It was Thomas Carlyle who referred to Economics as the “dismal science”. We think of all those convoluted theories, interminable graphs and experts who fail to predict economic recessions. In the last few years though a new breed of economists has started to change this image. Economics has become almost…..sexy.
First I think we need to look at what economics really is because there are so many misconceptions around. Economics is not about making money or the fluctuations on the stock market. An economy is, according to Wikipedia, “the realized system of human activities related to the production, distribution, exchange, and consumption of goods and services of a country or other area.” But any definition of economics must include the idea of scarcity. My favourite definition of economics comes from the economist Lionel Robbins
“Economics is the study of the use of scarce resources which have alternative uses.”
What is fascinating is how economics has vastly expanded its scope over the last few years. I wouldn’t go as far as the economist George Stigler who said: “There is only one social science and we are its practitioners.” However, I do think that the economic way of thinking can give a lot of insights into areas we would not usually associate with the dismal science. A pioneer in this field was the University of Chicago’s Gary Becker, who was awarded the Nobel Prize for economics in 1992. He looked at such things as the family, discrimination in labour markets and criminal activity.
The story goes that Becker became interested in criminology when he was in a hurry and looking for a place to park one day. After weighing the costs and benefits of parking illegally or not, and calculating the probability of getting caught and punishment he could expect, Becker rationally opted for the crime. He concluded that criminals in general would also make such rational decisions.
The book that most people have heard of is Freakonomics by Steven Levitt. It became a publishing phenomenon. I particularly enjoyed his description of Chicago’s cheating public (state) school teachers. In 1996 children in third, sixth and eighth grade were to be given a basic skills test. If they did well, the teachers could receive important bonuses. But if their pupils did badly, the teachers could find themselves out of work. It was a revealing insight into how different people respond to incentives. Some teachers would allow the students a little more time to complete the tests while others would actually change the students’ answers. In the end 12 teachers were sacked because of blatant cheating. In another part of the book he claimed that one of the factors that caused the fall in crime statistics in the US in the nineties was the legalisation of abortion after Roe v Wade in 1973. The idea is that many of those that would have been born after 1973 in poverty would have gone on to become criminals. This has a ring of truth to it but I’m not sure how you could demonstrate this correlation. Of course, if you are against abortion on moral grounds, this well not affect your opposition.
Dan Ariely is a behavioural economist who challenges the idea of the rational decision-making of consumers that is so important to many economic theories. He has some intriguing experiments which show the limits of human rationality. He looks into such questions as why patients respond to more expensive drugs, why honest people may steal office supplies or communal food, but not money and why we ever started spending so much money on a traditionally cheap product such as coffee.
Finally I would like to mention Steven Landsburg who has been writing this kind of stuff for many years. In the opening chapter of More Sex is Safer Sex Landsburg comes up with a novel solution to the problem of sexually transmitted diseases. He argues that if sexually reserved people slept around a bit more, it would actually reduce the risk of the transmission of these diseases. He argues that the influx of these people would cause the pool of potential sex partners with AIDS to be diluted. And who said economics was boring?
I’m sure purists will scoff at all of this. But I think it gives you tools to look at the world in a different way. So, I salute this new breed of economist. Long may they continue poking their noses into every aspect of human existence.