The mere mention of the term “economics” is enough to set some people into eye-rolling dread. Known as “the dismal science” and filled with charts, equations, and even a bit of Latin, it looks, at the outset, to be a difficult subject to tackle. It is for this reason, I believe, that most Econ 101 classes focus mostly on teaching basic concepts, leaving the more complicated ideas and difficult mathematics for those crazy enough to take on intermediate level courses. Similarly, professionals bearing the “economist” label often seem enigmatic to the rest of us, regarded in a similar manner as fortune-tellers; they are either possessed of magical (or intellectual) powers to foretell the future, or they are charlatans taking us all for a ride. Neither, of course, is really the case.
Economics is, at its simplest level, the study of how people use what they have to get what they need and want. This study can look at individuals at the household level, or it can look at people in aggregate at the market, national, or even global level. The study of economics has produced terms such as “rational self-interest,” “opportunity cost,” and “marginal utility” to describe the way people make economic choices. The terms and concepts behind this study can take on a life of their own and may seem, to the rest of us, like a foreign language or impenetrable gobbledygook.
Sometimes it really is gobbledygook, and this is what makes it so important to gain at least a basic grasp of economic concepts and terms. No economist has a crystal ball. All of the hypothesis and equations in the world cannot describe every circumstance, every time. And though I deeply believe in, and hope to impart unto others, the usefulness of economics as a science, it is one of the least testable sciences. The scientific study of economics cannot be carried out in the safety of a sealed and sterilized lab. Economic hypothesis cannot be tested in a Petri dish, with all outside influences eliminated.
For this reason, one of the most important phrases you will encounter in economics is “ceteris paribus” or, “all other things being held equal and constant.” Of course, all other things are not going to stay equal and constant when different people are making different decisions every day. And that’s the rub; it’s impossible to predict what people are going to do when people, by nature, are unpredictable. That’s why economics looks at people in aggregate, attempts to locate patterns within economic decision-making, theorize about the reasons behind these patterns, test those theories against data, and then forecast what is likely to happen going forward. Economists know they can’t determine what everyone will do in every situation, so they look, instead, to find what most of the people are likely to do.
For all its faults, economics is an important science. It is useful for policy makers to know, say, whether changing the minimum wage will have an effect on unemployment rates. Sure, economics can’t tell us for certain what a specific result will be, but they can tell us a lot about what happened when a particular change was made historically and give us a great insight into what factors might be most crucial.
Of course, economists themselves are people. They have different ideas about why people make the economic choices they make. Their findings are interpreted and reported to the public by people, commented on, criticized, and expanded upon by people, and cited as rationale for decisions and policies-again, by people. This can lead to a simple phrase taking on its own life and ending up far from its original context, and it has been happening since some of the earliest days of the field. Adam Smith’s “The Wealth of Nations” became the jumping-off point for Karl Marx in this manner and it’s not likely to stop any time soon. It’s important to gain an individual understanding of economics to avoid relying solely upon anyone else’s interpretations.
It may seem mysterious and unfathomable, but at its core, economics is simply the study of how people use what they have to get what they want. By remembering that, and taking it in small, manageable bits, anyone can grab hold of and tame the subject.