KITCHEN TABLE ECONOMICS: INTRO

KITCHEN TABLE ECONOMICS: INTRO

            What do you and Jerome Powell—Chairman of the Federal Reserve– have in common? Simple: you both understand economics!

The most learned and famous professor and the average American can both grasp the basic, simple truth of economic law. In fact, the average man and woman can have a better grasp of the subject than the college professor, because the everyday person must constantly test theory against reality. What gives the normal, everyday American a PhD in applied Economic Science? Simple: the kitchen table.

            The kitchen table? That famous place in most every household, where income is reckoned, bills are paid, taxes calculated, grocery lists drawn up, and families make decisions about what to buy and where to spend—or not spend. Every home in America has a kitchen table. Maybe some families don’t do these things around an actual kitchen table, but I’ll guess most do.

            Every kitchen table represents a basic economic unit: a person, family, household. It can be one person living alone, a couple, a family large or small, or a rental house where a bunch of people live together—like when I was in college. At the kitchen table, you automatically apply basic economic laws. You’d be amazed how many people get doctorates in Econ, but forget the laws of the kitchen table. Here are a few:

            1) Real is real. Your income is what it is, not what you want it to be. Your bills are what they are, not what’s ‘fair.’ The electric bill, the gas bill, the food bill can’t be pretended away. At every kitchen table sits reality.

            2) You can’t spend more than you take in, not for long. The formula is simple: draw a vertical line up and down, put a plus on one side and a minus on the other. Like this:

Plus on One side, Minus on Other

            You have to either make the plus side more or the minus side less. If there’s more plus side than minus, the difference is called a ‘surplus.’

A SURPLUS!! HOORAY!!!

More on the minus, it’s a ‘deficit.’ 

DEFICIT! Not so good…

Deficits can be paid for by spending savings, including selling assets, or by borrowing.  Borrowing adds to the minus side, by adding debt and the cost of payments and interest.  A deficit that goes on too long leads to insolvency and ruin. You can’t spend out what you don’t take in—not forever. Everyone at the kitchen table knows this.

            3) Nobody can afford have all they want all at once. Even the Queen of England had to let tourists into Windsor Castle to pay for a new roof. The richest guy in the world can’t afford to buy and operate an aircraft carrier. The richest industrial corporation in the world couldn’t afford to give all its employees free health care and pensions on retirement. The richest country in the world can’t afford two wars forever, along with expanded social programs.

            So everyone has to make choices between what they want and can afford. They have to choose what’s more important. The kitchen table is where they make these decisions, called “prioritizing. Everyone does it. We make those choices based on what we think will fill our needs as we understand them. The vacation versus saving for college? A new TV or a new roof? Either way, we know we can’t have them both.

            4) Everything’s got to be paid for. Sooner or later. The kids may want to go to Disneyworld, but the grownups around the kitchen table know that can’t happen this year. If you want something, you have to figure out how to pay for it.

            These are laws of the kitchen table. Now here’s a little secret: there’s no real difference between your kitchen table and the Federal government, your state, city, General Motors. In fact, every economic unit is just a big or small kitchen table. So there you go: sitting around your own kitchen table, you grasp as much basic knowledge as the most celebrated economist or government planner. So let’s take a Run through Reality: Kitchen Table Economics.

It’s all the same: big, small, national, global.

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