Big Picture Economics: How to Navigate the New Global Economy

Chapter 3

We Are All Economists and Don't Know It

We all have to make decisions that are shaped by the economy as we see it at the time: Can I afford a new bedroom set? Should I expand my business or cut back on my employees' hours? Should I buy a sirloin steak or ground chuck?

In this chapter, we look at how context determines not only what we buy but where we buy it. When we feel good about the future, it's off to the malls and the department stores. But even if we have the same income, when we are worried about losing our jobs, we may want to buy as carefully as possible. Under that set of circumstances, discount stores may become the location of choice. These are the trade-offs we make as we substitute one product or shopping location for another, and that is what economics is all about.

There is nothing quite like a recession to make people focus on their choices. In Arizona, we find a household trying to make adjustments as a member of the family gets furloughed. In Tampa, the mayor tries to cope with shrinking revenues. The president of one of America's largest universities has to adjust to fewer state dollars for higher education. And a businessman fears the worst but decides to expand anyway.

Context Tells Us What We Can Afford

During the 1992 election campaign, in order to keep his frequently out-of-control candidate Bill Clinton from veering wildly from message, James Carville placed a sign in the campaign headquarters that said: “The economy, stupid.” Over time, that ...