Understanding Economics

On last night's Real Time with Bill Maher Maher admitted he doesn't understand economics. (He apparently took a course in college and didn't get it.) But when looking at the economy, his gut reaction is pessimistic. The housing crisis. Foreign ownership. And President Bush is at the helm of it all.

Economics is counter-intuitive and so it should be no surprise that people have trouble with it. It should also be no surprise your instinct is often wrong. All of the issues Maher listed are each a small piece of a much larger puzzle.

The housing crisis. Housing is one sector of the economy. It's a big sector, but compared to everything else, it's small. It's certainly connected to many other parts, but the same can be said about any facet of any economy. A housing crisis doesn't mean an economic crisis just as a lite candle doesn't means your house is on fire.

Foreign ownership. China (let's set issues of methodological individualism aside) may own our mortgages but that does not mean panic should follow. So what if they own them? What's missing is a reason to care. When someone hears "they" own our stuff there's a xenophobic gut reaction of fear. It's groundless. "They" invested in our economy and so China have less of a reason to work against us.

President Bush is at the helm. Economics is not about one person "at the helm." Economies are based around countless interactions among billions of people. The President of the US has an influence, but so does celebrities, CEOs, other leaders, entrepreneurs, inventors, teachers, bankers, machinists, managers, and legions of others. No one person is in charge.