Home Economics Naked Economics

Naked Economics
Read in 18 min.
Listen in 23 min.
Learn the key ideas of the book by Charles Wheelan

Naked Economics

A deeper understanding of economics and its value

Economists and the economy are often thought of as sad and boring. In his book, Charles Wheelan shows us that it does not have to be that way. Economics can be undressed of its complex and obscure language, of its complicated concepts and stand naked in front of anyone who has never studied it, nor understood it completely. Naked Economics guides us to a gradual understanding that economics as a science is not exact, and yet is of great importance in the lives of people and countries.

Naked Economics
Read in 18 min.
Listen in 23 min.

The economy keeps turning because of people’s desire to pursue their own interests

The economy is based on several assumptions, the first of which is that each person’s goal is to get the most out of their life. Since the most precious resource we have is time - which is limited - the question of its use becomes fundamental. Therefore, in our lives, we are constantly calculating the costs and benefits, of what we have to sacrifice and the advantages we can obtain from doing so. The second assumption is the idea that companies want to maximize profits, that is, earn as much as possible. An "entrepreneur" is someone who takes a thing (product or service) and works to increase its value. An entrepreneur uses his business to create new value. Another important concept we need to be clear about is the market economy, which means that all available resources are used in the most productive way possible. So companies, just like people, have to answer the following question on a daily basis: how can I get the most out of what I do? One way to think about profits is to think about prices, a company has to decide the best price for their product or service to enable them to get the maximum benefit. On the one hand, there are consumers who want to obtain as much as they can, and to enjoy the highest level of well-being available to them, and on the other there are companies who need to be productive, and make a profit. They are simple concepts, but they can reveal many dynamics that speak volumes about how the world works.

The market economy is a powerful force in improving people's lives; companies can only make profits if they offer products that really interest people, and this assumption drives them to do better and better. Unfortunately, however, the market is amoral, because it rewards scarcity and not the intrinsic value of an object or service; just think of the fact that water is free, while diamonds are very expensive (or think of medical insurance, which is not sold to those who need it, but only to those who can afford it).


The key ideas of "Naked Economics"

The economy keeps turning because of people’s desire to pursue their own interests
Incentives are important to encourage people to do their best, but sometimes they can lead to undesired results
Every economic activity creates side effects that have an impact on people who are not directly involved in the transaction
Governments can promote or hinder a country’s economy; it would be best to cut the ties between politics and the economy
The economy of information: what we know can offer us an advantage, and what we don’t know could impede our choices
Human capital is a resource that enables countries to increase their wealth and create well-being
Investments enable us to preserve, protect and collect a return on our savings
Looking at a country’s GDP is not the only way to ascertain whether it has a healthy economy
The Federal Reserve manages the money in circulation and the financial system as a whole
The common characteristics of rich countries: institutions that work, little bureaucracy, ample human capital, and the existence of property rights
Take-home message
4books preview

Try 4books Premium for free!