Economics

Trade between one person and another is commerce. The value of the thing traded – whether a thing or a service – matters little. Something is traded or swapped between two parties. The value in the instant is what is traded for it. Perhaps a pig for slaughter is worth a month of cleaning a home, perhaps two months. Or maybe, a wagon wheel needs replacement, or your transmission on the car; how much you trade for the repair establishes the value of the service or thing at that moment in time.


At another time/moment, the value of the transaction will likely change. What a person agrees to give up in order to gain the service or ownership of the thing is how prices are created. Multiply this by thousands or millions and pricing becomes fairly well known and observed. Modern communication shares such information quickly and accurately, thus a prevailing understanding of value and price becomes known. We call that the marketplace, and the pricing of it.


Such transactions among households in a community makes up the local economy. Expand that to several communities in a region and a county or regional economy takes shape. Same with larger regions like states, multiples of states, and then the nation as a whole. Regional differences will present themselves but on a national scale, the economy truly does take on mighty proportions. Rules of engagement are formed to handle the logistics and protocols of all of this.  Thus banking, currency values, contract law and much more become observed routines. This becomes the infrastructure of the economy.


This is called microeconomics. It begins with transactions between two people and expands to cover an entire nation.


Macroeconomics studies economics based on a nation taken as a whole; it quickly matters then, what happens between nations. Before getting into international economics, however, understand that macroeconomics is all about understanding how a nation can and does manage its national economy for sustainable health, of it and its people.


Money and banking deals with interest rates, interest setting protocols, banking safety reserves and requirements, lending and long-term saving mechanisms. Controlling the decision making in any of these many parts, and outcomes change. Do this enough and outcomes become quite predictable.
Thus economic theory is constructed to identify desired outcomes of economic activity and how to make those actually happen. How, when and to what extent become subsidiary concerns, but still much a part of the discussion and management process.


Tariffs are a national unilateral policy mechanism. If we do not want another nation’s goods to enter our markets to compete against our local/national products, then we place an artificial price barrier to such trade. It makes buying and selling that product much more costly to the end consumer and theoretically they choose to buy local goods instead. They won’t do that, however, if the local goods are inferior and the foreign goods are much more desirable. Price helps define marginal value of anything for sale in the marketplace. Clearly, however, if a foreign good is the standard for the specific product, then the consumer will pay the difference and that becomes the price. Tariff be damned. The customer pays the price of it. Simple as that.


And that is inflationary if other savings are not provided for. This is especially so if other goods are not available to replace the product barred by tariff.


That’s enough for one posting. Variables of the above are plentiful and each can be discussed separately. But only if there is interest. We shall look at those another day.


September 11, 2019