Why Study Economics?
As the leaves begin to change colour, offices are put in some semblance of order (perhaps for the only time in the year) and students tick off their stationery shopping and pack their final bags for university. If your suitcases include an economics textbook or two, then we at the Oxford Review of Economic Policy believe you’ve made a great subject choice. Whether you’re starting the first year of an undergraduate degree or returning to put the finishing touches on a PhD, economics will enlighten and empower you — changing the way you see the world and opening doors you never knew existed. In this, the first of our three-part back to university special blog series, we examine what studying economics will bring.
1) A critical eye
A large proportion of economic analysis focuses on incentives. It examines those operating in our economy, investigating which decisions they make and why. From the most micro level question of why a Coke costs three times more inside the Emirates Stadium on match day than two blocks down the road, to the broadest phenomena of risk-fuelled debt bubbles and ensuing financial crises, economics turns a magnifying glass on the invisible, powerful dynamics all around us.
One term in to an economics degree and you’ll be able to chat to your local corner shop owner about how their goods are priced — and perhaps make a few suggestions about the best discount structure to maximise profit whilst keeping regular customers coming through the doors. What’s more, economics offers truly cumulative understanding. After analysis of that corner store comes learning about how it interacts with the Tesco nearby, and with those across the Channel in France — and what the rise of Amazon and technology innovation might mean for the future of that local shop.
2) A sense of intellectual humility
Economics is also about models — fundamentally, simplifications of a relationship or dynamic in our economy. At their best, these reveal deep insights through their parsimony. However, this clarity is attained by making precise assumptions, each of which must hold in order for the conclusions to follow. Economists are not shy when it comes to academic debate, and will defend their preferred models vigorously. However, it is the assumptions that are argued about — economists quickly learn to recognise that their internally consistent models provide ‘true’ knowledge only to the extent that these assumptions correctly fit the problem at hand. Unlike some of our social science bedfellows, economists tend to be quick to see things from another angle in search of understanding.
It may be called the ‘dismal science’, but it is a science nonetheless and therefore brings scientific rigour and humility of thought to the search for societal understanding. This is a wonderful, and underrated, characteristic. In a world where many, expert and non-expert alike, take strong positions on every issue, from healthcare to cigarette taxes, the economist in the room is likely to focus on their own area of expertise, ask for the data and be prepared to change their mind if the facts and models require this. For instance, the well-known Mundell-Fleming model of the macro economy used the money supply, a measure of the total amount of money in the economy, as a key variable set by the central bank. Reducing the money supply increases the ‘price’ of money — the interest rate — and thus reduces aggregate demand. When most money was issued as minted coins or notes, this made sense. However, by the 2000s this paradigm was out of date — policymakers thought in terms of setting the interest rate directly to target desired demand levels, as the money supply varied too much when banks offered or recouped loans. The models were redrawn and replaced to better match the data, and most economists happily pivoted to this new framework.
3) A problem-solving spirit — and the tools to put this in action
Much has been written about the currents of globalisation bringing both positive and negative transformational influences to communities, cities and countries. One of the most radical changes has been a shift in the locus of many challenges. Fields such as health and environmental policy were once largely concerned with domestic pollution, natural disasters and health services — now, climate change, global food crises and disease epidemics have little regard for borders. Similarly, global financial crises wreak havoc on populations around the world, but can rarely by prevented or solved by any one government acting in isolation. These sorts of problems require coordinated efforts and long term investment, and are particularly plagued by free-riding and externality issues. The great power of economics is that its fundamental principles are informed by, and designed to respond to, these real-world challenges. Through learning about the relative economic merits of carbon taxation compared to cap-and-trade, economists become more engaged in the biggest challenges of the day — and best placed to rise to meet them.
Are you about to start an economics degree, with expectations of what’s to come? Or an established professor with differing views on what economics has brought you? Join the debate by following us and engaging on Twitter, and be sure to check out the OxREP website for the latest analysis on urbanisation, Brexit, and more applied economic policy issues.
