TITLE : ECONOMIC LITERACY: WHAT EVERYONE NEEDS TO KNOW ABOUT MONEY AND MARKETS.

Preface

Economic Literacy for Writers and Speakers . . . and Their Audiences

Your economic literacy is the ability you have to read and to write about the economic conditions that affect your material well-being. It is the ability to understand, to discuss, and to react to the events that shape your economic environment.

Economic literacy is not just for economists. The successes you enjoy in your profession and in your investments are only partly determined by your skills, experience, and accumulated wisdom. Even the important people you know (assuming they like you) deserve only partial credit for your accomplishments. Your success is significantly influenced by the economic environment.

Your economic environment gives you both constraints and opportunities. No matter what business interests you have, somehow your career and wealth will be affected by the elements of the economic environment: business cycles, unemployment, wages, inflation, interest rates, financial markets, banking, taxes, government regulations, economic policies, and foreign trade and investment. Economic literacy gives you the ability to understand and to deal with these elements.

You certainly do not have to be a master mechanic to drive a car and do it well. You do not have to be a botanist to grow a flower, or a physician to take care of your body. By the same token you do not have to be a professional economist to have a basic understanding of your economic environment. This understanding would certainly help you to make intelligent evaluations and decisions as a businessperson, as an investor, and as a voter.

The 1990s is the decade of the market economy. Soviet-style economies in Europe and Asia have broken down; they are being replaced by economies that are market oriented. Many Southern Hemisphere nations are also moving in this direction. In advanced economies there is a trend toward privatization of industry. The United States and other leading nations have taken bold steps toward deregulation of businesses. All of these developments create the need to know more about the market economy and how it works. That is what this book, Economic Literacy, is about.

In the popular musical My Fair Lady, Professor Henry Higgins was so expert in phonetics that he could detect a person's social status (which was so important in his Victorian England) just by listening to him or her talk. On a bet, he gave speech lessons to the flower girl Eliza Doolittle to launch her in high society and to establish her in a career.

Economic literacy is important in the office. In the business world of today competition is so sharp that speakers and writers with only a loose grasp of economics are quickly discredited. The economic literacy you need for success is not the use of pretentious vocabulary and diction, which Eliza could employ to mislead others. Economic literacy is a sound understanding of how our market economy works, and a familiarity with its current condition.

Economic Literacy is a collection of short pieces on economics. Each article discusses what you need to know to get a clear understanding of business conditions, of economic policies that influence our economy, and of concepts that help you to understand how the economy works. Using simple English, it makes sense of those "ten-dollar terms" that make up much of the modern jargon of economics.

Economics is really about people and about the things they do. The fancy jargon that economists use among themselves and in public obscures this important fact. Throughout the book vignettes illustrate basic economic concepts on a personal level. To make sure you see the human side of economics, each article has short examples about things people do. You will meet Felicia, Bob, Juan, Terry, and others who may seem familiar to you. You will see how they behave and how their behavior, when added to the actions of many others like them, influences the conditions of our economy (our economic environment).

Many of the illustrations will remind you of people you know. However, to save real individuals from possible embarrassment, or undeserved credit, they are all fictitious. This case method has been used for years in teaching law.

This is not a textbook in economics. There are lots of those and some of them are pretty good, too, but this is not a textbook. They are fine if you have the time and commitment to learn the technical side of economics and to study theories, equations, and graphs. But remember, you do not have to be a mechanic to understand how a car works. You do not have to be an economist to understand the basic elements of your economic environment.

This book will not make you an expert on economics any more than an easily readable book on home gardening can make you a professional botanist. But if it gets you started on the subject, and if you really want to dig deeper, a college course in economics is the way to go from here.

Because this book is about people, and people are sometimes funny, there is a little humor in Economic Literacy, too. Economists are not known for their wit, nor are they a colorful lot. I know many economics professors who can cure insomnia just by lecturing! But I want to show that economics is a very human subject and that economists have important things to say about a lot of familiar things people do.

Unfortunately, there is a lot of economic illiteracy in America and in other market economies. Even though the United States is the world's leading market economy, the economic literacy of Americans is low. In 1992 the National Center for Research in Economic Education and the Gallup Organization conducted a poll entitled the National Survey of American Economic Literacy. They found that only 39% of the American public could correctly answer questions on concepts and relationships that concerned current economic issues. Even college seniors scored only 51%. These are not passing grades for a nation that is experiencing increasing competitiveness at home and abroad.

About 75% of the respondents relied on the popular news media (radio, television, and newspapers) for information about economics. Unfortunately, thirty-second news bites and two-hundred-word newspaper articles cannot be relied upon to give people adequate explanations and background for today's economic events. That is where this book, Economic Literacy, fills in the gaps.

If economic literacy is poor in the world's largest and wealthiest market economy, we can expect it to be lower in the nations that are only now struggling to develop their own market economies.

Economic literacy is more than familiarity With buzzwords and fancy terms; it is understanding. You already "know" much of the language of economics because you come across it every day in newspapers and magazines, on television news programs, during business meet- ings, and even from politicians. But if these are the places where you picked up most of your economic vocabulary, your economic literacy rests on a rickety foundation. Economic Literacy uses straight talk to address such questions as

* How can rational expectations help you to understand changes in stock market prices?

* Can the Federal Reserve control our nation's money supply and interest rates? Has it lost some of its muscle?

* What does a weak dollar mean fdr the economy?

* What is the average length of recessions in the United States?

* How does human capital effect earnings?

This handy book will give you insights you cannot pick up from the media, and that you may have missed if you dozed off in that dull "econ" course you took in high school or in college.

Many of the economically illiterate are clever about hiding their handicap; they nod knowingly, throw around fancy vocabulary, or quote economists (which can be like asking Phyllis Diller for beauty tips). Most people who are economically illiterate can read and write, otherwise it would be easier to spot them. Others may not know they are economically illiterate. The best way to help is to know the modern language of economics yourself. This means more than recognizing words; it means having an understanding of basic concepts.