Economics: learned a lot about the company dough

One of the important skills to gain this year to be successful in debate, especially at the novice level, is a firm grasp of economics. That sentence is going to scare the crap out of some of you. Don't let it. Economics isn't numbers and spreadsheets and TPS reports, at least not at the outset. Economics is the decisions you make every day, the story behind the objects you interact with on a daily basis.

Consider, if you will, a backpack. You probably have one, what would you say it is worth? What value does your backpack posses?

There are obviously lots of ways to answer this question. We could look at a backpack's ability to hold and organize things, we could look at all the work it took to assemble the backpack from raw materials, we could just ask you what it's worth, etc. One particularly useful way to measure value is price. When you went to a store and paid 50 dollars for your backpack, you sent a clear signal that that backpack was worth $50 to you at that place and time.

Price is a useful measure of value in that it can be easily recorded and compared. We can measure the value not just of your backpack, but of every backpack sold in the United States this year. Add in all the other clothing, food, televisions, cars, orange peelers, all the consumer products that are sold in the US. Plus all the services people pay for: mechanics, gardeners, lawyers. Plus all the items that businesses invest in to provide these goods and serviecs: sewing machines, delivery trucks, orange peeler molds. Plus all the stuff that the government buys: fighter jets, roads, $120 ashtrays. Add all that up, and you've got a measure of all the value produced in the US this year, a measure of the value of the US Economy at large.

This particular measure is so important that we give it a name: GDP, or Gross Domestic Product. GDP is a high-level metric for the state of the economy, not so much in the actual number, but in what direction it is moving. Is our GDP from this year higher than it was last year? If it is, that means that our economy is growing, and growth has been the goal of the US economy since it's inception. It may sound strange for an economy to "have a goal," but not every economic theory holds that growth is good or even possible. But in the United States, the mainstream economic theory (capitalism) maintains that growth is good.

So why should the economy grow? Well, a growing economy means businesses need to hire more people to produce more goods, which means more jobs. Growth frees up capital; if you have some extra cash laying around, you can loan it to me, and I can hopefully use it to get even more money for the both of us. Growth means that we can afford to spend money on items outside our basic survival needs and improve the collective standard of living.

It's also important to look at what happens when the economy runs in reverse. Long periods of no-growth (flat GDP, a recession) or negative-growth (falling GDP, a depression) correlate with massive unemployment, increased poverty, lowered standard of living, and worse. For instance, There's a general consensus among historians that the great depression contributed to the outbreak of World War II, which claimed millions of lives.

So, what makes the economy grow? Or, if the economy is growing, what makes it stop? Well, a lot of stuff. The beast that we call "The US Economy" represents millions of people and businesses making billions of economic decisions every day. It's impossible to say things like "X caused the recession" without vastly over-simplifying beyond comprehension. However, the study of economics gives us a variety of tools to look at macro- and micro-level behavior and make conclusions about the past and predictions about the future.

You'll be introduced to many of those tools in this guide and in your debate career as a whole. For right now, though, I'd like to introduce a principle that is at the bottom of many of them, something you need to understand before you really "get" anything else in economics: the principle of Supply and Demand.

Think back on your backpack, on the moment that you put your $50 on the table in exchange for a new bag. Two conditions had to be met for this transaction to happen: you had to want a backpack (demand) and the store had to have one for sale (supply). Of course price also factors into this transaciton, IE you had to want this backpack enough to spend $50 dollars on it and the store had to be willing to part with this backpack for $50 dollars.

So what if one of these conditions changes? Let's say that tomorrow there's a global shortage of ripstop nylon. Suddenly the backpack manufacturer is going to have to charge the store much more for that backpack to make a profit, so in turn the store prices it at $100. But you aren't going to spend more than $50 on a backpack, so the transaction never happens. Lower supply of ripstop nylon with the same demand raises the price. You can imagine a similar interaction if demand moves. A new trendy (high-demand) backpack can be sold at a higher price, but if schools everywhere ban backpacks (cutting off demand), stores will have to cut their prices to keep selling backpacks.

Now, It's easy for me to show in the abstract that high supply/low demand means low prices and low supply/high demand meand high prices, but in the real world it's not always so simple, especially when we get to the macroeconomic (large) scale. A common argument amongst economists is the chicken/egg question of whether the government should focus on supply or demand when trying to coax a hurting economy into growth.

Another important consequence of the supply/demand principle is that a mismatch of supply and demand creates incentives. Return to our nylon shortage. Right now the store is losing out on your business (and, perhaps, the business of others in a similar situation) because their backpacks are too expensive. This demand-without-supply creates an incentive. If someone discovered a new, cheaper method of manufacturing nylon, they could sell a backpack for half the price. Their $50 backpacks would be flying off the shelves while the $100 backpacks collect dust. One of the foundational tenets of modern economics is that people, in general, respond to incentives.