Understandable Economics: Because Understanding Our Economy Is Easier Than You Think and More Important Than You Know. By Howard Yaruss. Prometheus Books. $21.95.
Tossing terms around without fully understanding them undermines the basic foundations of discussion: we do not really know exactly what we are talking about. So it is very wise of Howard Yaruss, in the updated edition of his 2022 Understandable Economics, to begin with a pithy (nine-word) definition of his topic: “the study of how societies allocate everything of value.” Thus, although economics involves money and many related matters, that is not all it includes: economics is fundamentally about value, which means societal goals, wish lists of all sorts, even philosophical analyses are all within its purview.
Still, Yaruss wisely spends most of his book focusing on the nitty-gritty of the allocation of resources (which usually come down to money, although not always), and his discussions are tailored specifically for modern American capitalism – even though, broadly speaking, many points are equally valid for other forms of applied economics.
Yaruss’ ultimate aim, which coalesces only toward the end of the book, is to help Americans refine their value-related thinking in ways that can lead to political and thus societal change and improvement. He wisely moves toward that goal only in small steps, repeatedly indicating that he does not want ideas to be accepted or rejected based on whether they are considered “from the left” or “from the right” – only on whether they make sense in the context of resource allocation and, thus, an assertion of what society genuinely values and what it does not. What society values, he shows, is an accumulation of what individuals value, even if many items seem, to most people, pointless and wasteful of resources that could better be deployed elsewhere. Using a half-million-dollar Rolls-Royce as an example, he points out that such a car “has a value to someone that’s at least as great as its price,” and that in a society that regards freedom of choice and expression as valuable, it is questionable to assert that people “should not” exercise their taste for such a car if they are able to purchase it. After all, they value it in ways that exceed its cost. But on the other hand – and there is a lot of “on the other hand” in this book – “significant income inequality means that the whims of some get met while the critical needs of others don’t,” and that, conceptually at least, could be the foundation of an argument (and ultimately a policy) against Rolls-Royce ownership.
The philosophical side of this gets sticky quite quickly, especially when Yaruss bumps up against policy – which means political – matters, as when he points out that at least in theory, government purchases, by our political representatives, have greater value than their cost, “and if we believe what they pay exceeds the value we receive, presumably we would vote them out of office.” Presumably indeed – the naïveté here brings the statement perilously close to nonsense.
Thankfully, there are very few such statements teetering on the edge of absurdity. Most of Understandable Economics does a very fine job of exploring its topic and making it, yes, understandable – even if not fully comprehensible (there are still a few bugs in the system; indeed, more than a few). Yaruss focuses more on the basic questions raised by our economic system than on the facile (and frequently misguided) answers provided by pundits and politicians alike – in the media as well as in government. He clearly explains just what money is (and, yes, how cryptocurrency fits into the definition) and just how people obtain it in differing ways (through labor, investment, inheritance). He gives the basics of what businesses are: how they are organized, how they function, how they respond to competition. And then, in the second half of the book, he starts steering the reader toward broader everything-of-value thinking, explaining how the Federal Reserve works, what “monetary policy” means, and how issues such as the national debt have implications for and effects on our everyday life even though we may not notice them and therefore may not connect the dots to the underlying reasons they occur.
Yaruss builds his book toward the two questions in his final two chapters: “How Can Our Economy Become More Equitable and Productive?” and “What Is the Government’s Role in the Distribution of Income?” This is where, inevitably, he tries to move the implied conversation he is having with readers in specific directions. And he does a good job of presenting concepts usually identified with both ends of the political spectrum. For example, from the “right” comes the notion that “the government could eliminate all taxes on corporate profits and simply increase taxes on personal investment income enough so that it would cover 100 percent or more of the lost revenue. …The wealthy might have to pay a slightly higher tax, but the growth in economic activity and business profitability is likely to more than compensate them for that.” From the “left” comes a push for both inheritance taxes (paid by those who inherit) and estate taxes (paid by a decedent’s estate), since these taxes do not discourage anything (as income taxes can discourage work and sales taxes can discourage purchases) and “lower taxes on the dead mean higher taxes on the living” – which means that raising “death taxes” is “an area ripe for reform.”
To his credit, Yaruss does not suggest that any of his possible ideas for distribution/redistribution of what society values should be seen as uncomplicated or inarguable (although he does seem to like the inheritance/estate tax idea a lot). His point is that in a complex economy, ideas about how to get “everything of value” from one place to another are inherently political and involve making choices about just what “everything of value” means. Those choices, Yaruss says, can be made more easily and to better effect by people who understand the underpinnings of the economy and the tradeoffs inherent in moving value allocation in one direction or another. This is the old “an informed citizenry is better” argument given in economic terms, and if it is an old (and, given today’s political realities, rather charmingly old-fashioned) notion, it is one to which Yaruss stays true throughout Understandable Economics. Now what we need is a nonjudgmental primer called Understandable Politics.
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