Feed on

I was listening to the radio on the way in when a caller chimed in to discuss last November’s cancellation of the NYC Marathon. The caller indicated that the reason Bloomberg was going to “let the show go on” even as the rest of New York suffered without power and fuel and heat, is because of “the economics.”

Sometimes getting into semantics is a complete waste of time. Not in this case. The caller, and in my view a majority of laypersons, use the term “economics” interchangeably with “money.” This is not only wrong but I would argue is dangerously wrong. To do economics is to consider the tradeoffs agents face when making choices. Sure, money is the medium used to measure and make these tradeoffs in a large number of these situations, but that no more makes economics about money than acting is about cathode ray tubes (the medium through which much acting was seen for a half-century).

Why is this mistake dangerous? People hear economists, or anyone, making a clearly good and well reasoned economic argument about some sacred idea (e.g. the planet) and they think we are completely overcome with money obsession. That the only way to think of recycling, for example, is if it saves money as compared to “wrecking the planet.” Of course this is nonsense. When we talk about the economic approach to recycling, or any other issue, rather than focusing solely on money (which is ironically the pop-way of doing it) we aim to understand all of the direct and indirect benefits and costs that surround the decision, thus making it clearer what really is going on when we are doing something. To argue that economists employ “economistic” thinking and to use that as a rhetorical club to dismiss the work and insights of economists on issues of importance is therefore the same as telling people, “The things I am telling you are important are not actually important.”

This isn’t nitpicking. When we do good economics, we think very seriously about the preferences of actors for different objects – and in fact economic decision-making is blind to the superiority of some preferences over others. It does not discriminate. When we do good economics, we think very seriously about what costs we are imposing everywhere when choices are made – in particular to third parties  and this includes the value (monetary and otherwise) of the resources “used” up when choices are made. When we employ the economic approach to decisions, yes indeed we are making a normative claim appear to be positive, but it is a normative claim that if well understood would, in my view, be one that most people would subscribe to. In fact my belief is that the folk beliefs and arguments of folks who reject economics end up redounding to a similar claim, albeit a misunderstood version of it. When we illustrate that a policy is inefficient, that is akin to us saying that at least for some amount of that policy chosen, the benefits provided (inclusive of ALL values, not just monetary ones) do not exceed the costs (inclusive of ALL costs, not just monetary ones and easily observable ones). This means in a very real sense that we are wasting stuff. Now, to object to this technique means that you do not think comparing benefits to costs is an appropriate way to make decisions. But you cannot object to good economics on the grounds that “it doesn’t consider all of the stuff we care about.” Far from it. That is the reason why we do economics in the first place and don’t engage in folk-wishing about the impact of our choices and policies.

By being “economicisty” as critics like to say about us, what we are doing is forcing you to reveal whether you actually care about the things you say you do. And that makes people uncomfortable. You can call economists “bullies” (no one really knows what that means I would argue). You can call them callous. You can call them heartless or even brainless (after all, we do use this particular hammer — it is what defines economics as economics). But that reaction, too, reveals a lot about what really is going on.

4 Responses to “Economics is Not Finance or Money”

  1. Michael says:

    Hear hear! Although I try to say “financials” or “accounting” rather than “economics”, old habits can be hard to break.

  2. […] Most people say “economics” when they really mean “financial” […]

  3. Speedmaster says:

    To wit …

    Economic Ignorance Fact Of The Day
    By Matthew Yglesias
    “Here is a test. Suppose you had $100 in a savings account that paid an interest rate of 2% a year. If you leave the money in the account, how much would you have accumulated after five years: more than $102, exactly $102, or less than $102?”

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