Economics is an unusual discipline. Most fields of study are just that, a study of a specific field. Economics though is, in its broadest sense, almost a way of thinking, a common approach to methodology rather than a set subject matter.
This can come as a surprise to non-economists. Often, possibly all too often, telling someone that you work as an economist will quickly lead to a question on the future path of interest rates and appeals for your wisdom when it comes to timing the mortgages and housing markets. It is fair to say that most, but by no means all, economists typically worked in the recognized fields of macroeconomics – looking at employment, growth, inflation, and, yes, interest rates – or microeconomics, more concerned with the developments at the range of the firm, the market and the individual consumer. But the profession stretches well beyond this. The layperson might be surprised at the sheer range of topics covered in the top journals or at the kind of jobs and tasks economists find themselves performing both in industry and government.
The exact definition of the economic approach, or economic way of thinking, varies depending upon which economist one asks. And some practitioners of other disciplines would no doubt dismiss the whole concept as a form of economics imperialism with economists sticking their nose in where it is not needed. But most definitions would recognize that economics is, at heart, a social science and that good economics employs, as much as possible, a scientific method. That this to say, it is based on testable and falsifiable propositions.
The problem that all the social sciences, as opposed to the physical ones, tend to run into quickly is that controlled experiments are tricky to conduct when one is studying almost all human behavior. Economists tend to get around this by testing their propositions using models. Such models are always a representation of reality rather than an exact copy. Assumptions have to be made and the real skill lies in working out which assumptions are fair and helpful and which are not. The simplest of all economic models, the basic notion of supply and demand curves determining how a market operates, leave out a great deal of real world complexity but still often point to fundamental truths.
There is though, more to economics and economic thinking than a reliance on testable proportions and a frequent recourse to utilizing models. Most economic questions have no real solutions, only trade-offs. Economics is a way of weighing up those trade-offs. Most practitioners of the field would recognize a few core attributes that make-up economic thinking. The notion of scarcity – the idea that human wants are infinite but the resources available are almost certainly not – is core to much of the discipline.
Most economists also place a great weight on opportunity costs, the forgone alternatives of any course of action. Opportunity costs arise in almost all choices. The obvious opportunity cost of deciding to save $10, is to have $10 less available to spend immediately but the concept stretches well beyond simple monetary matters. The opportunity cost of reading a book can be many hours not spent doing something else.
The basics of economics, as practiced by many economists, is analyzing how individuals and firms seek to maximize the value of their own objectives – and those objectives and how they are defined by vary greatly – in a world in which resources are finite, opportunity costs exist and most decisions, because of this, involve some sort of trade-off. To which can be added, according to the taste of the defining economist, different weights on rationality and stronger or weaker assumptions on how incentives shape human behavior.
It is this economic way of thinking which allows economists to indulge in what others might think of as subject matter expansionism. The latest issue of the American Economic Review carries articles discussing topics ranging from social security survivors benefits to why different households live where they do to pollution regulatory approaches. All alongside work on the business cycle which most observers would recognize as core to the field. In the last year, it has ranged over topics others might regard as firmly belonging to public health, political science, and psychology as well as delving back into history.
Whilst the tendency of economists to, as others might see it, stick their nose into the fields of others might cause a few raised hackles, it also produces excellent and innovative insights. If nothing else, economic thinking often produces novel answers to old questions.
That range of insight is fully demonstrated this week by the Clark Center’s three polls of its three panels which cover the European Single Market, the potential opening of private equity funds to retail investors, and the question of legislating marijuana usage more widely.
And whilst it may be tricky to think of issues as different as private equity investing and the sale of cannabis products, in both cases the panels have approached the question through the framework of trade-offs, scarcity, and opportunity costs. Economists have useful views on topics that stretch well beyond the level of interest rates.
