Our National Economy
By Ramy Osseiran, Staff Writer

Beirut, Lebanon - Suppose one was to select a university student at random, and try and guess how much economics that student knew. He might be an economics student, he might know a bit, or he might know next to nothing at all. Does it matter if a lot of people don’t really understand the basic notions of “the dismal science?” It does matter because the ultimate purpose of economics is to provide decision makers with tools to put more money in our pockets. So, let’s try and make some sense of what is going on in our own economy.

Let us first talk about the size of the national economy. How, you may wonder, can we measure an economy? This is easy. Remember the connection between economics and people’s pockets? Well, that’s how we measure the economy. The size of an economy is the sum of all income generated in it, and it is called the Gross Domestic Product (GDP). This would include salaries, profits and rent (money going to people’s pockets) paid to anyone within a specific geographic area. Lebanon’s GDP is around $18 billion. The US’s is nearly $12 trillion. A more meaningful interpretation of the GDP is the GPD/person, or the GDP divided by the population. This would designate the amount of money earned by each person in a year on average. Lebanon’s GDP/person is a bit above $4000, which is acceptable for an underdeveloped country, but still far below the $25,000 and $35,000 range of the United States, Europe, and Japan…

The government’s role in shaping the economy is also very important. The government’s actions are summarized in the budget. The budget is prepared by the Ministry of Finance. It is a forecast of all the costs and revenues of the government for the upcoming year. It will collect money from a range of sources, including taxes and customs, and will allocate various amounts of it to different ministries. How does this affect the economy? When a government spends money on projects, it usually does so by contracting out whatever it needs to private companies. These companies, owned by regular individuals, can now make a profit, pay their employees, and maybe even purchase something from other companies. As we already know, profits and wages are a substantial part of the economy. Of course, there are many more dimensions to a government’s revenue and spending. Issues such as taxation, overspending, public debt, and an over-appreciated local currency are only a few.

Finally, the economy’s relation to the rest of the world is crucial. Governments usually sum up this relationship in the balance of payments. The balance of payments is the aggregate of all money that flows into a country and all money that flows out. Money can come into and go out of a country through various means. On one hand, imports are goods bought from other countries forcing a country to spend money; on the other hand, exports are goods which enable a country to bring money in by selling its goods. Expatriate nationals and foreign immigrants also create money movements into and out of a country. Other factors, such as tourism, capital flows (for example, foreigners who put their money in local banks) and international aid and debt also have an effect. Having money constantly drawn out of a country is unsustainable. In broad terms, the money will “run out.” Having more money flowing in than flowing out is usually good, but having too much money flow in, especially suddenly, can be harmful.

The economy has a way of naturally adjusting back to healthy levels of GDP, balance of payments, and most nearly all of its components. Sometimes, decision-makers can try and get the economy to an even better place, but they may inadvertently drive it to crisis. This is why you should care about the economy; this is why it matters. Be careful who you elect to run your economy.

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