August Swanenberg - Macroeconomics Demystified

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Copyright 2005 by August Swanenberg. All rights reserved. Printed in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a data base or retrieval system, without the prior written permission of the publisher.

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To all those who have questions about our global economy.

Macroeconomics touches our lives in many ways: through the income we earn in the labor market, the interest rate on our mortgage, the rates on our credit cards, and the fluctuations in the stock market, to name just a few.

In addition, the media surround us with daily headlines such as jobless recovery, declining dollar, and widening trade deficit, as well as with commentary about federal fiscal and monetary policies and their impact on topics such as inflation, unemployment, Social Security, and health care.

Historically, the impact of macroeconomics has also been profound.

For example, the discussions about central banking in George Washingtons first administration accelerated the development of our national political parties. Thomas Jefferson and the Democratic-Republicans, who argued that the central bank violated states rights and was therefore unconstitutional, vehemently opposed federal banking, strongly advocated by Alexander Hamilton and the Federalist party.

Another example is the Great Depression (19291939), a traumatic experience for the United States and the western world, which led to the active policy involvement of the federal government in the pursuit of low inflation, full employment, and robust economic growth.

Yet despite its importance, there remains something mysterious about economics. Why? I believe there are two important reasons:

Economics language. Just listen to the economics experts who use foreign words (cost-push inflationary pressures?) mixed with comments such as this economy desperately needs confidence-boosting measures. Economics has a language of its own and, like any foreign language, we need to practice it to become fluent. Fortunately, the number of foreign words is limited and we can learn this language more quickly than, for example, French or Japanese.