The Economy and You #19 – Why Study Economics?
The purpose of my articles is to provide a very basic overview of economic topics. It is my hope that these articles will help in the understanding of economics and how it affects many of the issues and policies we confront in our society today. To do this, I will be referring to basic concepts that are covered by economics instructors throughout our nation and the world. Many of the concepts touched upon will refer to textbooks authored by various economics professors like N. Gregory Mankiw, Karl Case, Ray Fair and Sharon Oster. To be clear, I am not claiming to be an economics professor. My intent is to take information written about economic topics and concepts and try and summarize them for simple understanding.
So why study economics? As economics is often defined, it is the study of how individuals and communities allocate scarce resources. The word to keep in mind is allocate, which means people make choices. Therefore, economics is a behavioral or social science.
So again, why study economics? One of the main reasons to study economics is to develop a new way of thinking. There are basic concepts in economics that once learned help a person to observe and understand everyday choices with a whole new perspective. Economics explains fundamental concepts in decision making like opportunity cost, marginalism, and efficiencies.
Another reason for studying economics is to better understand our society. Economic decisions made today, and yesterday, can have large and lasting impacts on our nation. Economic decisions determine the state of our physical infrastructure. The cost of building and maintaining roads, buildings and the like have long term effects. The state of our manufacturing base and the number of jobs created or lost are a result of our economic system. When you look at any major metropolitan area, you will see the results of millions of economic decisions. People at some point decided that money will be spent on new buildings, new workers, and new products. Governments decided that roads would be built, trash picked up, and employees hired. Economic policies determine whether trade occurs between countries, how that trade will occur, and what goods and services will be traded.
Economic decisions have not only shaped our physical environment, but they have also determined the character of society. The best example of this economic/societal change occurred during the late eighteenth and early nineteenth century. The Industrial Revolution transformed our nation and Europe from an agrarian society to an industrial one. Many now argue that a new economic/societal transformation is taking place. These changes were driven as a result of economics.
The third reason to study economics is that economics helps one to understand global affairs. International events often have incredible economic impacts. Wars are a prime example. WWII was a catalyst in making the U.S. a global economic superpower. European countries had their manufacturing capacity lost due to the destruction from bombing. Other examples could include how global affairs and economics intersect the foreign policy of the United States and how it relates to OPEC and our need for oil, or the debt crisis happening in Europe and the effects it will have not only in Europe but in the United States as well. Economics has both local and global impacts. It is important to understand both.
The fourth reason to study economics is to become an informed citizen. You cannot pick up a newspaper today without reading stories that have an economic impact. The trade deficit, unemployment, a new and improved product, all of these items and more affect our economy and our society. Knowing how these events can affect your job and your income is important in making decisions that impact your economic well-being. The decline of the American automotive industry should have been a foreshadowing of what might be in store for the employees of the General Motors and their suppliers. Still, some employees were surprised when the GM plant closed in Janesville. Economics cannot prevent certain events from happening, but it provides the tools to understand why such events occur and what the effects may be.
My next article will talk about the Milwaukee Brewers, Prince Fielder and a fundamental economic principle, opportunity cost.