What Economics Means to Me
by Steve Trejo
For me, it's easiest to start by describing what economics is NOT. Despite popular opinion to the contrary, economics is not solely, or even primarily, about financial markets or transactions involving money. At its heart, economics is a social science, which means that it seeks to understand and predict how people behave in all facets of their lives. The fundamental difference between economics and other social sciences like political science or sociology is not the particular aspects of human behavior studied, but rather the framework used to analyze such behavior. Sure, economists have devoted much effort to studying markets and businesses, but they are increasingly paying more and more attention to nonmarket interactions such as those that take place between family members, or between politicians, or between teachers and students.
The economic approach starts from the simple premise that, faced with limited resources and abilities, people do the best they can to further their goals and objectives. Combined with the powerful mathematical tools of optimization theory, this simple premise yields sharp predictions about how people should respond to changes in their resources and abilities. Organizations and institutions, whether they be businesses or churches or governments or markets, are studied through the sometimes complicated interactions between the individuals who participate in these organizations and institutions.
The mathematical and theoretical rigor associated with the economic approach to studying human behavior can seem intimidating, bewildering, and needlessly impenetrable to outsiders. This is unfortunate and often unnecessary, because many of the most important ideas in economics are compelling when explained in simple and non-technical ways. Nonetheless, technical rigor is also the biggest advantage that economics has over other social sciences. It forces economic theories to be clear, precise, and internally consistent. It produces sharp predictions and a framework for empirically distinguishing causality from correlation. It provides a manageable way of simultaneously considering the myriad, interacting effects that can arise from changing a single law or government program; consequently, as a tool for policy analysis, economic theory is without intellectual peers.
Economic analysis provides an integrated, insightful perspective on virtually all aspects of human behavior that is unparalleled in terms of breadth, power, and empirical success. Of course, other social sciences have made many important contributions to understanding human behavior, but so far only economics has provided a concrete, unified framework for studying individuals, families, businesses, organizations, and institutions in all facets of life. As for the supremacy of the economic approach, don't listen to me, but instead look at a "market" test of sorts. When seeking expertise on social policy, which types of social scientists do governments, think tanks, businesses, and other organizations hire or consult with most? Economists, by far.