Parsing my Favorite Definition of Economics

My favorite definition of economics can be found at the start of Cowen and Tabbarok’s textbook:

Economics is the study of how to get the most out of life

There is another excerpt that is worth reading in this regard:

Alfred Marshall called economics “the study of mankind in the ordinary business of life.” This was the enterprise of Marshall and Adam Smith and Friedrich Hayek and Milton Friedman: they tried to understand what people do and the implications of their behavior for the society at large.
But my favorite definition of economics is a variant of Marshall’s. It comes from a student who heard it from another teacher of hers: economics is the study of how to get the most out of life. I like this because it strikes at the true heart of economics—the choices we make, given that we can’t have everything we want. Economics is the study of infinite wants and finite means, the study of constrained choices. This is true for individuals and governments, families and nations. Thomas Sowell said it best: no solutions, only tradeoffs. To get the most out of life, to think like an economist, you have to be know what you’re giving up in order to get something else. (Very minor edit in the first sentence to make it more readable)

So: economics is the study of how to get the most out of life. But what does this mean, exactly?

Three questions present themselves almost immediately to me when I think about this sentence:

  1. What exactly does “how to?” mean?
  2. Who defines what “most” means in each context?
  3. Whose life?

I’ll begin with the second question, move on to the third, and finish with the first.

  1. Who defines what “most” means in each context?

    My daughter – all of nine years old – has a very clear answer to this question on, say, a Saturday morning. As many hours as possible on her tablet.
    Given her world, and her time horizons, this makes perfect sense to her.
    As does my definition of “most” when I decide to take a “five minute” break from whatever I’m doing to “quickly” check Twitter, or watch “just one video” on YouTube.

    That’s the trouble with this definition – “most” is a very, very tricky word. It is my job to teach my daughter that “most” has long term implications, and it is my job to remind myself that “most” has long term implications. What seems best at the moment isn’t necessarily the best if you take the long view. Economics will tell you how to get the most out of life, assuming you know what most means for you right now.
    But what is the best definition of “most”, and why, is a question economics doesn’t directly answer. It’ll tell you about the benefits and costs of whatever definition of “most” you happen to choose, but evaluating between these options is left to you. Tricky little thing that way, economics.

  2. Whose life?

    When I make a choice about the word “most”, should I keep in mind just me or other folks too? Watching the tenth YouTube video instead of getting back to work gets the most out of my life is what my brain tells me, but does my income suffer? Does my family’s well-being suffer? How should I balance these conflicting interests? Does that mean that I shouldn’t watch a single YouTube video?

    It gets even more complicated when I realize that I really need to think about four different sets of lives. My own right now, and my own in the future (both near and distant). But also the lives of others, and those right now and in the future.

    Freebies just before an election might win a government an election now, but what about greater indebtedness in future generations? Congo deciding to give oil exploration licenses might mean more dollars in their coffers now, but at what cost to the future lives of everybody on this planet twenty years down the line?

  3. What exactly does “how to” mean?

    My very first manager in the corporate world drummed a lesson into me that I have found very useful, and worth remembering. Everything that I do in any organization, he said, must fulfill one of three aims. It must either help the firm increase revenue, or it must help the firm reduce costs. Or, he said, it should help the firm improve speed-to-market. You might quibble that the third is a restatement of the first, but the point is well-taken, and relevant in this context.
    Economics helps you get the most out of life by either giving you more of whatever it is that you’re aiming for, or by reducing the effort involved in getting it, or both. And the apparatus involved in this is where math and econ begin to intersect. But the idea is summarized very well in the rule my manager set for me.
    For example, if what I want to do is get the most out of writing an examination, there are two things that I can do. Try and maximize my marks (my grades) or try and minimize my efforts. Ideally of course, I should try and get the biggest bang for the buck – maximize my marks while minimizing my efforts. And that, of course, is why most (if not all) students are so curious to learn about the “important questions”, the “pattern of the paper”, the “syllabus” and the “recommended” textbook.

But should one be maximizing marks and minimizing effort in the first place? Isn’t the point to learn as much as possible?

Allow me refer you back to the first question in this series

4 thoughts on “Parsing my Favorite Definition of Economics

  1. It is interesting that you too have been thinking of definition of economics. I say you too because I am assuming that after spending a substantial amount of time in the discipline and also finishing doctoral research, one tends to have moved far beyond the point of thinking on first principles basis.

    I face this issue every time I do a version of those short courses (Learning Economics With *insert activity*) for kids at GW. In the last one at SNU, we settled with a working definition of ‘making the best use of resources that one has’. The group comprised of 11 to 13 year olds. It seemed acceptable to the group. But ‘fairness’ and consequences of individual actions in the bid to make ‘best’ use created far too much friction in the group. (Ex – person X wants to make the best use of his time in class but it is disturbing me).

    I prefer leaving every group with a working definition of economics which they can then build upon as they acquire more knowledge and build life experiences. The issue of definition seems to be open forever.

    • Which, if you think about it, is a wonderful thing! 🙂
      But yup, how to get the most out of life without harming others is certainly a richer definition – and it also begs more questions.
      Thank you for reading!

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