A somewhat less sexy, but more accurate title would have been ” Economics Isn’t Just About Money”.
But the decision to jettison the word “just” is deliberate, and not just for the sake of a headline that makes you want to click through. It is, instead, to emphasize the point that economics is about so much more than just about making money.
I have some close friends to thank for inspiring this post, with whom I had a conversation about tomorrow’s blogpost. They told me that they had been under the impression that economics is about money, and to my surprise, that seems to be an idea that most people I have spoken to are comfortable with.
But these people I have spoken with, and whoever has taught them economics, have less than half the right answer. Economics isn’t about money alone.
I’d written a post a while back about Choices, Horizons, Incentives and Costs. And to me, that’s what economics is about.
No matter what you do in life, you have a range of choices to choose from. Should I watch Netflix for an hour or study for an hour? Should I read a couple of pages from a book, or should I quickly scroll through Twitter? Should I enroll in an engineering course, or should I pursue law instead? Should I start with the salad at a buffet, or should I start with desserts instead?
Life is all about choices, every single second of your life. Economics helps you be clear about your choices, and also helps you potentially expand your choice set. One option regarding the last question in the paragraph above, is to say neither, and fast instead. Be aware of your entire choice set, and only then set about choosing one.
Horizons is about thinking about the long term, rather than the short term. My favorite example in introductory economics is to ask my students if I should have a second gulab jamun for desserts after lunch today. I tell them that present day Ashish will definitely say yes, and seventy year old Ashish (assuming I live for that long) will definitely say no. Because the consequences of choices I make today truly matter in the long run, bur are underestimated in the short run.
Incentives are about what motivate you to do (or not do) things. Economics teaches you how to use your own incentives, and those of others, to Get Things Done. My favorite example comes from Tyler Cowen, who helps us understand how to use incentives to not be bored in a museum. Ask yourself, he suggests, which painting would you choose to steal from each room, to install in your own home – and you cannot choose more than one per room. Your incentives have flipped – now it’s not about “seeing” each and every painting having paid the price of admission, but instead about asking yourself which painting will look best in your home.
And costs are about the realization that nothing in life comes for free. No matter what you are doing, you could always be doing something else. Instead of having read this far (thank you!), you could have given up halfway through and watched funny cat videos instead. Opportunity costs are everywhere, and whatever your choice, it ain’t for free.
The point that unites each of the examples above is that none of them are about money! They are economics-y concepts: choices, horizons, incentives and costs. But what to have in a buffet, whether to have a second gulab jamun, deciding which painting to steal and watching cat videos are not about money.
You could put a monetary value to all of them using subjective valuations, of course, but some things shouldn’t have numbers attached to them. Not because they’re not important, but because they’re fundamentally unquantifiable. What price (and I’m not joking here) can you possibly put on a parent choosing to read a story to a child? Economists have an answer to this question, of course, but it isn’t one that I am entirely comfortable with, especially if it involves a definitive number.
And that’s what I mean when I say that economics is about so much more than just money.
That still does not answer the question of what economics is about – I have written about it earlier, and will defend my answer in tomorrow’s post.