This post came up because of a conversation with other OMB writers. Specifically, Catherine said she was going to come and sit in on my class this fall; although the semester has started and her attendance has been pretty bad (haha). As an economics professor and Director of the UNO Center for Economic Education my job is to educate teachers about how to teach economics and personal finance effectively. Generally the first step is to simply explain what economics is. So here goes, but first let’s start with what economics ISN’T.
What Economics ISN’T
People often think that economics deals with money and the stock market. When I tell people what I do for a living people often ask me what is going to happen to inflation and stocks tomorrow/next month/next year. While there are some applications to these topics I do not have a crystal ball that allows me to see into the future. Economics is not these things so…
What is Economics?
Economics is the study of choices. That’s it! To elaborate a little more, economists study how people make choices under scarcity. We’ve heard the phrase “there’s no such thing as a free lunch” and that sentiment is true. Because everything is scarce (time, money, resources, etc.) we must make a choice which has some sort of consequence. Going out for a date night with your husband means you cannot also go out for a ladies’ night—you must choose and you forego one option.
To make this decision, whether you know it or not, you use marginal analysis. That is, you compare the costs and benefits. Now sometimes you do this literally. In high school did you ever bring out a yellow legal pad and made two columns, one for the pros and the other for cons when deciding if you wanted to date someone ? But many times, you do the analysis so quickly and just in your head that you do not even know you did it. For example, when making a dinner and you realize you didn’t thaw out the chicken you quickly make another choice. There was no legal pad out weighing the pros and cons of thawing out the chicken versus making something different. You decided that the other option is better and probably without more than 3 seconds of thinking. You made an economic choice and you didn’t even know!
There you go. A brief description of economics. So you don’t have to look so clueless as your high school student talks about their high school econ class. You may not run your own Fortune 500 company but each day you are faced with economic choices for yourself and your family. Understanding costs and benefits and how to think like an economist is instrumental for everyone to understand because the applications are endless (including money and stock decisions).