It never fails that when I ask people to describe the field of economics, the typical response is that it is the study of money or how to earn money. Moreover an ever increasing number of people regard economics as a form of politics or perhaps political science. Grading on the simple pass/fail basis all would of course fail.Economics is mistaken for finance by some and politics by others. The later tends to sting a bit. Nevertheless, perhaps the confusion is understandable. After all economics must by necessity address matters common to both areas of understanding. Such has been the case since inception. Be that as it may the fact remains that, economics is best described as the study of human behaviour.
“What?” you say. “What about money, debts, saving, budgets?” Well economics certainly involves all those things and economists have been known to go on for hours on the pros and cons of public policy decisions. But at its core economics is the study of how flesh and blood human beings (not abstractions thereof) and the institutions they engender actually respond to various types and degrees of stimuli. Economics addresses financial implications without addressing the organization of financial data which is best suited to financial experts. Economics addresses the incentives and/or disincentives resulting from public policy and not necessarily the policies themselves which is best suited to politicians. Hence the economist focuses not so much on the tax rate as on the manner in which said rate affects human behaviour which in turn has a direct even if long term effect on the overall state of social institutions. Most importantly, economics answers the ever-ellusive “Why?” Why does an increase in demand drive prices higher? Why does welfare (corporate and social) incentivize licentiousness on the part of the recipient? Why do even good ideas generate diminishing returns over time? Why do certain policies produce results at odd with the intensions of those who author them? Why?, Why?, Why?, ad nauseum.
The problem is not that the confusion exists. Rather it is the fact that it causes the layperson to misconstrue economic laws for political rhetoric. This is particularly problematic when one is confronted with Austrian Economics for the “Austrian” is always deemed to be championing the political views of a specific politician and/or political party.
How to correct the problem? Well, I’ll leave that to the social theorists. I’m only an economist.
the “Austrian” is always deemed to be championing the political views of a specific politician and/or political party.
ReplyDeleteTo the extent of my knowledge, Mises died a poor man because he couldn't find work during the Nazi era or the worldwide Communist/Socialist era that followed. No one wanted to hear what he had to say because it didn't jive with their Leftist ideology.
They opted for the 'economists' that told them what they wanted to hear. And of course what they wanted to hear was that their Utopian goals were achievable.
To that end, I believe the chief economist in Venezuela recently resigned (fled for his life) because Chavez wanted him to say his policies would work. Basically, he wanted him to say that 2 + 2 = 9. He just couldn't do it.
It's like me telling my doctor that i want to eat nothing but candy and be healthy. And if he doesn't, i'll fire him.
. . . I was trying to find the name of the Venezuelan economic adviser that resigned but all the google results turn up with the current guy who had to resign because of corruption.
ReplyDeleteNote: Chavez's response was to nationalize the banks . . . to avoid corruption. Good luck.
I suppose this is why Mises wrote Human Action.
ReplyDeleteIt's interesting to contrast this with Marx' theory of alienation. But instead of observing people's decision making, I think Marx had a conclussion in mind and worked backwards. His pupils put his ideas into practice and the results speak for themselves.
It's unfortunate that so few actually understand this. Maybe academia has poisoned everyone's minds.
ReplyDeleteI couldnt find the name of the economist who resigned but I am somewhat familiar with the story. Chavez did a Mao-styled purge of academics when he came to power. He is, of course, a Maoist so that shouldnt be surprising.
Good point on "Human Action." People tend to forget that the father of "economics", Adam Smith, first wrote "The Theory of Moral Sentiments" which analysed human behaviour and this paved the way for his secon treatise. Although shortened to "Wealth of Nations" it is actually entitled, "An Inquiry into the Nature and Cause of the Wealth of Nations." The title alone evinces the fact that he was investigating the reasons certain nations prosper while