Understanding our economy: today we are introducing a new series featured once a month on the workings of the Bermuda economy. We know that we in Bermuda, along with the rest of the world, are facing a recession, or so we are told, by the media and global forecasters.

What we don't know is if it affects us, how it will affect us, where it will affect us — yes, I know that one is easy — in the pocketbook, when it will affect us, and why it may affect us.

While there are anecdotal rumours on the street regarding the changes in demand for the rental market, office space, construction work, tourist and business arrivals, it all tends to be nebulous. Government reports on redundancies appear to be low overall. Yet taking a serious look at online advertising for house sales, second hand car sales, moving sales, payroll tax receipts compared to prior years, and employment position ads may tell a different story.

Does anyone even pay attention — we are all so busy planning that next trip? In order to have a better grasp of our local economy and how global forces can and do impact on our ability to earn a living, it is a good time, especially given the highly controversial publicity about Bermuda this week, to have a bit of a refresher course in Economics 101.

Economics in simple terms is the study of the individual striving to take care of their own best interests — to make themselves, happy, first and foremost, and as well off as possible. 'Real' economists are will groan reading this treatise, if you can call it that, but then trained economists have the tools, the knowledge, the incomprehensible charts, and the education to read economic directions. It has been said that interviewing 12 economists will give you 12 different answers. This is because just when we think we've quantified this dull subject, human emotions, wants, and needs change, skewing the results. So much for understanding what drives human consumption decisions.

Economics begins with a want, a need, a perception of a chance to profit from opportunity, or a sense of a new style, and the courage to satisfy that want. How? By enabling oneself, taking an action / reaction to earn or sell or buy something on demand.

It may be a house, food, a new car, a job, a trip, a gold watch, a designer bag, a profitable company, or an experience. In order to meet that want, the individual must figure out how to accumulate enough medium of exchange to effect that trade.

A medium of exchange is not necessarily our version of money, or consideration, as it can be called. Many goods and services (some superb and others illicit) can be used as the medium of exchange — just use that imagination. However, in the process of culminating the deal, both sides of the deal must think they have achieved the most satisfaction.

Economics is driven by supply and demand. It involves identifying trade-offs and justifying costs for that trade-off or benefit. It measures the cost of one choice in terms of the lost benefits of another choice. It is about having the most relevant information to benefit your opportunity cost.

Most importantly, there has to be a willing buyer and a willing seller to reach an agreement on the optimum price. If either the side of the deal is not satisfied with the trade, the market for that item or service will fluctuate until everyone is happy with the cost price.

Take away one party to the transaction, and there is no economic transaction, a fact often forgotten when investors concentrate their risk in one or a few stocks, or ride the real estate rental market as a sole source of income or carry only one type of sewing machine in an era gone out of style.

When the market is going up, or demand is scarce, every buyer wants into the party; but when the sense of value and fashion changes, sometimes no amount of persuasion will induce that buyer to finalise the deal.

This is a valuable lesson that centres on the theory of diversification. People have different preferences, and different price break points. Plain economics has branched off into the study of human behaviour, because wouldn't it be nice to know just how many of those diamond bracelets to carry this season — marked up, of course, due to high demand.

We, humans, are too complex and unpredictable for that, hence assessing an economy is an inexact science at best. What we do know is that every day in every way, we have to make choices and when we are allowed to use a competitive market system to achieve the best choice for us that day, that month, and that year, we have increased our own welfare.

In the words of Burton G Malkiel, "A Random Walk Down Wall Street," Does a free market work better than a controlled state? Why do some people get rich and others don't? Should individuals be saved from themselves? Is making a profit a bad thing? Are governments interfering arbitrators, protectors of those who need help, or squanderers of our money in the name of free services? Or, are they all three?

The Economics for Every Man will cover the following:

l How does Free Enterprise function in a Democratic Economy?

l Money, Money, and its Multiplier — the ebb and flow of hard currency

l The Role of (Some Say Interfering) Governments in an Economy. A help or a hindrance

l The Making of an Entrepreneur — taking opportunities no matter the economic situation. Does He who does not follow the herd, take more risk or less?

l Checks and Balances — the role of the Auditor General, watchdog of the people's money.

l The Under Side of an economy: barter, white and blue collar crime, cash transactionists.

l The Ethical Politician. Is this an oxymoron? And, why do we need politicians at all?

The series will run once a month for approximately seven months, unless we find significant additional interesting information. After that, there is a concern that most of us will be thoroughly bored.

Martha Harris Myron, CPA, CFP (US) TEP (UK) is a Certified Financial Planner and a Partner at Patterson Partners Ltd. She provides independent fee-only cross-border tax, estate, investment, and strategic planning services for Bermuda residents with cross-border and multi-national connections, internationally mobile people and US citizens living abroad. For more information, contact mmyron@patterson-partners.com or phone 296-3528.