Economy, Economics And Economic Literacy

Humans need some things to live – like food, clothes, houses, etc. They obtain these things by making and exchanging them with one another. And this system of people making and exchanging things is nothing but the economic system (or simply – the economy).

Now this economic system or economy does not behave randomly. If I am holding a ball and I let go of it, what will happen? Simple: the ball will fall down. Why? Again simple: due to the law of gravity. So the ball falls down instead of going up because the law of gravity says it must fall down. That is – its behaviour is dictated by the law of gravity. More generally – the behaviour of the physical world is dictated by a set of physical laws. And these physical laws make up a science – the science called physics. Engineers build many physical systems – like machines. When they do so, they must do it on the basis of the laws of physics – for which they must know the science of physics. And we would like to understand how these machines or physical systems work. In order to do that, we must also know the science of physics.

What is true of physical systems is equally true of the economic system (economy). Just as physical systems do not behave randomly but as per certain physical laws, similarly the economy (economic system) does not behave randomly but as per certain laws of human/social behaviour – ie, economic laws. And just as the physical laws make up a science called physics, similarly the economic laws also make up a science – the science called economics. And just as we must know the science of physics to understand how physical systems work, similarly we must know the science of economics to understand how the economic system (economy) works.

Every human gets the things he/she needs to live from the economic system or economy. So the economic system or economy is directly important to every human. Thus every human must understand how the economic system or economy works. That is – every human must know economics (at least the basics). This being the case, it is shocking that we do not teach even basic economics in our schools. We teach economics only in senior high-school (ie, +2) in the Arts and Commerce streams – so the Science stream students miss out on economics completely. We must correct this by teaching at least basic economics in the 10th standard.

We must teach the most fundamental concepts of both micro-economics and macro-economics. Fundamental micro-economic concepts would include:
1. Supply and demand
2. Social surplus/welfare
3. How free-market maximises social welfare
4. How government-controls reduce social welfare
Fundamental macro-economic concepts would include:
1. Taxes and revenue
2. Government spending
3. Fiscal-deficit and debt
4. Subsidies, loan-waivers and welfare-schemes

Economic literacy is also essential for the healthy functioning of a democracy. One of the most important functions of a government is to manage the country's economy properly. If people don't know even basic economics, how will they evaluate the government's performance – and the opposition's criticism? And how will they make the right choice in the election?