A First Look at Economics
1. Why study economics?

Bayla, Paul, Rodney, and Maria have signed up for a course called "Introduction to the Economic Conversation," taught by Arjo Klamer, Deirdre McCloskey, and Steve Ziliak.

Klamer: Maria, why did you decide to take the course?

Maria: Well, frankly, just because my mother said it would be good for me.

Klamer: What does your mother do?

Maria: We are pretty recent immigrants to the United States---we came when I was 11. My mom owns a small restaurant. I guess I'm hoping this course will help me understand how the economy affects small businesses.

McCloskey: What about you, Paul?

Paul: Economics will look good on my transcript for business school.

Rodney, another student: Business school?! Not cool. Not for me.

Paul: I want to make money. Studying economics should help, I gather. Economics is about money, isn't it?

Maria: Is that your only goal - to make a lot of money?

Paul: Sure. It's the American way.

Bayla: Nothing wrong with that. In my old country we say, to translate, "go for what you want." Try doing boring clerical work for a big insurance company like I've been doing and you'll understand. Gotta get that degree! Anyway, I'm interested in fashion merchandising, and economics is about consumers. And I do want a lot of money! I've had enough of living without it.

Ziliak: Rodney?

Rodney: I don't understand them. Business, consumers, fashion . . . . Don't they care about what's happening in the world? I'm taking economics to find out how everything got so messed up.

Paul: What's messed up? I guess the economy has been a little slow lately. It'll pick up. Interest rates are still pretty low.

Rodney: Sure. Business will pick up. Profits will be made. But billions of people will still be impoverished. Welfare systems in rich countries are being radically reduced or abolished. What will happen to the poor during the next major downturn? "Major," I said: it's coming. I want to study economics to get an idea how to fix this mess.

Maria and Rodney have probably come to the right place. But if Paul is only in search of the road to riches he'd better try another course. Bayla, too, may be disappointed. Economics is not a how-to formula for making and keeping a Swiss bank account. And it can't reveal a 12-Step Program on How to Run a Business or How to Be the Next Bill Gates.

What it can do is improve your understanding of the market and non-market institutions that influence our lives as consumers, workers, business owners, and government policy makers. So on second thought, Paul and Bayla, too, may be in the right course. Economics gives you insight into issues like poverty and global warming (Rodney's and Maria's concerns), and it helps you understand why such issues remain so controversial, even among economists. And, although economics can't give you a trick for getting rich-if it could then trading in the market, you shall soon see, would eliminate the trick-a study of economics can help you avoid making quite a few economic blunders, such as listening to stock tipsters in your investments or "allocating fixed costs" in your business.

Economists themselves come to economics for various reasons. Some are inspired by their concern for the problems people face. Robert Lucas, an economist at the University of Chicago and winner of the 1995 Nobel Prize in economics, for example:


James Tobin, who won the Nobel Prize for economics fourteen years earlier, tells a similar story:

As a child of the Depression [of the 1930s] I was terribly concerned about the world. It seemed then that many of the problems were economic in origin . . . economics looked like the decisive thing to study. The second thing was that you could have your cake and eat it too, because it was an intellectually fascinating subject.

Another Nobel Prize winner (1998), Amartya Sen, from northeast India, chose to study economics after witnessing as a child the Bengal famine of 1943, during which 2 to 3 million people died:

I think the human face of economics is important for my work . . . . The specifics of human issues often tend to get neglected in economics because it's much easier to deal with human behavior in a stylized form, seen in terms of profit maximization only. In such analyses you tend to lose certain aspects of social relations. There are other aspects that one has to look into - human behavior and its complexity, human freedom and human rights - which have implications on public policy.

We've already told you that an interest in promoting social and economic justice also brought Klamer, McCloskey, and Ziliak to economics. It's why most economists get into the business.

Ziliak: When I was a boy an uncle took me and my brothers on a "poverty tour" of East Saint Louis. This was in the summer of 1975, after the first oil crisis, and stagflation-unemployment and inflation-was really boiling. Here was a city which had been dealing for years with deepest economic and psychological depression, despite any upturns in national income. The landscape seemed paradoxical: here were inhabited shacks and lean-tos made of river wood and scrap metal sitting like islands in a sea of angry garbage. In front of the shacks stood idle but apparently able-bodied men. I was puzzled by the scene, and wanted to do something.

McCloskey: Travel has that effect on people. The poor are another country.