Economics isn’t what you think it is.
As I’ve talked to people about economics, I’ve come to expect a series of generalized misconceptions. A few people I’ve met have even seemed to resent economists, nebulously citing the clout of business in politics as somehow a direct result of our discipline.
Since economics tells us that imperfect information distribution engenders suboptimal market outcomes, I aim in this piece to rectify the misunderstandings—to whatever small extent I can.
I first seek to dispel the popular complaint that economics is inhumane somehow, or greedy. Sure, it’s true that economists find it unsurprising that wealth (pecuniary or otherwise) has the power it does; our models predict it. But we didn’t make it so; it just is.
English political philosopher John Stuart Mill underscored the point in remarks he made propounding the importance of economics in evaluating decisions. Natural forces, he pointed out, are frequently treacherous. Gravity will cause even the most virtuous person to plummet to Earth after a fall; the ocean wrecks warships and humanitarian vessels indiscriminately. Nevertheless, we study physics and navigation. To do so, after all, is logical, not hard-hearted. Well, we study economics for the same reason: not because we relish the perils attendant, but because we wish to avoid them, and harness the underlying forces for our benefit.
Next, though, is the tougher complaint that economics is by nature soft at best and fallacious at worst. That economists are a bunch of cloistered academics who live in a fantasy land altogether ungrounded in reality, and simply congregate from time to time to congratulate one another on living there.
Essentially, the point here is that the models economists use to describe the world are flawed. And this I concede. Indeed, no economist would argue that our models are perfect. They’re just that—models. Still, each retains usefulness as a tool in thinking about the various parts of the world relevant to the particular problem it was designed for. And, vitally, our models are becoming continually more robust, most saliently today with the psychological and sociological supplements of behavioral economics.
For comparison, take physics, which, even as hard sciences go, lies just between topaz and diamond on the Mohs scale. The discipline is ancient; and whereas economics studies humans in all their infinite cognitive complexity, physics deals with inanimate lumps of matter. Yet, physicists still cannot fully describe the motion of three simple balls rolling around in the same plane.
See, it takes a very long time to understand subtle interactions like this. Consider that, while the entire discipline of economics is today only about 300 years old, Ptolemy’s flagrantly inaccurate geocentric model of the solar system was prevalent as late as the 16th century—more than two millennia after physics is considered to have been founded. (Tellingly, the insightful mathematical mind behind the newer heliocentric model, Nicolaus Copernicus, is also noted for his contributions to early monetary theory in economics.)
In this light, even the economist’s most obviously false simplifying assumption, that humans are wholly rational, is no more egregious than the physicist’s assumption that the universe is wholly frictionless. In each case, making the assumption at first turns an intractable question into a manageable one, and at least roughly illuminates the actual state of affairs.
In fact, for economists, the assumption of rationality is purposely valuable. Much like law’s “common man,” our “rational agent” is a fiction—but a useful fiction. The more you study economics, the more you come to believe that the assumption shouldn’t be modified after all, at least not in most cases. For it allows us to say: Well, here’s what a perfect utility maximizer would do; and, since such creatures are by definition perfect at maximizing utility, maybe it wouldn’t be such a bad idea to do the same thing ourselves. Thus, to me, economics is actually at an academic sweet spot between physics and philosophy.
Nonetheless, it’s easy to forget that all the jargon—“marginal,” “positive,” “normative”—isn’t the core of economics, not really. At its heart, economics is just a framework for solving real-world problems founded on the premise that rigorous decision-making conduces to optimal outcomes at both the individual and the social levels. That when people respond to the right incentives, civilization advances.
Ultimately, all economists ask the same fundamental question of economics. They have multifarious ways of asking it, certainly. They ponder queries ranging from “Is GDP a reliable evaluation metric for international poverty aid policies?” to “Does effective marketing induce consumers to purchase inferior quality breakfast cereals?”. But always and everywhere, we’re really asking the same fundamental question: Given that happiness is good, how can we make people happier?
Damn good question, if you ask me.
Sparsh Sah ’19, a Crimson editorial writer, lives in Stoughton Hall.