Chapter 1

Introduction to the Economics of Context

Economic thinking, whether we recognize it or not, is an essential part of household, business, government, and Federal Reserve decision making. But how do we use economic information to make intelligent decisions so we can make our lives or businesses better? The answer is not complex, but it does require a certain logic that is too often missing in most economics books.

When it comes to using economics to help make decisions, what matters most is context. While economists like to argue that theory is the truth, theory only gets you so far. Economics and economic policies don't operate independent of the way people think and react. Economics is all about taking human reactions and creating a way to understand how those decisions are made. Those reactions will differ under a variety of economic circumstances. Thus, you need to know where you have been and where you are so you make a correct decision about how you can go forward.

If real people or real businesspeople want to manage their lives or their companies in a way that actually takes into account the economic factors in which they are operating, they need to know why the growth, decline, or stagnation they are experiencing is occurring. That is because we haven't repealed the business cycle.

It is all about where you are in the business cycles and how outside factors, such as the world economic activity as well as human perceptions, combine to create the economy we must deal ...

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