Easy economics : a visual guide to what you need to know

254 Pages·2011·12.809 MB·English

by  Leonard Wolfe, Roy Doty, Lee Smith, Stephen Buckles

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EASY ECONOMICS
Q A
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EASY ECONOMICS
Q A
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Simple answers to the questions you’ve wanted to ask
Q A
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ECONOMICS
EASY
A Visual Guide to What You Need to Know
BY LEONARD WOLFE WITH LEE SMITH AND STEPHEN BUCKLES
Illustrations byRoy Doty
John Wiley & Sons, Inc.
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.
This book is printed on acid-free paper.
Copyright © 2012 by Leonard Wolfe. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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ISBN: 978-1-118-11806-1 (pbk); ISBN 978-1-118-21899-0 (ebk); ISBN 978-1-118-21900-3 (ebk);
ISBN 978-1-118-21901-0 (ebk)
Printed in the United States of America
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EASY ECONOMICS
Q A
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W H A T T H I S B O O K I S A B O U T
Given that you were drawn to this book, chances are you are This book aims to bring you up to speed, in a way that entertains
bright, educated, and intellectually curious. And like most bright, while it informs. Don’t let the cartoons fool you into thinking this
educated people you probably know very little about economics. book is frivolous. The information is solid. We’ve collected many
of the most frequently asked questions—plus some you haven’t
Unfortunately, few of us have much of a grip on economics, even thought of—on the subject of economics. Our topics range from
when we are well-informed on other matters. But economic liter- the beginnings of money, to what makes economies grow, to
acy is vital to making sense of the world we live in. We have whether Social Security will survive, to the benefits and costs of
witnessed bewildering turmoil in the economy and the deepest globalization. No question, in our view, is too dumb to ask and
economic decline since the 1930s. We have been introduced to no answer should be too hard to understand. We’ve tried to pro-
gobbledygook terms like collateralized debt obligations and credit vide answers that are as untechnical and jargon-free as possible
default swaps. We have been confounded by subprime mortgage without shortchanging you or insulting your intelligence.
defaults, too-big-to-fail financial institutions, toxic assets, and
economic collapse in countries we never paid much attention to Reading this book won’t make you a candidate for a Nobel Prize,
before. A “haircut” is no longer just something you get at the but it will make you more comfortable with many of the ideas
barbershop, but also a loss on a bad loan. that underlie today’s important economic issues.
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T H E T E A M
Lee Smithserved as a senior writer and member Leonard Wolfespent more than 20 years at Time Stephen Buckleshas enjoyed a distinguished
of the Board of Editors of Fortunefor 20 years Inc. as an art director. He designed many of career as a university professor, author, and leader
and was its Bureau Chief both in Washington and Time-Life Books’ most successful series, was of many respected professional organizations.
in Tokyo, where his articles won citations for Associate Art Director of Fortune, founding art A specialist in economics education, he has
excellence from the Overseas Press Club of director of Time Inc.’s science magazine received numerous awards for his contributions
America. Prior to Fortune, he was a state capital Discover, and Promotion Art Director of Time to that field. He has been a board member of the
correspondent for the Associated Press and a staff magazine. Following his career at Time Inc., he Journal of Economics Education, economics
writer for Newsweek. Other publications for founded a corporate communications company editor of the Business Journal, President of the
which he has written include Timeand U.S. that produced annual reports and corporate liter- National Council on Economic Education, and
News &World Report. ature for Perrier, GE, Time Warner, ExxonMobil, Chair of the Individual Investors Advisory
Reader’s Digest, BusinessWeek, and the Wall Committee of the New York Stock Exchange.
Roy Dotyis an internationally renowned illustrator Street Journal, among many others. He currently teaches economics at Vanderbilt
whose work has appeared in the New York University.
Times, Fortune, Newsweek, BusinessWeek, Richard Warnerhas led a distinguished career as
Sports Illustrated, and Golf Digest. He has writ- an art director and educator. He was Art Director Barry Meinerthserved as a Senior Vice President
tenor co-authored 29 books, illustrated more of Sports Illustratedfollowing his early years as a at Time Inc., responsible for printing and fulfill-
than 160, and produced advertising and promo- professor of design at Southern Methodist ment of the company’s books and magazines
tional work for many corporations in the United University. Most recently, he has been involved in throughout the world. Prior to that, he was
States and abroad. He has been named corporate design, producing editorial and pro- Business Manager of both Time International
“Illustrator of the Year” six times by the National motion materials for GE, ExxonMobil, Time Inc., and Discovermagazines, Circulation Director
Cartoonist Society, and at its 2011 annual con- GM, and BestFoods. of Time International, and Production Director
vention he received the Gold Key award and was of Fortune.
inducted into the Cartoon Hall of Fame, becom-
ing only the 13th member to be so honored in 65
years.
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EASY ECONOMICS
Q A
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A C K N O W L E D G M E N T S
Creating this book has been both a pleasure and an education in it- Steve's impressive background in economics education has proven
self. And like any other worthwhile project, it has required the skill, invaluable, and the wealth of knowledge that he has brought to the
talent, and experience of a number of dedicated individuals who saw book makes it one whose substance and content one can count on
the book's promise from the very beginning and were willing to de- with confidence.
vote many hours to making it the informative, inviting, and enter-
taining book it has become. Richard's elegant format design sets the stage for the beautiful visual
presentation that is apparent with each turn of the page.
It began with a core staff of former colleagues from Time Inc. and
soon grew to include other accomplished members with equally im- Thanks, too, to Barry Meinerth, whose business acumen has been
pressive backgrounds. Together they brought a combined wealth of invaluable. To Marisa Gentile Raffio, whose unruffled professional
experience, knowledge, and talent to create a unique view of a subject manner under sometimes trying conditions made the production of
that for many has often seemed a formidable and intimidating one. the book far easier than it might have been and who has been a pleas-
ure to work with. And to Ruth Wolfe, whose talent and experience in
Credit belongs to a long list of people, but foremost among them are copyediting and proofreading played an important part in assuring
Roy Doty, Lee Smith, Stephen Buckles, and Richard Warner. the book's conciseness and clarity.
Roy has always managed to take complicated issues and ideas, condense Special thanks, too, to Caroline Gallagher Donnelly, who was
their messages, and present them in a charming and delightful way, and involved in the book’s early planning and development. And addi-
he has done so here with cartoons that both inform and entertain. tional thanks to former colleagues at Fortune, William Rukeyser
and Al Ehrbar, as well as to Michele Kalishman, Socrates Nicholas,
Lee's ability to write clearly, concisely, and with an easygoing style Greg Rogers, Steve Rogers, and others too many to mention here.
makes even the most arcane subject matter come alive in the most
interesting way imaginable. To all of you, thanks for an exceptional job well done.
Leonard Wolfe
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EASY ECONOMICS
CONTENTS
Chapter 1: MONEY page 10 Chapter 3: TAXING & SPENDING page 66
It’s fairy dust, but because we believe in it, it works Policy makers often argue over which is a better steering wheel
What happened before there was money? (cid:129)When did barter What is fiscal policy? (cid:129)Who controls tax policy? (cid:129)Where do taxes
become popular? (cid:129)Isn’t barter an awkward way to trade? (cid:129)How come from? (cid:129)How come the rich get away without paying taxes? (cid:129)
did traders get around that complication? (cid:129)When did coins What’s a flat tax? (cid:129)What’s a consumption tax? (cid:129)Who decides how
appear? (cid:129)Who decides what money is? (cid:129)When did paper money to spend money? (cid:129)How can government spending increase GDP
begin? (cid:129)What did early Americans use for money? (cid:129)How did we and employment? (cid:129)Does it work? (cid:129)Can government cut taxes to
get to the dollar bill? (cid:129) If it isn’t backed by gold, what makes the speed up the economy? (cid:129)Can government increase taxes to slow
dollar mighty? (cid:129)When did checking accounts start? (cid:129)Why did down the economy? (cid:129)What’s the bottom line? Are government
electronic money catch on? (cid:129) Will paper money disappear? (cid:129) spending and taxing good ways to fix a troubled economy?
Whatever happened to barter?
Chapter 4: GETTING INTO DEBT page 92
Chapter 2: BOOMS & BUSTS page 42 It’s been around from the beginning, but the cause has
As smart as they are, the pros can’t remove all the become more worrisome
bone-rattling bumps
What’s the difference between deficit and debt? (cid:129)How can the U.S.
What do the experts mean when they say the economy is doing spend more money than it takes in? (cid:129)Should the government ever
well or is doing poorly? (cid:129)What makes up the GDP? (cid:129) What makes borrow? (cid:129)When is borrowing wrong? (cid:129)How much debt is too
the GDP grow? (cid:129)When is the economy booming? (cid:129)Why is over- much? (cid:129)How long can the U.S. get away with this? (cid:129)Do we need a
heating bad? (cid:129)What’s productivity? (cid:129)How does an overheated balanced budget amendment to the Constitution? (cid:129)So how do we
economy cool down? (cid:129)Is that what causes a recession? (cid:129)What get out of this mess? (cid:129)What are entitlements? (cid:129)So will Social
is deflation? (cid:129)How do you end a recession? (cid:129)How long can a Security be eliminated?
bust last?