As the details of the federal budget were released yesterday, for some curious reason I was reminded of a profound answer an ageing Colonel Jeff Cooper provided to the question, “What should a young male of 21 know and what should he be able to do?” Among the 13 things Cooper identified that should be accomplished before a son leaves his father’s household is that “he should know how to drive a car well – such as is not covered in Driver’s Ed.” There is only thing that I could add to Cooper’s cogent list: He should know fundamentals of economics – such is not covered in the standard undergraduate curriculum, and know the difference between Ludwig von Mises and John Kenneth Galbraith.
The upside – if there is one – of widespread economic illiteracy in Canada is that it is only a recent phenomenon. Adam Smith envisioned the science as a study of the “nature and causes of the wealth of nations.” This seminal work was widely read by businessmen, even though Smith disparaged them quite bluntly for their greed, thoughtlessness, and other defective characteristics. Even by the turn of the 20th century, Alfred Marshall managed to keep economics as “both a study of wealth and a branch of the study of man.” Public school grade book readers from that time in Canada reveal that economics was as important in becoming educated as reading, writing and arithmetic.
However during the 20th century, the field of study experienced a paradigm shift. The focus became theoretical approaches of economization in place of the real-world economy. Today the tools used by mainstream economists to analyze business firms are too abstract and speculative to offer guidance to entrepreneurs and managers in their constant struggle to profitably satisfy ever changing consumer wants. There is tremendous demand for this kind of insight. To the extent that economists don’t supply it, others do and the consequences of this are plain for all to see.
Fortunately, if we choose, we can outcompete other suppliers in markets for meaningful economic information. And perhaps this begins with making economics relevant to people in the context of their own lives.
Economics is the most important subject at any university anywhere. I don’t make this claim vainly. Economics is the philosophy of human life. It concerns each of us at every moment of every day of our lives. It is the pith of our human existence. It is the main and proper study of every responsible human being. And it is markedly different from all other social sciences.
The crucial and distinctive feature in the study of economics is the concept of human action. Simply put, human action is purposeful behaviour. It is sharply distinguishable from observations that, from the point of view of the individual, are not purposeful – movements of inorganic matter or physical relationships between inanimate objects.
The first truth to be discovered about human action is that it can only be undertaken by individual human actors. There is no such thing as ends or actions by “groups”, “collectives” or “regions” that has independent existence aside from the actions of the constituent, individual members. Groups, collectives and regions are not sentient beings. They don’t have feelings, they unable to produce, consume or exchange and they cannot experience gains or losses. Only individuals do. The angry mob didn’t loot the electronics store; individuals did. Alberta doesn’t raise cattle; individuals do. The University of Lethbridge doesn’t suffer from cutbacks; individuals do. Economics is about me. Economics is about you, and you, and you….
How might we better enable students to recognize the applicability of what they have learned in the context of their own lives?
Since the crux economics sciences is about the logical consequences of decision making under conditions of scarcity and uncertainty, I think a starting point may be to emphasize how each us make these decisions every moment of every day of our lives. This is quite different from the current focus of markets as static structures and on calculating equilibria.
During the course of the day, most of us spend very little of our time buying or selling. Think about it. In my case, I am paid once a month for the labour I sell. Because I am in the habit of recording every purchase I make, I know that some days I only buy one thing. Other days I may buy three or four. And yet other days, I may not purchase anything. Most of the time the markets in which I could potentially participate, are from my point of view, in disequilibrium. That is to say, I prefer to keep the cash in my pocket rather than exchanging it for a good or service.
When I am counterparty to an exchange, the action happens in a flash – almost like a single firework exploding at night. Over the course of the 24 hours in my day, I spend perhaps at most 10 seconds in the activity of exchange. For 23 hours, 59 minutes and 50 seconds I am not actively involved in a market process. However, except when I am asleep, I am constantly evaluating my trade-offs as I aim toward a more desirable state of affairs as I perceive it. I am always applying economics. Scratch that. I am living economics. It is who I am. It is who you are.
Imagine what the contents of course in economics would be if it reflected how we actually spend our second most scarce resource – time? It would bring to the forefront what is typically assumed away or ignore. Ranking of alternatives is ordinal, not cardinal. Utility is not amenable to quantification. Neither are opportunity costs. Opportunity costs are subjective, time, place, circumstance and individual specific. They cannot be added, subtracted, multiplied or divided across individuals. And at every moment of every day of our lives, our perception of the world about us changes and this is manifest in changes in ordinal ranking of preferences and opportunity costs. This not only affects consumption patterns, but also the entire structure of production over time and space. Putting numbers to these fundamental building blocks of economic science is the intellectual equivalent of proclaiming the existence of circular triangles. And this is where I think students become bewildered.
Trying to quantify the unquantifiable is an outworking of a distorted understanding what economics is really about. Economics is not like physics or chemistry. Rather, it is about identifying, delineating and when possible, quantifying the consequences of individual decision making. Using the methods applicable to the physical sciences can impair, limit and convolute the comparative advantage of economics. Friedrich Hayek warned, “The vigorous attempts to mimic the methods of the physical sciences have contributed scarcely anything to our understanding of social phenomena.” That comment would make for an excellent focal point for a future debate. However, the underlying issue is not with economic science per se, but of a misunderstanding of the role and limits of economic science. Paraphrasing the famous line from the Dirty Harry movie Magnum Force, a good economist knows his or her limitations. And there has never been a greater need to raise broad awareness and understanding of economic principles than right now.
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