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What is economics?

Guest: Allison Martell

It’s too bad that most of our day-to-day interaction with economics is the least interesting part of every newscast, when they bring out the “economics” reporter to read stock market numbers. As you’ve probably figured out by now, there’s a lot more to economics than the price of gold. How much more? In this post, I’ve put together a list of complementary and contradictory definitions. It’s nearly impossible to briefly describe an entire academic and professional discipline, so take this with a generous pinch of salt, and please add and subtract from the list in comments.

  1. Economics is the study of incentives. What is an incentive? Here’s one definition:

    Something, such as the fear of punishment or the expectation of reward, that induces action or motivates effort.

    In the early pages of recent popular econ book The Logic of Life (I’d quote directly, but my copy is elsewhere) Tim Harford writes about how understanding incentives can help us pull apart tricky problems, and explain seemingly strange behaviour.

  2. Economics is the study of choice under scarcity. "Scarcity" means that the things we want, material and non-material, are not infinite. We have to pick between them, and economics is the study of how we do that. Jennifer, who writes a great blog called Economics for Teachers , puts this nicely:

    On the first day of every economics class I teach, I ask students for their definitions of economics before giving them mine. My own definition is really basic: Economics is the study of choices. I go on to tell them, “And since life is a series of choices, economics is the study of life!” My point with the exercise is to get them to see that economics is a very broad, diverse field, much more so than people generally think from what they see in the media.

  3. Economics is about the application of complex mathematics to human society. That’s sort of what Freakonomics was about – Steven Levitt is just a math whiz with an unconventional mind. Some argue that economists have fallen down some rabbit holes with their mathematical models lately, and they may be right – economists haven’t figured out how to describe everything with numbers, and that gets them into trouble. But when used properly, statistics can be a great way to get around your own biases, and find results that you didn’t expect.

  4. Economics is not all about trade, money and markets. It’s also been applied, with more and less success, to everything from human health, to marriage and the family, to the environment, to how governments function and more.

  5. …but it’s also about how trade, money and markets are more important than you think. It’s nice to imagine that in your life, thoughts or research, you have transcended the grimy reality of modern capitalism. But for most of us, trade, money and markets are inescapable, affecting almost every part of our lives. Economics helps us understand how that works.

  6. Economics isn’t always about free markets. The (purely theoretical) free market is something economists have tended to rattle on about, especially over the last couple decades. But right from the beginning, economics was also about figuring out the best way for government to regulate markets. Even Adam Smith, often cited (incorrectly) as the intellectual father of free market capitalism, had quite a bit to say about the role of government in a well-functioning market.

    What does this have to do with feminism? Well, like Jennifer, I want you to see how diverse this field is. Economics is a set of tools that feminists can use like anyone else.

    29 thoughts on What is economics?

    1. Thank you very much for that post! It was very informative. Though implied in your article, I’d say Economy is resource management. And true, it’s about choice, but it also is, a lot of the time, about the redistribution of resources. Which is basically how political entities came to be originally.

      Truth is, there is a grave need for more economists like yourself, because I will be frank… I cannot stand most economists I’ve met. And I do want to emphasize “most”. But it seems to me that in economics, just like in law, there is a big tendency to educate people into very conservative mindsets, or to encourage these mindsets and not challenge them. I’ve very, very rarely met progressive economics students/graduates (though I have met a few), and as such I have a very dim view of the discipline. Because even when I meet people who aren’t free market wankers (sorry, no other word for it), they can be very reactionary in some views, rarely committed fully to progressive ideas…

      In fact, if there are any links you or any commenters want to share, about fighting these attitudes within economics, I’d love to read about it!

    2. I’m glad you pointed out that Adam Smith was not a capitalist in the modern sense. I think the main contribution Smith made to modern economic theory is to emphasize the importance of the division of labor. More importantly, it was really Scottish Enlightenment figures such as Smith and Hume that really put the nail in the coffin of the theory of “economic mercantilism.” In particular, Hume’s writing on “species, price flow” really showed the absurdity of mercantilism as an economic theory.

      I personally define economics as the study of the production and distribution of goods and services (whether material or otherwise) pursuant to the division of labor.

    3. Do economists really define “scarcity” as things we want that aren’t infinite? That seems like a horrible definition to my non-economist mind.

    5. It’s nearly impossible to briefly describe an entire academic and professional discipline

      Not necessarily. Some wag (Sid Brenner?) once defined the different branches of modern molecular biosciences thusly:

      (1) Molecular Biologists study the known protein products of known genes
      (2) Biochemists study the known protein products of unknown genes
      (3) Geneticists study known genes with unknown protein products
      (4) Those who study unknown protein products of unknown genes, we call insane people

      Of course, since Brenner made that statement, we had the genomics revolution (people studying unknown genes with unknown protein products) and now we have plenty of people (structural genomics) who are in the insane person class (including, at times, me!).

      *

      Anyhoo, my main beef with “economics” is not with the discipline as it is practiced, e.g. academically (although, c.f. brad’s comments, my biophysical chemist mind cannot grok some of the definitions used by “economists” and I would wish for more experiments in the field), but with how it is handled at a political and public policy level and in our public discourse. The “Econs 101” level of public discourse about economics is like if we had public discourse about nuclear policy where all the physics that was ever considered in making arguments or even policy was of the “assume a spherical, frictionless cow” variety; the kinds of “economic prescriptions” we are sold are based on such out of date reasoning (and, as a keen follower of Koheleth, I don’t generally refer to reasoning as “out of date” as “there is nothing new under the sun”) that it’s equivalent to your doctor prescribing for you a leachin’ to get your four humours back into balance.

      And to top it all off — the people pushing these prescriptions are wont to call people like me — who might not know economics as an academic field but who can spot the “spherical, frictionless cow” assumptions they make a mile away — “economically ignorant” (of course the existance of economic ignorance rather undermines the Econs 101 style theory that says all actions are based on rational self-interest, which produces an optimal market result — you can make Godel-esque arguments about what happens when people are asked to make bets on their own economic knowledge — which happens, I would imagine, a lot in the market and is not some mere hypothetical).

    6. I think the most elegant and accurate definition I’ve heard for economics is the science of human decision-making.

    7. I think Thorstein Veblen is the most underrated older economists around, and there are *a great many* underrated economists, from Henry George to Jane Jacobs. I have not really read any of the three, but the ideas that I have come across sounds truly interesting. For instance, I more and more believe that culture is the direct foundation of any monetarist approach to economies. That is, the more cultured (in diverse ways) any group of people are, the more that the central bank will able to print money with low inflation and the greater probability that fiscal deficits will be tolerated. In others money isn’t about mediating scarcity (tho’ it can do that), but it’s fundamentally about mediating *fashion*.

      Do I get to be the first NeoVeblenist?

    8. “Economics is a set of tools that feminists can use like anyone else.”

      Exactly! Economics is like any other social science. It’s a way of looking at the universe. My favorite definition is that economics is common sense with math.

      “But it seems to me that in economics, just like in law, there is a big tendency to educate people into very conservative mindsets, or to encourage these mindsets and not challenge them. I’ve very, very rarely met progressive economics students/graduates (though I have met a few), and as such I have a very dim view of the discipline.”

      Also Exactly. That’s because non-neo-classical economists are basically laughed right out of the discipline or shunted off to the side. In grad school I started as an institutional economist mainly focusing on optimal market regulators for developing economies. About two months in I realized there was absolutely no future in that career path so I switched to a concentration in finance.

      Das,

      I think the issue you have is valid…but that is why it’s important to keep in mind that economics is a social science not a hard science. It’s attempting to make understand how people manage scarcity.

      Gravity is a theory…a way to explain why things fall down…It’s usefulness is due mainly to the fact that things always fall down.

      Rationality is a theory…a way to explain why and when people choose money over being hit in the head by a rock….It’s usefulness as a theory is undermined by the fact people don’t always choose money over being hit in the head by a rock.

      So basically economics isn’t as rigorous as molecular biology because people aren’t as predictable as molecules.

    9. I’m excited you’re here guest-blogging, Allison! I am a feminist working in the field of economics. Right now I’m finishing up the pre-requisite classes necessary to enroll in an economics masters program.

      DAS, regarding your “beef” (how it is handled at a political and public policy level and in our public discourse), that is my beef as well. And it’s one reason I was compelled to study economics formally. The media and politicians use the public’s ignorance re: economics (and everything else, really) to their advantage.
      I’d love to be the kind of professional who can “break it down” for the public rather than bombarding them with obscure economics language or leaving it up to journalists to make inaccurate assumptions about the world based on statistics they don’t understand.

      Of course it can be alienating to be surrounded by libertarian types. But contrary to what some people think, “economics” is neither conservative nor liberal. It has no political affiliation or agenda. The people drawn to the field – that’s another story. But economics does not “prove” that fiscal conservatives are right about anything, or that social welfare programs are “wrong,” etc. It does not even “support” capitalism as a system.
      It all depends on one’s view of what constitutes the “best” society.

      Free-market capitalism only “works best” if goal of a society is to maximize individuals’ economic freedom. But if one believes capitalism creates a minority who are free to suppress the freedom of choice of everyone else, and opposes that set-up, then she will not think capitalism “works.”
      In our capitalist country, economics is sort of viewed as a guide to operating in the most purely capitalist manner possible.
      But it’s always going to be approached differently based on one’s location on the planet, and one’s view re: what type of society is preferable.

    10. Thanks for the post! I look forward to getting to know more about economics. I think I’ve generally been put off by economics for the reasons people have discussed above: seen as too conservative, dry, solely concerned with stocks and bonds etc.

      Please do continue this series! Thanks!

    11. Kristen – gravity is a law.

      And also, whenever anyone cites “common sense” as a basis for anything, it’s a huge red flag to my anthropologist mind.

    12. Bex,

      You’re right…I was imprecise. Relativity which describes gravity as the force that causes gravitation is a theory. After all it could just be picksies with a firm grasp of mathematics except when dealing with very small objects.

      Why does common sense in this context bother you? If you like you can think of it more technically as the succinct summation of numerous data points collected over an extended period of time.

      For example…diminishing marginal returns…very much common sense…that first $10K is really, really important as is the second $10K…but at $100M another $10k is really not all that important.

    13. Allison Martell,

      What do you think of rational choice, its utility in economics and various social sciences, and how it has been used by many Econ and poli-sci grad students not only for its perceived usefulness, but also to “prove” that Econ and other social science fields are “more rigorous” because of this privileging of quantitative models over qualitative ones. Just curious.

      I cannot stand most economists I’ve met. And I do want to emphasize “most”. But it seems to me that in economics, just like in law, there is a big tendency to educate people into very conservative mindsets, or to encourage these mindsets and not challenge them.

      IME, while most econ departments do educate people into very conservative mindsets, the conservatism of many econ majors is more because the perception of economics as a more practical and potentially lucrative major among most incoming undergrads means that many more conservative students tend to self-select themselves into an econ major than their more progressive counterparts….sometimes with varying degrees of parental encouragement. It is similar to the dynamic I’ve observed on university campuses with undergraduate business majors….most of them tend to lean more conservative politically because they self-selected into the major believing that it will give them greater chances at obtaining highly lucrative jobs upon graduation than counterparts in “more impractical” humanities, social science, and some natural science fields.

      As for econ grad students, most of the ones I’ve met tended to come from undergrad majors where more conservative-leaning students tend to self-select themselves such as engineering and mathematically heavy sciences. In fact, one surprise I found from talking with friends in several topflight econ departments was that most of the incoming econ grad students tended to be engineering, math, or other mathematically intensive undergrad majors….not undergrad econ majors unless they did the equivalent of a double-major in mathematics.

      In short, it is not really that most econ departments educate econ students to be conservative so much as a tendency for those departments to be preaching to a mostly already receptive choir of incoming econ students.

      Only exceptions I know of are a couple of non-conformist progressive econ majors at my grad campus and most econ majors at my admittedly progressive radical-left oriented undergrad campus. Even then, most of the econ majors were regarded with much skepticism by the rest of the campus….especially when most ended up feeling the necessity to “sell-out” their anti-liberal/Neo-liberal economic views to conform to the corporate workplace and/or econ grad/b-school environments. Only exceptions I knew of were the small minority who ended up working in non-profits/NGOs.

    14. I will use the Bible to explain trickle down economics.

      Luke 16:21
      And desiring to be fed with the crumbs which fell from the rich man’s table: moreover the dogs came and licked his sores.

      The great economist John Kenneth Galbraith described the trickle down theory best.

      “If you feed enough oats to the horse, some will pass through to feed the sparrows.”

      If you don’t like eating shit then Phil Gramn will call you a whiner.

    15. I want to echo SarahMC’s point that “economics” as a field has no inherent political leaning, though it may tend to draw people with a certain mindset. Ariel, I can’t stand most economists I meet either, which is particularly unfortunate because I am one! (Allison got the names mixed up but I’m the one with the Econ for Teachers blog mentioned in Definition #2). But there are more economists like Allison out there than you might imagine. The majority of academic economists (I think like other academics in general) are socially liberal and actually more supportive of government involvement in markets than anyone in the general public might guess. As Allison points out in Definition #6, economics isn’t always about free markets; what is rarely seen in the media is that believing in the power of markets and believing that government has a role to play in markets are not inconsistent views. You’d be hard pressed to find an economist who doesn’t believe that there are definitely circumstances when government intervention is needed to improve social welfare; among economists, the disagreements are more likely to be over the extent of intervention, or what the ‘best’ intervention is to achieve stated goals, rather than whether or not the government should be involved at all.

      Brad and DAS: yes, the way economists use the term scarcity is terrible – when economists say that something is ‘scarce’, it just means ‘limited’. I have no idea why we continue to use the term because it causes no end of confusion for people!

      SarahMC: The field definitely needs more folks who haven’t forgetten how to talk to ‘normal people’ so welcome!

      And bex: if you consider gravity is a law, then so are the ‘laws’ of supply and demand. These are explanations for the way certain things work but they are not absolute, they require certain circumstances to be present in order to hold (just ask any astronaut).

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    17. Microeconomics 101 bored me to tears, but when I stumbled into a macro course and saw its beautiful differential-difference equations, I was hooked (as a hobbyist). I think the appeal of economics for the conservative minded stems from having to so often take such a jaded view of humanity to make any sense of equations that otherwise have no analytical solutions.

    18. @shah8: Veblen is underrated! Like many of the sort of early, forgotten visionaries, I find his basic principles a bit weird. (The instinct of workmanship?) But The Theory of the Leisure Class is brilliant, and changes the way you see almost everything about modern society, from fashion, to celebrity behaviour, to university student’s choice of majors…

      As an aside, I’ve actually heard more than one mainstream economist cite Jane Jacobs as a must-read economist. So perhaps she’s not entirely underrated.

      @exholt: If I had written this list ten years ago, I would have said that economics is about *rational* choice, not choice. But I think behavioural economics has come along to the point where at least a few economists can talk intelligently about the limits of rationality. I think the problem is that very little of it has trickled down (so to speak) to economics undergrads. I don’t think rational choice theory is automatically rigorous, but of course everyone likes to claim that their discipline is the most like physics.

      What’s up with that, anyway? At one time or another, I have had profs in political science, international relations, not to mention economics, compare their discipline to the physical sciences. It’s a bizarre idea. There is no physical science of human behaviour. And it’s not like physicists have had a lot of success lately anyway…

    19. @Jennifer: Also, I’m *so sorry* about the name switchup! I don’t even know where I got “Karen” – some sort of late-night figment of my imagination. I’ve gone back and fixed it.

    20. “everyone likes to claim that their discipline is the most like physics.”

      One of my favorite classes in grad school was Science Studies in which we looked at the way economists engaged in the practice of economics. One of our texts “More Heat than Light” talks about how initially economists tried to mimic physicists in their explanations and theories. The basic point I took away from the lectures and this book was that physics was really, really cool when economics was in its infancy and so the economist of the time latched on to it as the “gold standard” of science and we haven’t really let go. Interesting theory anyway.

    21. “There is no physical science of human behaviour. And it’s not like physicists have had a lot of success lately anyway…”

      Both these statements require expounding. Are you saying that behaviorists are not physical scientists, or that human behavior cannot be modeled mathematically? As for the lack of recent success in physics, wow, I don’t have the first clue what you mean by that.

    22. What’s up with that, anyway? At one time or another, I have had profs in political science, international relations, not to mention economics, compare their discipline to the physical sciences.

      From what I’ve observed of most of my classmates at my public urban magnet high school, professional co-workers, and friends who are grad students in the natural and technical sciences, it seems to boil down to:

      If {
      [Heavily mathematical academic field == rigorous];

      Student = Sharp keen intellectual genius;

      cout << “This student is a rigorous thinker and a genius!” << endl;

      else
      {
      [All other academic fields == superfluous frivolous fluff];

      Student = questionable/dubious intellect;

      cout << “Student is a pseudointellectual and to be treated dismissively…” << endl;

      }

      That’s probably why many less mathematically intensive natural sciences and social sciences seem to have an inferiority complex to more mathematically heavy fields like Physics.

    23. exholt, hopefully as Computer Science matures as an academic discipline, that gap will close, especially as more human systems become modeled into database applications.

    24. Economics is also the study of culture. Social conditions and norms (for example, a culture of corruption vs. the value of a good reputation; or concepts of what is valuable like cows as status symbols rather than economic goods) have huge influence on markets in various places, and an understanding and acceptance of cultural idiosyncracies is necessary to practice any kind of accurate or effective economics internationally. For failure at this, see the World Bank and IMF.

      Economics is the study of humans and what humans want. People seem to have been missing, the last few years, the fundamentally humanist nature of early economic texts. Adam Smith wrote The Theory of Moral Sentiments as well as The Wealth of Nations, and there are very visible similarities and common threads between the texts. Aristotle himself pointed out that money is the means to something else, not the end in itself, and particularly in the realm of behavioral economics more and more the question of what we want to DO with our money is on the rise.

      Finally, economics is a tool and a perspective. It’s a way of analyzing and understanding the world that is not limited to money matters. Basic concepts like externalities, sustainability, incentives, and decisions at the margin can be used to approach all kinds of questions. Hell, I’ve used sunk costs to convince people not to keep eating their food when they’re no longer hungry just because they bought it. (Only when they complain about it. I’m trying to free people from a sense of obligation, not tell them not to eat.)

    25. Harry Truman once remarked about economist “I would like to meet a one armed economist, one that would never say on the other hand”

    26. I hate that Truman quote! It’s almost always invoked in a disparaging way, as if to imply that economists are wishy-washy or can never agree, but to me, all it really shows is that Truman was a typical politician who wasn’t interested in understanding anything, he just wanted people who would tell him what to do. The reason that economists say ‘on the other hand’ (to the extent that they actually do) is because any good economist knows that policy decisions are almost always based on values (i.e., they are normative) and every benefit has a cost. So an honest economist will couch policy recommendations in ‘if-then’ terms, as in ‘if you do X, you can expect to get benefit Y but ON THE OTHER HAND, you will also face costs Z’ or ‘If you want benefit Y, you could do X and pay Z, or ON THE OTHER HAND, you could do V and pay W.’ That is, good economists clarify trade-offs but they don’t tell you what choice to make. The reason Truman, and most politicians, didn’t like economists is because they like to pretend they don’t face trade-offs.

    27. Economics explains what was the best choice, why it was or was not taken, and how that choice may be wrong.

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