I’m curious: when you think of economics, what comes to mind? Charts, graphs, and statistics? Money? Politics? Society? Is it science, math, or something else?
Actually, it’s a life-or-death question. Good economic thinking results in incredible innovation and ingenuity as seen in the West for the last couple centuries. Meanwhile, a flawed understanding of what economics is or isn’t can lead to the extreme poverty that we see in “undeveloped” countries or the oppression that we witnessed in the Soviet Union.
And not only do we have to answer this question for ourselves, we need to understand what others mean when they start talking “economics.”
Economics is a science.
On one hand, economics is a science because it is a systematic arrangement of laws that have been—and are being—discovered by human knowledge.
[pq]Economics is based on unchanging laws, but it plays out through unpredictable human behavior.[/pq]
These laws don’t change or go away. And people don’t just make them up. They have always existed and people are simply refining their knowledge about them by observing money, markets, and human behavior.
Once we understand these laws, it’s best to work in accordance with them if you want to pursue the wellbeing of those around you. Going against these economic principles is futile.
Economics is all about people.
If economics is a science, then, why can’t it seem to predict the future well? Why weren’t we able to use it to prevent the 2008 recession? Why can’t our knowledge automatically eliminate poverty or create more jobs?
The reason is that economics is not just all about numbers. And it’s not a natural science, in which we can observe and test the often-predictable patterns of the physical world.
Economics is based on the way people behave, making it a social science. It’s based on unchanging laws, but it plays out through human behavior which is sometimes irrational, sometimes complicated, and always unpredictable. It’s not completely objective, but it’s not completely subjective either.
So, what are people like?
Christians believe that people are rational because they are created in the image of God. And we can see that today, as we watch incredibly creative people execute on ideas, build businesses, and make important life-decisions.
At the same time, people make mistakes. Sometimes, this happens because we have a tendency to do evil. At other points, we miscalculate simply because we do not have the knowledge that the situation requires.
Economists can learn so much from other people.
How can this knowledge help us with our economics? On one hand, people, as rational creative individuals, people should have the choice to make their own economic decisions. When people are able to exchange goods and services with each other as they see fit, we see that each individual gets what they need and society as a whole is better off as a result.
Also, since each individual will make mistakes due to evil nature or limited knowledge, it’s best to have economic decision-making spread out among many. Centralized power tends to lead to large mistakes that result in costly miscalculation of people’s needs and wants at best and oppression at worst.
Since human beings aren’t perfect or predictable, our economic understanding will always be limited in some ways. But once we understand and acknowledge that economics hinges on our understanding of people, we will go a long way toward applying it in a way that will make life better for individuals around the globe.