Economics is more than just the flow of money; it is the key to understanding our choices and social structures. Let’s explore together why economics matters, from individual lives to society as a whole.
The Subject of Economics
What are the benefits of understanding economics? To answer this question, let’s first examine what economics studies. Since it’s called economics, one might say it studies the economy. However, the scope of economics is broader. Nevertheless, if we were to describe the subject of economics in one phrase, it would be ‘people’s choices’.
It studies how people with diverse needs and preferences make choices, and all of this falls within the scope of economics. For instance, it encompasses everything from everyday choices like selecting tonight’s dinner menu or buying groceries at the market, to major life decisions such as choosing a job, pursuing further education, getting married, funding children’s education, or purchasing an apartment.
Beyond personal choices, other types of decisions also fall within economics. Just as an individual considers whether to apply to a company, a business (company) also chooses whether to hire that person. Furthermore, when companies produce and sell goods, they must choose what products to make and decide their prices. Governments also set taxes and establish various policies and regulations. These choices are also subjects of interest and study in economics.
However, narrowing down the fundamental focus of economics, understanding economic systems serves as the starting point for economic research. People desire to purchase various goods according to their diverse preferences, while companies produce a wide range of goods to pursue profit. The method of connecting this demand side with the supply side to distribute goods is the primary concern of economics, referred to as the ‘economic system’.
Currently, in most countries, the production and distribution of goods occur through markets and prices. Therefore, economics first addresses the market economy system. In this process, we examine the perspectives of both consumers and producers equally. Next, we learn about the role of government, which holds a crucial position in the market economy. We then explore various economic environments, such as how individual and corporate choices differ in monopolistic markets and what actions governments take when approaching the national economy, gaining a more multidimensional view of economics.
Why Studying Economics is Beneficial
Observing how individuals, businesses, and governments act with specific objectives forms the foundation of economics. Individuals prioritize satisfying their needs, while businesses focus on increasing profits, each striving to make optimal choices. Thus, studying economics cultivates the ability to discern good choices when we must make decisions.
While economics is often perceived as dealing solely with rational humans, this is not entirely accurate. The broad scope of economic research and the complexity of the models it handles lead to the simplistic assumption of rationality. In reality, economics also studies choices driven by conscience, those prioritizing social norms, and irrational decisions. Conversely, learning economics is more crucial for understanding what rational choice entails and gaining that insight. Because we are human, we sometimes make irrational choices. However, as we come to understand what constitutes a better choice, we become capable of actually making such choices.
And in this process, we can learn to understand and affirm people’s desires. Everyone wants to have more, live better, and earn a lot of money. Other disciplines often either don’t sufficiently address this aspect or discuss it while focusing on goals humans should aspire to, like peace of mind or self-restraint.
Economics, however, accepts these desires as natural. While this sometimes leads to the misconception that economics views humans as selfish beings, it actually studies choice while considering all the other diverse characteristics of the choosing human: morality, customs, laws, and conscience. As a result, economics helps us understand human beings more fully.
Beyond Individuals to Society
Understanding economics allows us to better comprehend the society we live in. First, because economics aids in understanding people, it also facilitates a better understanding of the society composed of those people. It particularly helps anticipate how people will react when policies change. This understanding enables organizations, businesses, and governments to approach policy formulation more meticulously.
Furthermore, understanding economics allows us to grasp the economic system, a key element constituting society. Based on this, we can better comprehend society as a whole and the national economy. The market economic system is a crucial element forming a society, and economic inequality and the role of large corporations are important for understanding society as a whole. Therefore, even those studying business administration or public administration consider economics important.
Next, economics helps us understand the characteristics of a national economy. For example, it enables us to interpret the national economy and grasp the meaning behind economic indicators like GDP, inflation, and the balance of payments. Consequently, we learn what policies the government should choose in response to changes in the national economic situation and how individuals, households, and businesses should respond.
Furthermore, economics offers solutions for creating a better society. Opinions on this will vary. Some prioritize overall efficiency, while others place greater importance on equity among people. From an economic perspective, material abundance is typically valued, but it doesn’t fully explain the happiness of citizens. Studying economics enables one to present logical and systematic arguments about the policies and tools needed to build the better society they envision. Economics serves as an excellent tool for refining one’s thoughts, building stronger logic, and anticipating potential side effects.
Some argue that the market economy itself is fundamentally flawed. This system is imperfect and has the drawback of causing inequality. However, all advanced nations in the world have adopted a market economy system, and those that have not adopted it have all failed.
On one hand, some dogmatically preach that the government is the root of all evil and must never intervene in the market, exploiting the characteristics of economics that acknowledge people’s desires and the market economy’s ability to achieve excellent resource allocation without government intervention. On the other hand, others argue that mainstream economics is flawed because it serves the interests of the privileged, and that a new economics can pursue people’s happiness.
Both are wrong. Economics is fundamentally a tool for analyzing the choices of economic agents and economic systems. Just as people envision different ideal societies, this tool can be used differently. Moreover, economics enables more logical arguments for societal development. Since no alternative economic system to the market economy has been proven, mainstream economics—which best analyzes the market economy—can make the most logically rigorous arguments in the economic field and in areas related to people’s choices.
The Limits and Hope of Economics
Sometimes economics provides clear answers, but other times it cannot offer definitive solutions. If a problem had a clear answer, people would have already solved it and reached a conclusion. Just as history has proven the market economy to be the most superior economic system. Unfortunately, economics also has limited answers for many unresolved social problems. Particularly, differing values often lead people to propose different economic solutions.
However, economics possesses a substantial logical framework and remains the discipline best equipped to analyze issues concerning human choice and economic systems. Learning economics enables better choices, deeper understanding of others and society, and the ability to propose and evaluate logical alternatives for building a better society. I hope more people will freely utilize the tool of economics and its logical reasoning to achieve better lives and a better society. I also hope that “The Global Economy Story” blog can contribute to this goal.
