Economic literacy

/ 9 September 2008

I took my undergraduate economics class during the first clerical union strike at Yale. I refused to cross the picket lines, and our econ professor supported us by lecturing in his apartment to those of us doing this. Unfortunately there were only a few of us, and our professor would often doze off in the middle of his lecture. So we’d be sitting in his apartment not learning a whole lot. Econ was the only class I took at Yale where I got less than a B. Why do I share this story? Because ever since then I’ve wished that I had paid more attention. Now our country is in the midst of a major economic crisis, and I don’t understand most of what is going on.

I am, thus, very grateful that a few activists at DailyKos have chimed in and decided to do a basic series on economic literacy. Here's one of their first efforts, a primer on debt. I was particularly intrigued by their simple and clear explanation of how "debt is money." It makes our current crisis all the more logical. An excerpt to whet your interest:

So how does this affect you and me? Our economy runs on debt, though that's usually spelled "credit". If manufacturers cannot get credit, new products and product improvements don't happen, and for many if not most production in general shuts down. Innovation and advances in technology go into hibernation. If agriculture cannot get credit, crops don't get planted. If retailers cannot get credit, they cannot buy and have nothing to sell. The economy contracts and unemployment goes up. This leads to further debt defaults, as the unemployed cannot pay mortgages or school loans or car payments, and this is the income stream that supports so much corporate debt. We go into a positive feedback loop of the bad kind (death spiral) and it is really really hard to pull out.

One last thing: the next round of mortgage resets should play out by 2011. We have a ways to go yet before the great deleveraging is over. But it is not too early to call for increased transparency, increased oversight, increased margin requirements, and reduced conflict of interest. It is not too early to call for accountability. If anything it is too late -- but late is better than never.

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