The Joy of Economics:  Making Sense out of Life
 Robert J. Stonebraker, Winthrop University

The Joy of Economics

            Economics is a way to give boring people jobs.

                                                            ....anonymous graffiti on college classroom desk

            Feeling ill, a young professional visited her physician and received a depressing diagnosis.  The physician reported that the patient had contracted a very rare disease and should expect to live only another six months.  Understandably shocked, she sought a second opinion from a leading specialist.  After completing the exam, the specialist looked the patient squarely in the eye and said, "My advice is to move to Kansas and marry an economist." Startled at this advice, the young woman asked, “Will that cure me?  Will I live?"  The specialist hesitated, and then replied, "No.  You still have only six months to live.  But in Kansas, married to an economist, those six months will seem like an eternity."

As an economist I have been the butt of such jokes for most of my life.  I am accustomed to them and even enjoy them.  But they are wrong, all wrong.  Economists may be boring, but economics is not.  Economics is vibrant.  Economics is alive.  

From love to religion, every decision we make can be understood and described with economic principles.  A healthy dose of economic logic can illuminate an impressive array of social and behavioral issues -- issues that few people would typically associate with economics.

Scarcity and choice

            The first day of class in introductory economics, I ask students who have everything they could possibly want to raise their hand.  No one ever does.  I explain that they are victims of scarcity; that because goods and services are costly, we cannot have unlimited amounts.  Scarcity would vanish only if goods and services were completely free; if we could have unlimited amounts at no cost.  I continue and ask:  “Is everything scarce?  Are there exceptions? Can anyone give an example of a free good -- a product of value for which we can have all we could possibly want at no cost?”  Ah.  The hands shoot up.  Someone volunteers: "What about air?"   I demur and then ask: "Is any air valuable?  Or is only clean, breathable air valuable?"   They stop.  They know that clean, breathable air is costly.  Many of my former students were reared in Appalachian high-sulfur coal country.  The costs of clean air were evident in each month's unemployment queue.¹  Yet they cannot come up with a better answer.  They cannot identify a single product of value that is completely free.  Neither can I. 

            We are surrounded by scarcity.  And scarcity does not stop at the door of Wal-Mart.  Seemingly "non-economic" goods and services suffer the same fate.  Do we enjoy unlimited amounts of love?  What about laughter?  Would we prefer more or better friends?  Are we content with the depth of our religious faith? 

            Goods and services are scarce because the productive resources we have at our disposal are scarce.²  Outputs are limited because productive inputs are limited.  Land and natural resources are limited.  Capital resources are limited.  Labor and entrepreneurial resources are limited.  Perhaps most importantly, time is limited.  Even Bill Gates needs more time.

            Because resources are limited, we must carefully shepherd those that we have.  We must make choices.   Which uses of our limited resources are best?  Which uses generate the most value?  You have made a choice to read this introduction.  Why?  It is costly.  There is no monetary cost.  A book is not a vending machine that requires additional coins for each page you read.  But there is a cost.  You are sacrificing your scarce time; time that you never will have again.  Whoops, there goes another three seconds.  Gone forever.

            Is reading these paragraphs the best use of your scarce time?  If not, chuck these pages on the floor and do whatever else is better.  Do not waste scarce time resources.  Stop reading immediately.

Costs and benefits

            Are you still here?  If you are, you presumably judged that the benefit of reading these lines exceed the cost, that what you will gain from these pages exceeds what you might gain from any alternative pursuit.  Wow.  Thank you.  I have two children and am not accustomed to such respect.

            It is all costs and benefits.  Every decision we make involves a comparison of costs and benefits.  Usually the comparison is not explicit.  Even economists seldom take out pencil and paper to calculate the relative costs and benefits of washing the dinner dishes versus watching Jeopardy! on television. Yet, implicitly, those calculations are made.

            The true costs and benefits are not always known in advance.  None of us is omniscient.  After the fact we are often surprised by how costly or how beneficial an actual choice turns out to be.  And costs and benefits often cannot be measured objectively.  We know that $10 is better than $8, but is a blonde better than a brunette?   Mistakes can be made and subjective measures can be wildly inaccurate.  Nonetheless, the comparisons are made; decisions are made.

            An important corollary follows: behaviors change only when the underlying expected costs and benefits of that behavior change.  Very few of us awaken at 3:00 a.m. and, with no cause, spontaneously proclaim ourselves reborn.  We change when we perceive it to be in our best interest to change.  Not any sooner.  Not any later.  Scarcity necessitates choice.  Choices hinge on costs and benefits.  Costs and benefits determine behavior.  

            That costs and benefits drive corporate activity is no surprise.  We expect Microsoft to weigh costs and benefits before setting software prices. We expect Disney to weigh costs and benefits before launching a new theme park.  However, if economic models can illuminate corporate price and product decisions, why not other decisions as well?   If expected costs and benefits drive every choice, then economic models and analytical tools should yield insights into every choice.

            Are you ready to start?  Read on.  Feel the joy.

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Notes:

1.         To comply with environmental legislation, many electric utilities switched from burning high-sulfur coal to cleaner-burning fuels such as natural gas. This led to cleaner air, but has lowered the demand for coal and pushed many miners out of jobs.

2.         Economists define resources as anything used in the production of something else.  We typically place resources into four main categories: land (including all naturally occurring resources such as water, minerals and timber), labor (workers), capital (manufactured resources including physical capital goods such as tools, machines, equipment, and buildings as well as less tangible human capital such as skills created through training and education), and entrepreneurship (the ability to combine the other resources into productive goods and services).   Because all categories of resources are limited, our abilities to produce are limited.

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Testing Yourself

To test your understanding of the major concepts in this reading, try answering the following:

  1.     Explain why things are scarce.

  2.     What is a free good?  Can you give an example?

  3.     What is a resource?  Identify and describe the four major categories of resources.

  4.     What is economics about?