I have some good news for you, you’re an economist! That should be empowering, and you should no longer fear anybody sitting in an ivory tower talking economics to you (even me).
Let me explain…
TL;DR
- Economics is how you make decisions with limited resources
- Scarity forces trade offs
- Decisions are what we are trying to predict/understand
- Utility is what you are optimizing for, what you value.
- Everyone is an Economist so be intentional
What’s Economics?
Let’s start from the beginning. I know the title is “What’s Economics?”, But I’m going to ask first, “What’s an economist?”. The answer is quite simple: an economist is anyone who does economics. This brings me to the title of this section what’s economics?
Now, I could probably quote to you what other economists have said economics is, but that might be a little intimidating. I’m going to summarize here what I have heard over the years and what I believe to be true. Economics is how you (or anyone) makes decisions with limited resources. That’s probably the simplest way I could put it, and there is a built-in assumption that this decision is acted on. Also describe it with fancier words: Economics is how actors - firms or individuals - maximize utility in the presence of scarcity.
Now it should be pretty easy to see how everyone is an economist. Allow me to go into the nitty-gritty on two points: decisions and scarcity.
Scarcity
Scarcity, or limited resources, is very important because if you had unlimited resources (i.e no scarcity) then you wouldn’t need to make many decisions. If you had all the money in the world, you don’t really need to worry about how you were spending your money on food. However, if you are a broke college student and you can barely afford groceries vs. rent, it becomes very important how you spend your money and what you spend your money on. Maybe you don’t buy food you like in exchange for doing rent. Or maybe you go and work more, taking up more of your free time in order to buy nicer food.
Scarcity or limited resources is what brings up the need for the next point: decisions.
Decisions
Decisions. Do I do this or that? What are you choosing? What are you giving up? What are the alternatives? This is the interesting part of economics. If I go and watch the opera, I can’t go to the baseball game that’s at the same time (maybe I can with a phone, but honestly I don’t really want to watch either).
What decision did I make? What decision did you make? Why did I make it? And more importantly, would I have made that decision in the same situation over and over again, or would it have been a different situation each time? In other words, are my actions predictable? Modelable?
We can actually run down a lot of different rabbit holes of philosophy with this stuff. But suffice it to say that what we want to do in economics is to identify decisions that a person or a firm will make. In order to do that, we need to understand the incentives that they face and the trade-offs that they face. Which brings us back to scarcity.
Utility
Hold on a second! What’s utility? what are we maximizing. Utility is a whole other barrel of monkeys, but suffice it to say that utility is subjective, and it is what a person see’s as ‘good’.
Everyone’s a Theologian
“Everyone’s a theologian.” That is a statement that’s famously stated by R.C. Sproul in his book of the same name. Have I read it? No. Is it on my list? Yes. Why do I bring it up?
By virtue of the way that you live your life and hold beliefs about things like morality and God, whether you believe He exists or doesn’t, or you believe no one could possibly know if He exists, you are a theologian merely by your existence.
In the same way, you’re an economist, whether you like it or not. You are optimizing for something whether you know what it is or not. And since you are an economist, it would be helpful to think like an economist. There are a lot of books that Help introduce a way of thinking about things economically. My favorite and the ones that got me interested in economics are the Freakonomics books, but there are many more.
I encourage you to read them, and think about them critically.
I also encourage you to identify what you are optimizing for, and then optimize for what you actually want. What is the greatest good. (I think that we should all optimize for glorifying God - but how that works out in your life, I couldn’t tell you).
Everyone’s an Economist, so What?
“So what?” Depends entirely on what you want to do, if you want to do anything at all. If nothing else it is an invitation to think critically, to use some sort of system that can be refined in the fires of experience. What is the point and purpose of the system? To help make decisions with your limited resources.
No matter who you are you have limited resources. You only have so much time.
Your decisions always move you toward something. I want you to choose what you are optimizing for.
Signing off, Best wishes
Gunnar J Newell
Christ is Lord!