This book was written to explain our free market system clearly. It uses familiar, everyday examples to lead the reader into an understanding of the natural forces at work. A companion book "Fostering Prosperity" rounds out coverage of the fundamental economic concepts.

Unfortunately, most books on economics get hung up on technical terms or alternative points of view. Those alternatives often develop from various political leanings. This author is pleased that prominent economists from both the right and the left approve of the concepts that have been developed in his books.

For example, Nobel Laureate Milton Friedman has commented on this book's writing to "teach the central principles of free markets accurately....Certainly the basic ideas involved are very good." Friedman's bestselling 1980 book "Free to Choose" was termed "superb" by candidate Ronald Reagan. It has provided a conservative economic framework for many Republican ideas.

At the same time, prominent Harvard professor John Kenneth Galbraith describes this author's companion book on the role of government as an effort which "seems very worthy indeed...I will of course mention your projected book" (to publishers). Galbraith's 1958 bestseller "The Affluent Society" provided support for many of Presidents Kennedy and Johnson's liberal ideas, including Great Society programs.

While the topics in this book might be termed conservative (and those in the companion work as liberal), this author has attempted to keep political bias out of these works. In both, the emphasis is on encouraging the reader to discover basic economic truths through analysis of familiar or important historic situations. This author believes that the most desirable writing is that which largely organizes or clarifies rough concepts that the reader already had in mind.

Towards that end, this book generally starts with examples that are familiar, then draws more general conclusions. This process contrasts with most other economics books, which start with the concepts or terms that are to be learned. Readers have found this author's new approach a pleasant surprise and a help towards a deeper understanding of the basic economic tradeoffs.

INFLATION TARGETS (Addition to text September 2002 - at the end of Chapter 3 in Fostering Prosperity)

Major unexpected events like the World Trade Towers destruction 9/11/01 can create havoc in an economy. It has been recently revealed that the Federal Reserve added huge amounts of cash into the US money supply shortly after 9/11. This quick action helped steady US banks and markets, because people often try to withdraw extra cash in uncertain times.

Injecting extra cash into an economy can later lead to inflation. After facing an inflationary period in the 1980's, the Federal Reserve developed a target of zero inflation. In the 1990's it aimed to add to the money supply each year just enough cash to match the percentage growth in the economy. Any extra cash would eventually result in some inflation. As a result, the US inflation rate steadily declined, and with it interest rates also declined to historically low levels by 2002.

But some economists, including the author of this book, have been urging the Federal Reserve to raise its target for inflation from zero to something like 2 percent per year. The example of Japan, with zero or even negative inflation while also mired in a 10 year economic slump, is not a healthy model for other countries. Zero inflation means that on average, salaries can grow no faster than people's productivity increases. For many jobs like teaching, there is little productivity increase. Teachers for many years have taught classes of around 30 students, and will likely continue with similar class sizes in the future. A zero inflation policy means that over the long term, pay for teachers and others in many service jobs would not increase.

Having no inflation works well for commodity prices, but not for employee pay expectations. Prices for copper can go up and down, but unions are adamantly opposed to pay cuts. A case can be made that the Depression of the 1930's was largely the result of employees refusing to work for less pay. The Federal Reserve then made the terrible mistake of overseeing a cut in the money supply, leaving not enough cash to pay everyone as much as they had been earning. (Nobel Laureate Milton Friedman based his money supply findings on Depression era research.) Copper does not complain when it fetches a lower price, but workers sure do! Thus the best monetary policy may be a gradual rise in prices, which would provide most workers with annual pay increases.

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