Economic Basics Part 1: Primer discussion

[chrisch]

hey shane,

I think it's noble that you're trying to tackle at economics, but in my opinion you might have confused some things.

"The free market tends towards full employment"
If you mean by that statement that a working economy usually has an high employment rate, then I agree with you. But to me it sounded like you were trying to say that the standard for a (free market) economy is an employment rate close to 100% (or higher then 98%).  This would be wrong. The only economy system that can provide full employment is the planned economy. If fact full employment would be catastrophic for a free market system. Full employment leads to drastic inflation.

Example: Lets say you have 3 people. Person a has a good education and has already some job experience. Person B also has a good education, but he's a complete newbie and needs some on the job training. Person C only has a mediocre education, as well as a criminal recored.

If there are 2 free spots, both person A and B get hired, person C stays unemployed.

Since person A is already experienced, he gets 1500$ person B just 1000$. Now, if person A is good at bargaining, he might get 1600$ or 1700$, but if he demands a 3000$, his employer is going to say, yeah right, drop him and hire person C for 900$. Since person C is unemployed and desperately needs the money he is probably going to take the job.

If there are 4 free spots, then not only do all 3 get hired, but person A can also demand a million dollars. After all there is no possible way for him to get unemployed. The only way the company can pay the 3000 is to raise the price for there product. Suddenly B and C are stuck in a financial crisis, but not for long. They go to their employer and also, demand 3000$. Naturally their employer also raises the price of their product, and person A suddenly can buy the same for 3000$ as the last month for 1500$.

Full employment leads to drastic inflation. Drastic inflation is extremely bad for the free market.

[MrBogosity]

No, there's natural unemployment, and that's healthy and necessart for the economy. I'll cover that in part 5. What I meant was, the free market tries to make use of as much labor as it possibly can. The fact that it tries to make use of 100% of the labor doesn't mean it can.

[IceSage]

I'm glad you made this series, Shane... Because I'm not at all familiar with economics. (Except what I learned in my high school business course, or at least, can remember.)

A couple of things I hope you explain that boggles my mind is:

1) How can we get into debt, or "borrow" money from ourselves, if the resources are finite? That seems like something you would want to avoid. (Even when you use a credit card but don't pay them back, there's still money you owe, and money for them to gain... or money they already have... or something of the sort.)

2) Which brings me to... why borrow money from ourselves, or put ourselves into debt to begin with? If there's some major project that absolutely NEEDS to get done in our government... Why borrow money at all? Why not just DO IT if it's so important? Either that, or why not increase taxes slightly to increase the goal of the project? (or whatever it is you need to "borrow" money for.)

Also, you can't exactly answer this other than people being morons... but why does the government allow themselves to waste money on projects or research that have absolutely ZERO value and has already been determined? I say this because I read on the JREF that often, OUR TAX DOLLARS are going to use in trying to research crap like dowsing, or psychics, or some sort of bomb sniffing product, or something of the sort that 5 year old could tell you doesn't work. If we'd stop investing in that crap, maybe we'd have enough to pay ourselves back...

Sorry if this sounds dumb to you, but like I said, I'm completely ignorant of wide scale economics.