Economics: Scope and Definition

• Chapter 1 is titled "Life, the Universe and Everything Else: What is Economics?"

Defining Economics

• A layperson might define economics as the study of economic activity, similar to how chemistry studies chemicals, biology studies living beings, and sociology studies society.
• Some popular economics books claim economics covers the fundamental question of life and the universe, referencing Douglas Adams's "Hitchhiker's Guide to the Galaxy."
• Tim Harford, a Financial Times journalist, says economics is about life itself, titling his book "The Logic of Life."
• Economics has not yet explained the universe, a realm still dominated by physics, which economists have long looked to for a scientific model.

Scope of Economics

• Some economists claim economics encompasses "the world."
• It almost covers life, the universe, and everything.
• The discipline has significantly failed to explain economic activity to non-economists.
• Before the 2008 financial crisis, most professional economists believed markets were rarely wrong and modern economics could manage any market imperfections.
• Economist Robert Lucas claimed in 2003 that the problem of preventing depressions was already solved.

Critiques of Economics

• Economics appears megalomaniacal, struggling to explain its domain and yet attempting to explain everything.
• Books that market to the masses exaggerate, publishers and authors often exaggerate in a competitive market.
• The problem is that the exaggeration insists that economics explains not only economic activity, but everything.
• The school is called the neoclassical school, dominant in economics today.
• Lionel Robbins defined economics in "Essay on the Nature and Significance of Economic Science" (1932) as "the science which studies human behavior as a relationship between ends and scarce means which have alternative uses."

"Economic" Themes

• From this perspective, economics is defined by its theoretical approach rather than its subject matter, focusing on rational choice with limited resources.
• The subject of study can be anything.
• In 1976, Gary Becker titled his book "The Economic Approach to Human Behavior" to emphasize the broad scope of economics.
• Critics have labelled this tendency the "imperialism of economics."
• It includes Sumo wrestlers, teachers, drug gangs from Chicago, contestants in a TV show, real estate dealers, and the KKK.

The Scope of Economics

• In the eyes of most economists, "economic" topics lack a privileged status, as economics defines its theme in terms of theoretical approach.
• An alternative definition of economics is that it is the study of economic activity.

Connection to Money Matters

• Economic activity involves money, including earning, spending, saving, borrowing, and lending it.
• Money is a symbol of what others owe or the right to society’s resources.
• Creating and trading money and financial resources comes under "financial economics".
• Financial economics is a small part of economics, despite the industry dominating in many countries.

Source of Money

• Money comes from working, or the right to spend it.
• The more one earns at a job depends on the quantity of work and capabilities of the individual.
• Individuals may lose a job if someone invents a machine that automates tasks much quicker.
• For individuals within employment, the economy requires an understanding of capabilities, technological innovation and international commerce.

Salaries and Working Conditions

• Salaries and working conditions are deeply affected by "political" decisions shaping the labor market.
• The integration of eastern European countries into the EU suddenly increased the labor market.
• Laws restricting child workers and regulating work hours and salaries also dramatically affect labor.

Money Transfers

• Besides jobs, money can be obtained through transfers, either as cash or "in kind" through goods or services.
• Transfers include family support, elder care, and community gifts.
• Donations to charity occur from people who donate individually or as a group (corporations or volunteers).
• Governments subsidize through taxes.
• Public economics covers money taxes by the government.

Consumption Through Production of Goods and Services

• Once resources are obtained through work or transfer, they are consumed as goods (food, clothing, electricity, housing) or as services (commuting, haircuts, dining).
• Economics studies consumption by looking at how people divide resources and opt between different avenues of buying and consumption.
• All goods and services begin with production for consumption.
• Goods are produced on farms and factories, services in offices and warehouses.
• Production is an sphere in which not much attention is given to.
• From the 1960's neoclassicals began to make an emphasis on the consumers and exchange.
• Economics describes production, combining quantities of capital and labor to produce goods and services.
• Engineers and managers have organized physical plants, controlled workers, negotiated with unions, and systematically improved technologies through research.
• The most powerful social changing forces often come from production.
• Production is the ultimate bedrock of economics.
• The world has modernized from changes within industry and manufacturing.
• Profession economics should be paying more attention.

Conclusion

• Economics should be determined by its study object as all other disciplines are.
• Economics should study money, labor, technology, international commerce, taxes, and other questions concerning how goods and services are created.
• Economics should consider the distribution and consumption of benefits, without being "life, the universe, and everything else."
• A traditional definition of economics says there is a single correct way to "do" economics.
• There are indeed differing ways to do economics with unique weaknesses strengths emphasis, and blind spots.
• Economics requests for the best explanation possible for various economic phenomenons.