At Least Four Reasons to Learn Economics
There are many reasons to learn economics, preferably in formal courses and preferably at an age where learning new things is easy. I count at least four.
The first reason is that economics is essential to understand the social universe. Basic economics is necessary to understand how prices are determined by supply and demand, if only on black markets when regular markets are prevented from working. (My EconLog post “A Frequent Confusion and the Yo-Yo Economic Model” can be thought of as short and incomplete introduction.) There is more than that in the social universe. Without some knowledge of economics, one will have problems reading many books of political philosophy or with major political and social implications—say, philosopher Robert Nozick’s Anarchy, State and Utopia, an academic best-seller of the mid-1970s, or Anthony de Jasay’s The State. It is not an acceptable exit for a reader who cannot understand such books to say that the author is wrong.
The second (related) reason to learn economics is that it is otherwise impossible to think in an organized way about public policy or the fundamental issues underlying it, whatever your final opinion will be. For example, suppose that a cost-benefit analysis realized by the government shows that the cost of expropriating low-rent apartment buildings on a given urban block will be $1 million, mainly reflecting the trouble of poor renters forced to move, while the benefits will be $2 million in profits for the owners of the mall to be built there. How can we say that this is a good policy or a bad policy? Can we really compare these costs with these benefits, and if not, why not? Another example of question one cannot seriously answer without some economic reasoning is, What happens if the expected punishment for shoplifting (expected fine or jail term multiplied by the expected probability of being caught) decreases? Gary Becker, laureate of the 1992 Nobel prize in economics, contributed much to the analysis of this sort of issue. (See Becker’s Nobel lecture; see also Jason L. Riley, “San Francisco Has Become a Shoplifter’s Paradise,” Wall Street Journal, October 19, 2021.) In fact, economics, which is a method of analysis, is as useful to study “social” as “economic” issues.
We can relate this to an important point made by James Buchanan, who received the 1986 Nobel prize in economics “for his development of the contractual and constitutional bases for the theory of economic and political decision-making,” as the Royal Swedish Academy of Sciences summarized its decision. In his book Why I, Too, Am Not a Conservative, Buchanan stressed the importance of understanding “simple principles of social interaction”:
Institutionally, classical liberalism depends critically upon the workings of markets, and without either a generalized understanding of basic economics or a widespread willingness to defer to the warnings of those wo do understand, maintenance of any liberal order becomes impossible.
The third reason to learn economics is that it opens a door to the realm of knowledge. Any science or theory-laden field of study opens a door to knowledge because everything is related to everything in some way. One has the choice of which door to use. However, economics is one of the best entrances as it is closely related both to social phenomena we observe daily around us, and to other important fields of social study such as philosophy, political science, history, and statistical analysis.
I would also say that economics is closely related to the realm of aesthetics not only because learning is beautiful, but also because the commercial adventure of mankind has been magnificent. Economics explains how markets liberated individuals from societies based on stifling customs or coercive commands. On this, you may want to read A Theory of Economic History, a small book by John Hicks, another Nobel economist, which also provides an introduction to economic reasoning.
A fourth reason why one should learn economics is that it helps earn a living better than many other fields of knowledge. Some analysts, including George Mason University economist Bryan Caplan, have argued that the main if not the only practical benefit of a college degree (at least outside narrow technical fields such as accounting or nursing) is to signal to potential employers that the new graduate is patient, disciplined if not submissive, and hard-working, not that he actually learned anything useful. But an economics graduate (at least from a good college) did learn something about the “real world,” even if he may not immediately realize it. He or she has acquired useful tools of analysis that help them think about any social (including political, narrowly “economic,” and financial) phenomenon.
The economically literate person cannot easily utter just any social nonsense. Perhaps this should count as a fifth reason to learn economics. My short EconLog post “Logical and Praxeological Impossibilities” gives some simple examples.
It is true that learning economics has a cost: the time, mental energy, and other resources one spends on studying economics cannot be used to pursue other interesting or lucrative activities. This observation points to one of the first lessons of economics, a lesson that becomes more obvious after one progresses in the field. The lesson is that resources (labor, capital, land, time) and what is produced with them are scarce compared to unlimited human desires. It follows that useful or desirable things or activities have what is called an “opportunity cost.” The opportunity cost of something lies in the other opportunities one has to forego to get it or do it. Producing or consuming more of something means that less of something else will be produced or consumed.
There is much more to discover.