto, Mises, Say, Kirzner, and Friedman. The book’s simple and direct style was fundamentally inspired by Bastiat and Hazlitt, the greatest promulgators of liberal economic thought. To all of these giants I owe my passion and understanding of the foundations of economics and free society. Similarly, to my study of nonliberal economists, such as John Maynard Keynes and Karl Marx, I owe the further strengthening of the teachings offered by those who inspired this work.

INTRODUCTION

There is probably no discipline that matters more to people’s lives than economics. And yet, illiteracy on this subject is more widespread than on just about anything else, with the possible exception of the natural sciences. Those are usually not a part of the popular discourse. It is not a matter of individuals lacking either higher education or the habit of reading who are ignoring basic principles of economics—as is the case with history, literature, philosophy, law, and other areas of the humanities and social sciences. With economics, it is a curious fact that the most enlightened elites are usually those who are among the most misinformed persons on the subject. A perfect example of this would be political philosophers who speculate about the redistribution of wealth or the creation of just institutions without having the least idea of how to create the wealth they intend to redistribute, and even less knowledge of the effects produced by such redistributions for the sake of social justice. Something similar can be said of artists in general, who dream of changing the world through mere emotions and impulses, leading them to support devastating political movements.

Certainly, there have been great debates within economics, but on this point, it is reasonable to say that there are some accepted basic principles. It is the explanation of these basic principles and concepts of economic science that this simple effort is devoted to. The worst mistake made by most economists has been the failure to communicate their knowledge in plain language accessible to all persons, reserving it instead for a minority of specialists whose jargon sounds incomprehensible and cold. These are armchair economists who have done little to educate broader groups of the population about their area of expertise.

This book does not intend to make original contributions to economics as a science but rather to share with the general public—whether they have been educated on other subjects or not—the economic lessons that should be part of the general knowledge of every citizen. As such, it is a work that cannot—and should not—cover the universe of topics that are relevant to the subject of economics, nor can it go too deeply into what it proposes. It seeks, on the other hand, to correct a fundamental error of many armchair economists, since economics, more than a mystical discipline of a few experts, should be a means of thought that is as widespread and understood, for example, as democracy.

There cannot be too much doubt that if the citizens of the many countries understood essential questions of economics and, above all, if they thought in terms of the scarcity of resources and alternative costs, a good part of the political pathologies destroying their lives and of the ideologies that are ruining their freedom would have no chance of thriving. What we need at this point—rather than great experts debating from their ivory towers—are good street economists capable of demanding a minimum of reasonableness from opinion leaders and politicians.

It should be noted that many of the lessons spelled out in this book are counterintuitive and require a serious effort to control one’s emotions. But if we are to succeed in avoiding the ruining of our countries, we have no choice but to overcome, through rational education and simple language, the false information that predominates today. Otherwise, we will continue to be, time and again, prey to economic superstitions and the manipulation of those who exploit the widespread ignorance of the only science that deals in a general way with what we all require to exist: resources.

LESSON 1

TO WORK IS TO LIVE

A good street economist understands that the fundamental problem of human existence is economic. This statement may be unromantic; it may be considered materialistic and even shocking to those who think that things such as spiritual life, love, or the intellect are more important than mere economics. But, when it is said that the essential problem of human existence is that of economics, what is being argued is that, in order to live in this world, the first thing we must solve is the scarcity of resources.

Eating, for example, is an economic problem because it implies obtaining or creating resources to exist. Everything else depends on it, including cultural and spiritual life. If we do not eat, eventually we will die. Food is a scarce resource, unlike the unlimited air we breathe and obtain without much effort. Therefore, air is not an economic resource, even though it might be considered more important than food. Societies that have solved the basic necessities—food, clothing, and housing—of at least some sectors of the population are those that have the resources available to produce art, culture, literature, and advanced sciences too.

Like food, the development of all these areas depends on scarce resources, and so they are part of the economic problem. Just as eating is an economic problem, being able to go to the opera, to travel, to have access to medicine, or to have a private jet are economic problems, since they all involve resources that must be created to satisfy people’s needs or desires, even if some needs are more urgent than others. In short, economic goods are all those that are both in demand and scarce. Even if eating is more urgent than having a private jet or going to the opera, these desires share the fact that they are economic problems, since they all involve economic goods. Neither food nor music is freely available like the air we breathe.

Now, the simple fact that food is a scarce resource that must be produced to satisfy a vital need requires us to do some sort of productive work. In this sense, we can say that living and working are as inseparable as air and breathing. In ancient times, hunter-gatherer tribes lived by foraging for fruit and hunting for game. To do so, they had to make weapons, develop hunting strategies, scour fields and forests, and so on. All this involved effort and work. In the case of agricultural villages, they had to develop irrigation technologies, build canals, do the sowing, harvesting, and so on.

Today it is not much different except that, thanks to the free market, there have never been fewer people in misery despite the unprecedented expansion of the world’s population. Innovation has made it possible for us to live better by working less, but it has not eliminated the need to work because the resources necessary for life must be obtained just as they were thousands of years ago. If, in the future, artificial intelligence makes it possible to produce sufficient quantities of resources, we could eventually solve the economic problem, and no one would have to work. We would then all be able to devote ourselves completely to recreational activities because the resources to cover our material needs would be available, thanks to the production done by machines.

Now, the street economist must understand that it is not a matter of doing just any type of work, since one could spend many hours creating something that nobody wants. It is about doing productive work, that is, work that creates goods and services that one needs and that others need because that alone allows us to provide for ourselves and, more importantly, to acquire part of what others produce. If a person counts birds in the woods, she has no right to demand to be paid because only she puts value in this activity. If, on the other hand, she goes out to hunt birds whose meat is in demand for food, she will be able to sell it in the market and so have income that can allow her to live.

LESSON 2

THERE ARE ONLY TWO WAYS