"Economics is about money"
What people assume about economics, part 1
One of the primary reasons I feel compelled to write Layman’s Tax is that a lot of people don’t care about economics. Because it’s something I’m a huge nerd about, I can’t help but feel like they’re missing out, so I am attempting to write about economics in a relatable, easy-to-read way.
I hypothesize that many people don’t care about economics because they think they know it well enough, or that they can get what they need to know from finance, accounting, or business classes.
The lack of mainstream education isn’t helping economics’ popularity. Economics is not required in most U.S. high schools or colleges, and any formal economic education (for those who don’t seek it out) is packaged as a unit or passing topic in other liberal arts classes like history and civics.1
So basically, we find ourselves in a position where:
Exposure to the discipline of economics is uncommon.
Exposure that does occur is of low quality.2
These problems play into low financial literacy rates, which have ripple effects into the wider economy - I’ll get to writing on that eventually.
People make assumptions that satisfy the thought: “I don’t need to seriously think about economics to live my life and function in the world.”
In my, albeit limited, experience, there are two basic assumptions people make that prevent them from self-educating on economics. Here is the first:
Assumption no. 1 - “Economics is about money”
For those without much exposure to it, Economics is vaguely about money. It’s presented as the study of how money moves between people, businesses, and the government. What a nice thought. And, because economics usually sits somewhere between the liberal arts and business schools, those who want to “really learn” about money will favor finance or accounting disciplines.
This assumption is false. While economics certainly touches on how money moves between parties and broadly covers many financial concepts, it is not about money. Here are definitions from actual economists:
“[Economics is] an inquiry into the nature and causes of the wealth of nations.” -Adam Smith
“Economics is the study of how society manages its scarce resources. In most societies, resources are allocated … through the combined choices of millions of households and firms. Economists therefore study how people make decisions” -Gregory Mankiw
“[Economics] shows cause and effect relationships involving prices, industry and commerce, work and pay, or the international balance of trade– all from the standpoint of how this affects the allocation of scarce resources in a way that raises or lowers the material standard of living of the population as a whole.” -Thomas Sowell
If you remember any of these, remember this one:
“Economics is the study of the use of scarce resources which have alternative uses.” -Lionel Robbins
Did any of these renowned economists use the word “money”? Sure, money is a resource, but a resource can be pretty much anything. Your time is a resource, your labor is a resource, water is a resource, etc.
Each gets at the heart of the issue: Economics is about choice.
I make choices every day, so I hold to the idea that understanding how to make better (read: optimal) choices is pretty important. I will expound on these definitions in the future (e.g., what is meant by scarce), but for now, you can rest easy knowing that economics has never been about money. Economics can certainly help you manage the resource of money better, but that is not its main focus. The sooner we can ditch this assumption, the better.
Next week, I will write about assumption no. 2 - “Economics involves a lot of math.”
If you want to learn more from those more qualified than I, check out this article.
Personal finance classes (if required) usually touch on some economic concepts, but finance is a different beast altogether. I hope to make some dedicated posts on that subject in the future.
This is not to say there are no fantastic economics educators, books, or classes. High-quality economic education certainly exists. The subject is not prioritized by most public educational institutions (especially at the elementary and secondary levels), and therefore, the general public has little exposure to high-quality economics. This is also not to say this blog should be considered “high-quality” by comparison.