A collaboration between Lewis McLain & AI (3 of 4 in a Series)

If I struggled with literature when I was young, and if I misunderstood the purpose of history, then economics was the third great gap in my early education. I went through high school without any real understanding of how money works, how governments raise and spend it, how markets respond to incentives, or how personal financial decisions compound over time. I did not grasp the forces shaping wages, prices, interest rates, trade, taxation, inflation, or debt. I did get a good dose in college.

Looking back, I can see clearly:
Economics is the core life subject that students most need — and most rarely receive in a meaningful way.

What educators should want every student to know from required economics courses is nothing less than the mental framework necessary to navigate adulthood, evaluate public policy, make financial decisions, and understand why nations prosper or struggle. Economics is not simply business; it is the study of how people, families, governments, and societies make choices. A few years ago, I attended a multi-day course for high school teachers hosted by the Dallas Federal Reserve. It was an outstanding experience. Resources are there today, thank goodness!

This essay explores the essential economic understanding every student deserves — and why it matters now more than ever.

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1. Scarcity, Choice, and Opportunity Cost: The Law That Governs Everything

The first truth of economics is painfully simple:
We cannot have everything we want.

Every choice is a tradeoff. Students should walk away understanding that:

• Choosing to spend money here means not spending it there.
• Choosing one policy means giving up another.
• Choosing time for one activity means sacrificing time for something else.

Economics calls this opportunity cost — the value of the next best alternative you give up.

Once a student grasps this, the world becomes clearer:

• Why governments cannot fund unlimited programs.
• Why cities must prioritize.
• Why individuals must budget.
• Why nations cannot tax, borrow, or spend without consequences.

This one idea alone can save people from poor decisions, unrealistic expectations, and political manipulation.

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2. How Markets Work — And What Happens When They Don’t

Every student should understand the basics of markets:

• Supply and demand
• Prices as signals
• Competition as a force for innovation
• Incentives as drivers of behavior

These are not theories — they are observable realities.

Examples:

• When the price of lumber rises, construction slows.
• When wages rise in one industry, workers shift into it.
• When a product becomes scarce, people value it more.

Students should also learn about market failures, when markets do not work well:

• Externalities (pollution)
• Monopolies (lack of competition)
• Public goods (national defense)
• Information asymmetry (the mechanic knows more than the customer)

A well-educated adult should understand why some things are best left to markets, and others require collective action.

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3. Money, Inflation, and the Hidden Forces That Shape Daily Life

Economics teaches students what money actually is — a medium of exchange, a store of value, a unit of account. It teaches why inflation happens, how interest rates work, and why credit matters.

This is the knowledge people most need to avoid lifelong mistakes:

• High-interest debt
• Payday loans
• Adjustable-rate surprises
• Over-borrowing
• Misunderstanding mortgages
• Under-saving for retirement
• Falling for financial scams

Inflation, especially, is a quiet teacher.
Students should know:

• Why prices rise
• How purchasing power erodes
• Why governments sometimes overspend
• How central banks attempt to stabilize the economy

Without this understanding, adults become vulnerable to false promises, political slogans, and emotional decisions disguised as economic policy.

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4. Government, Taxes, Debt, and the Economics of Public Choices

Students should understand how governments fund themselves:

• income taxes
• sales taxes
• property taxes
• corporate taxes
• tariffs
• fees and permits

They should know the difference between:

• deficits and debt
• mandatory vs. discretionary spending
• expansionary vs. contractionary policy

And they should understand the consequences of borrowing:

• interest costs
• crowding out
• inflationary risks
• intergenerational burdens

A citizen who understands these concepts is harder to fool with slogans like:

• “Free college for everyone!”
• “We can tax the rich for everything!”
• “Deficits don’t matter!”
• “We can cut taxes without cutting services!”

Economics teaches that every promise has a cost — and someone must pay it.

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5. Personal Finance: The Economics of Everyday Life

If there is one area where economics should be utterly practical, it is here.
Every student needs to understand:

• budgeting
• saving
• compound interest
• emergency funds
• insurance
• investing basics
• retirement accounts
• debt management
• risk vs. reward

Without this, students walk into adulthood with no map — and they learn lessons the hard way.

One simple example:
$200 saved per month from age 22 to 65 at 7% grows to roughly $500,000.
The same $200 saved starting at age 35 grows to only ~$200,000.

Time matters.
Compounding matters.
Knowing this early changes lives.

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6. Global Economics: Trade, Jobs, and National Strength

Students should understand why countries trade:

• comparative advantage
• specialization
• global supply chains
• exchange rates

They should understand what drives:

• tariffs
• sanctions
• trade deficits
• manufacturing shifts
• labor markets

This is the foundation for understanding why:

• some industries move overseas
• some cities decline while others rise
• automation replaces certain jobs
• immigration affects labor supply
• global shocks (like pandemics or wars) reshape economies

A student with global economic literacy is less fearful and more informed — and can better adapt to economic change.

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7. Economics and Human Behavior

Economics is not just numbers — it is a window into human nature.

Students should learn:

• why incentives matter
• why people respond predictably to policy changes
• why scarcity shapes decisions
• why risk and reward are universal
• why unintended consequences are common

For example:

• Overly generous unemployment benefits can reduce the incentive to return to work.
• Rent control can reduce housing supply, raising prices long-term.
• Strict zoning can artificially inflate housing costs.
• Tax breaks can shift business decisions but may not produce promised jobs.

Economics helps students see beyond intentions to outcomes.

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8. Why Economics Matters Even More in the Age of AI

AI has changed everything — except human nature and economic reality.

AI can process data, but it cannot interpret incentives.

Only a human mind can understand why people behave as they do.

AI can forecast trends, but it cannot grasp consequences.

Consequences require judgment shaped by real-world understanding.

AI can make decisions quickly, but it cannot weigh tradeoffs ethically.

Economics teaches students how those tradeoffs work.

AI makes bad decisions faster when guided by people who don’t understand economics.

A poorly trained human with a powerful tool is dangerous.
A well-trained human with the same tool is wise.

Economics is the steadying force that helps society use AI responsibly.

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Conclusion: The Blueprint for a Competent Adult

What educators want students to gain from economics is not technical jargon or narrow theories. It is an understanding of how the world works.

Economics teaches:

• how choices shape outcomes
• how incentives drive behavior
• how money, markets, and governments interact
• why prosperity is fragile and must be understood
• how individuals, families, and nations manage limited resources
• how to avoid financial mistakes and public illusions

If literature strengthens the mind and imagination,
and history strengthens judgment and citizenship,
economics strengthens decision-making — the backbone of adult life.

Together, they form the education every young person deserves before entering the real world. And the most important thing I hope you take away from this essay and my experience: college in general and high school in particular is where you launch into a lifetime of learning (and re-learning). Anything you see in this series that you judge you missed, go back and learn! LFM