ALL OF ECONOMICS IN ONE GRAPH

A study of macroeconomics usually reveals that the best time to buy anything is last year. ~ Marty Allen

Economics has enjoyed more prominence and attention for several decades, especially in developing and assessing macroeconomic policies.  Whole troupes of economic experts make pronouncements that are reported 24/7; everything from inadequate GDP growth to the local price of kale. Economic precepts surround our everyday lives, but this expansion of economics has been accompanied by a fractured focus that mostly ends up explaining only small, individual facets of economic goings-on in our broad economy.

To counter this unfortunate lack of synthesis, please examine the following "All of Economics in One Graph." With a dollop of humor, this single graph combines many disparate parts of economics into one comprehensive amalgam. The diagram mingles Adam Smith and John M. Keynes with Janet Yellen and Fredrik Hayek as well as the answer to the ultimate question of life. Also illustrated are the relationships between Detroit, the demand for kale, Wall Street, Gourmet Ghetto restaurants and the Bottom 50% among other economic activities. All this is linked to the price of bliss, iPhones, college tuition and the dearly-departed Zimbabwean hyperinflation.

This  graph is founded on the standard textbook depiction of macroeconomic aggregate supply and aggregate demand to explain the relationship between the economy's overall price level (Price) and national output (Real GDP). If you're interested, here's more information about this model. [You can click on the graph to enlarge it.]

All of Economics in One Graph

 

 

Troy Gelobter provided graphical assistance.

Glossary for "All of Economics in One Graph"

42 – Douglas Adams' well-regarded answer to the "ultimate question of life, the universe and everything." 42 is mentioned in Adams' Hitchhikers' Guide to the Universe. If you seek more guidance, go here.

Bicycle – No, the bicycle is not a specialized form of a business cycle, but it is related (from afar). The first modern bicycle was introduced in 1817 by German Baron Karl von Drais. However, when visiting Vinci, Italy I saw a bicycle model based on drawings from this city's most famous son Leonardo that looked remarkably similar to a modern bike. What's 300 years or so? Since their introduction, bicycles have contributed to growth and good times in many business cycles beyond imperious messenger services. Bikes are important. Why else would Thomas Piketty mention in his best-selling book, Capital in the 21^st Century, that in terms of bikes' production advances, our purchasing power has increased an impressive 40-fold between 1890 and 1970. Speaking of which, after the first mountain bikes appeared in the San Francisco Bay Area in the late 1970s they soon were purchased (and ridden) around the globe. Those were the days; it's all downhill from here.  

Bliss – Economically speaking, bliss is achieved when the economy is in long-run equilibrium that occurs as short-run macro supply, long-run macro supply and macro demand all intersect with stable prices at full-employment real GDP. Unfortunately, economists rarely know when we are actually enjoying such a blissful state. Alas, it is only after the fact (when data become available) that we can hypothesize that the economy was in a blissful state. So it goes…

The Bottom 50% of taxpayers earned a mere 11.6% of total adjusted gross income (AGI) in the U.S. according to 2011 tax returns. The Top 1% received 18.7% of total AGI. All by themselves the Top 0.1% accounted for 8.9% of total AGI.

Fredrik Hayek was a prominent member of the Austrian School of Economics, best known for espousing classical liberalism in his book, The Road to Serfdom. He taught at the University of Chicago and received the Nobel Prize for Economics in 1974.

John M. Keynes – John Maynard Keynes was a British economist considered to be the father of modern macroeconomics. Unlike most of his predecessors, Mr. Keynes believed that aggregate demand – labeled Macro Demand in the graph – was also responsible for an economy's overall activity, not just supply. He also believed aggregate demand could be influenced by the government's use of appropriate fiscal and monetary policies. Mr. Keynes' ideas made him one of the most influential economists of the 20^th century.

Rolls Royce Wraith – Perhaps Rolls Royce's most beautiful car, the Wraith is a 2-door, 4-seat coupe with an uncommon legacy. The first Rolls Royce Wraith was produced in 1938; it was re-introduced in 2013. If you have to ask, you probably can't… However, for those who do ask, pricing starts around $285,000, but can easily reach $400,000 or more, depending on the owner's desires. It's not your father's Camry.

Adam Smith was a pioneering Scottish political philosopher who wrote the Wealth of Nations in 1776 that laid the foundation for modern, systematic inquiry of economic systems. [P.S., I'm pretty sure he's not a relative.]

Janet Yellen is the Chair of the Federal Reserve System. As the head of the Fed, she manages this nation's money supply (S_$), regulates the nation's banks and has responsibility for maintaining steady prices and full employment. This challenging, herculean job probably makes Dr. Yellen the single most influential economist on the planet now. Her realm is thus pretty vast.

Zimbabwe hyperinflation occurred in 2008-09 and is a distressing example of gross mismanagement of a nation's economy. The inflation rate (the rise in overall prices in an economy) in Zimbabwe reached an unfathomable 231 million percent in July 2008, and prices kept rising. The ever more worthless Zimbabwean dollar was finally abandoned and placed in dustbins by early 2009. Since then, Zimbabweans have used South African Rand and U.S. dollars as their currencies. Thus, there are now many Benjamins in Harare.