Introduction to the Chinese Version of How to Think about the Economy: A Primer

To the Chinese reader:

It is safe to say that economics suffers at least as many fallacies and misunderstandings as any other field of study. Had physics suffered the same level of issues, we would not have seen much—if any—of the progress that we have made over the past centuries. Yet, economics—the queen of the social sciences—keeps being misrepresented, if not abused, and we suffer the consequences.

Those consequences are primarily in the form of the “unseen,” or what we would otherwise have gotten, and the “unrealized,” or the possibilities and opportunities that we would have benefited from were it not for our misunderstandings of how the economy works and, therefore, our hubristic attempts to design the economy and determine its outcomes.

However, the economy is not free from limitations or structure. Whereas it certainly consists of people and their actions and interactions, there is a structure to the economy that allows us to understand it and attempt to predict outcomes. In other words, economics is a tool; it allows us to avoid costly mistakes and therefore make our lives better and our societies more prosperous.

Economics helps explain the nature and origins of the wealth that nations in the West have accumulated and provides insight into how poor nations can develop and generate wealth of their own. It should be even more important for countries like China, which have begun, made great progress on, but not yet finished its journey of developing into a wealthy country. Sound economics explains where the wealth that currently exists in China came from and how it was created as well as how China can generate more wealth. Sound economics can also guide society on how to take effective measures and avoid costly ones.

After all, it is through understanding how the economy works that we can properly grow it and take full advantage of the powers of innovation, production, and entrepreneurship. It is by understanding how the economy works that we can identify what the major obstacles are on the road to universal wealth. It is also by understanding the economy that we can make plans, both individual and collective, that have a chance of being realized. With a faulty understanding of how the economy works, planning becomes a useless exercise, and plans can destroy just as easily as they can promote wealth generation.

Sound economics is exciting because it shows what is possible. It resonates with people all over the world but especially with the younger generations. I have personally experienced this excitement among students in China when teaching courses on sound economics at the Summer Camp of International Economics and Management Scholars at the Northeastern University in Shenyang. My sincere thanks to Mrs. Li Zhao Schoolland for organizing this extraordinary summer camp since 2010 and for making the translation and publication of this book possible. The translation will allow Chinese people en masse to discover and be excited about sound economics—and to thereby realize what is possible for them, their country, and for the world.

My aim with this book is to provide readers with a set of basic tools—a way of thinking—that helps them to uncover the processes in any economy and, therefore, understand the causes of observed outcomes. It does not provide answers to specific questions but provides the tools to figure out those answers. In this sense, it is an extremely powerful companion and lesson—and a proper introduction to sound economic reasoning.

It is my hope that you, my dear Chinese reader, will find this book an instructive guide to economics as a science as well as an introduction to economic thinking.