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Understanding “The Economy”

Help a beginner out? What does it mean when people say “The economy is doing good?” What information are they looking at to decide that? Where do you find information that indicates when stuff is good or bad, like the economy or housing market?

The economy is a big, wide-ranging concept. Referring to “The Economy” is sort of like talking about “Our Society” or “Western Civilization” or “The Climate”. It’s a huge, complex system with a lot of aspects, variables, and points of view. When we talk about the economy as a whole we’re taking into consideration a lot of pieces: taxes, the price of goods, buying patterns, the stock market, imports and exports, loans, interest rates, the amount of money in circulation… The list goes on.

When people make statements about the economy, especially board statements like “The economy is doing well,” they’re usually summing up a complex situation. In fact, in this case, they’re making a subjective assessment of a complex situation. Typically, a person making general statements about the economy are giving a short overview of two things: a trend in one small aspect of our economy; and their opinion on it.

Let’s boil that down a bit. Usually when people say the economy is doing well or poorly, they’re talking about a specific aspect: like whether the stock market is trending up or down; or whether housing prices are rising or falling; or the rate of unemployment is going up or down. This defines the aspect of the economy they are making a statement about.

The second part (whether this is “good” or “bad”) depends a lot on the person’s point of view. For example, if minimum wage is going up, this is probably a “good” thing if the person speaking is an employee, but a “bad” thing to a person who owns a small business. If interest rates are going up, that’s “good” for people lending money, but “bad” for people borrowing. Likewise if a person is looking to invest in the stock market, they’ll think it’s “good” if stock prices are falling as it means they’re getting a discount. However, someone who is heavily invested will regard stock prices falling as “bad”.

In other words, whether a trend in the economy is good or bad depends a lot on a person’s perspective. And the economy is such a large, complex system that it’s hard to view it as a whole; people usually focus on one or two pieces of it when making an analysis.

As to where people go to find information on the economy (or its many aspects), most will turn to financial news sites or journals. The CNN Business page, for example, covers a lot of stock market and trading information. The Forbes website and magazine offer a lot of articles on various elements of the economy and business. The Wall Street Journal has sections covering business and economy you may find interesting. These publications (and others like them) are a good way to start learning about market trends, various pieces of the economy, the stock market, and what people in various economic fields think about what is happening in the economy at the moment.

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