The New Dictionary of Cultural Literacy, Third Edition. 2002.
Business and Economics
Economics is the social science that deals with the production, distribution, and consumption of goods and services. Business may refer to any gainful economic activity or, more narrowly, to organizations that produce and distribute commodities. Basically, economics is a branch of investigation and study, whereas business connotes activity. Yet the two terms increasingly overlap. Once thought of as a knack or skill that could never be taught in school, business developed claims to scientific status in the twentieth century. Today, there are schools of business administration that, much like departments of economics, engage in study and investigation.
Both economic theory and the growing emphasis on the study of business have spilled over from the universities into the public forum. The 1990s saw one of the longest periods of sustained growth in American history. A rise in productivity, low rates of unemployment, modest inflation, low interest rates, and the popularity of dot-coms contributed to a boom in the stock market. By 1997, American households held 28 percent of their assets in stocks. As the baby boomers of the 1940s and 1950s reached their peak earning years, they prepared for retirement by contributing to pension plans, which plunged huge amounts of money into stocks and bonds. Less obvious but no less important, the deregulation of financial institutions by the federal government and periodic changes in the federal tax code have raised the threshold of financial knowledge for Americans. As late as the 1950s, banks rarely advertised, savings and loan associations did not offer checking accounts, and insurance companies concentrated on selling insurance. Now, all of these institutions advertise and compete with one another by offering similar services. For example, all of them offer pension and retirement plans, and individual investors must be able to sort out and assess their rival claims.
To do so, ordinary Americans need not become professors of economics; however, they must understand the difference between stocks and bonds, and they should understand why the stock market tends to decline when the interest rates rise. This section provides the basic definitions necessary for threading one’s way not only through political debates about the future of the economy but also through the rival claims of financial institutions.
