Ever feel like economists are just speaking a different language? Honestly, most people hear the word "macroeconomics" and their eyes glaze over instantly. It’s all charts, Greek symbols, and guys in suits arguing about basis points. But then there’s Ben Mathew. He wrote this book, Economics: The Remarkable Story of How the Economy Works, and it’s kinda the opposite of a textbook.
If you’re wondering what an economy is according to Ben Mathew, he basically strips away the jargon. He doesn't start with the Federal Reserve or the stock market. He starts with a guy named Max on a deserted island.
Ben Mathew and the "Island" Version of an Economy
Mathew’s core idea is that an economy isn't some giant, scary machine. It’s just the "daily rhythm of producing and consuming." That’s it.
Think about Max on his island. He has resources (capital) like coconut trees and a stream. He has his own energy and brainpower (labor). When Max decides to spend his morning climbing a tree for coconuts instead of fishing, he’s making an economic choice. He’s producing something to satisfy a want.
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Now, scale that up. Imagine seven billion people on a much bigger island called Earth. We’re all just "Max," just trying to figure out how to use our limited time and stuff to get what we want. Mathew calls this an "intricate ballet." It’s a nice way of saying we’re all constantly trading with each other to avoid starving or being bored.
Why Most Economies are "Dysfunctional"
One of the more blunt things Mathew argues is that basically no economy works perfectly. He actually uses a 0-to-10 scale to grade countries.
- Somalia? He gives it a 2. Total dysfunction.
- India? A 3.
- The United States? He only gives it a 6.
That’s a bit of a reality check, right? Even the "best" economies are somewhat broken. In a "9 or 10" economy, you wouldn't be stuck in traffic for two hours or waiting six months for a surgery. We waste resources. We build the wrong things. We have "roving bands of thugs"—or sometimes just bad laws—that stop people from wanting to produce anything.
The Lifecycle Model: Ben Mathew’s Secret Sauce
Beyond the basics, Mathew is a big proponent of the Lifecycle Model. This is where he gets into the nitty-gritty of how you should actually handle your money.
Most financial advisors give you "rules of thumb," like the 4% rule. Mathew thinks those are a bit lazy. Instead, he looks at your whole life as one big math problem. You have "Human Capital" (the money you’ll earn in the future) and "Financial Capital" (the money in your bank).
The goal? Consumption smoothing. You don’t want to live like a king at 30 and eat cat food at 80. You also don't want to live like a monk at 30 just to have a mountain of gold when you’re too old to use it. Mathew’s approach, which he built into a tool called the TPAW Planner, is about adjusting your spending every year based on how your "total" wealth is doing.
Why the Lifecycle Model is hard to follow
Honestly, people hate this model because it’s variable. If the market crashes 20%, the lifecycle model says, "Hey, you should probably spend a bit less this year." Most people want a guaranteed check that never changes. But Mathew argues that being flexible is the only way to actually maximize your happiness over eighty years. It’s about being a "smart decision maker" rather than just following a rigid rule someone wrote in the 90s.
How to Apply the "Ben Mathew" Perspective Today
If you want to look at the world through this lens, stop looking at the news as a series of random disasters. Start looking at it as a struggle for efficiency.
- Check the "Rule of Law": Mathew insists you can't have a good economy if people are scared their stuff will be taken. Whether it's high crime or just unpredictable government regulations, when the "rules" get shaky, people stop producing.
- Focus on Production, not just Paper: An economy grows when we find better ways to turn "trees and dirt" into "houses and iPhones." If we're just moving money around without making life easier, we're not actually improving that "6 out of 10" score.
- Smooth Your Own Consumption: Look at your own life. Are you over-saving because you're scared? Or over-spending because you're ignoring your future "Human Capital" drying up?
Ultimately, Ben Mathew’s take on the economy is a reminder that the system exists for us, not the other way around. It’s just a tool to help us get through the day with a bit more comfort and a lot less waste.
Next Steps for You:
Take a look at your current savings rate and ask yourself if you are "consumption smoothing" or just guessing. If you're curious about the math, researching the Lifecycle Hypothesis by Franco Modigliani—which Mathew’s work is based on—will give you a much deeper look at the technical side of his philosophy.