How to Study Economics
Agatha Christie wrote a series of mystery novels in which
she challenged the reader to outwit her fictional heroine,
Miss Jane Marple. By the end of the book, the reader has the
same facts that Miss Marple has. But the facts do not speak
for themselves. Rather it is Miss Marple's ability to look
at those facts in a special way, to see something
significant where most readers see nothing, which lets her
solve the mystery.
Facts in economics, as in an Agatha Christie novel, need
to be organized in some way before they can tell one
anything. By themselves they are meaningless. Thus, the
study of economics involves more than a memorization of
facts. Economics tries to organize facts with its theory.
Good theory tells us which facts are important and which are
not, and what is cause and what is effect. The study of
economics involves learning how to organize facts the way
People who do not understand economics still try to make
sense of the world around them by trying to see pattern in
the facts they observe. Often they use a simplistic
"good-versus-bad" model. In a good-versus-bad model there
are two conflicting groups who are classified as good people
and bad people. These groups are usually involved in a
zero-sum game: one person's gain is another's loss.
Further, evil motives, possessed by the bad people, lead to
bad results unless these people are in some way controlled.
Good motives lead to good results.
An example of a good-versus-bad viewpoint was expressed
at a town meeting of a small Indiana community during the
winter of 1977. The meeting focused on the natural-gas
shortages that the community was facing. One citizen
declared that the town faced not an energy problem, but a
pricing problem. He noted that several years previously
there had been shortages of gasoline at 40 cents per gallon
but no shortages at 60 cents. Therefore, he declared, there
must have been a conspiracy at that time by oil companies to
increase prices as there was now by gas producers. The
events he observed do fit into a good-versus-bad framework.
He saw a bad result. He saw a bad motive--the desire for
profit seems to many people the same as greed or avarice. To
connect motive and result, he inferred the existence of a
Although a good-versus-bad model is sometimes appropriate
(especially in small-group situations), economists are very
reluctant to use it. The economic model of supply and demand
gives a more sophisticated interpretation of the gasoline
shortage, one that is depersonalized and unemotional with no
bad groups involved. This model suggests that in cases of
shortages one should search for government regulation of
prices. The good-versus-bad model does not suggest that such
regulation is something one should look for. In fact there
were price restrictions in place at the time, and such
restrictions can lead to shortages. The good-versus-bad view
of the world is attractive because we are able to understand
the model at a very young age and because we see the model
used so often: in fairy tales, in comic books, in movies,
and in television shows, among other places. Because we know
how to use this model, and because our culture discourages
use of alternative explanations such as fate or mystery, it
is easy to fall back to this model if we do not have a more
sophisticated model to explain our world.
Economic issues affect us all and most people have
opinions about them. These opinions may be based on a
good-versus-bad view, some other non-economic framework, or
simply slogans that are often repeated. Often the hardest
problem students have in learning about how economists
interpret the world is to unlearn their old, non-economic
Unlearning old ways of thinking can be difficult, as a
well-known example illustrates. In the late 15th century
Christopher Columbus believed that by sailing a relatively
short distance to the West, he could reach Asia. Contrary to
popular myth, it was Columbus, not his critics, who had an
outdated view of the world.1 He believed that the
earth was much smaller and that Asia was much larger than
they actually are; his critics in their guesses were much
closer to the truth.
Columbus made four trips to the Caribbean but he never
realized the significance of what he had found. He died
believing that he had found a short cut to the Far East.
Rather than use the facts he had before him to alter and
improve his ideas of world geography, he insisted on keeping
his old views and trying to make the facts fit in.
Economic education involves learning to see reality from
new perspectives. Sometimes these new perspectives may
surprise or even shock you. But if you take the time to look
at the reasoning behind these economic ways of looking at
things, you will find that they consist of
carefully-thought-out-and-applied common sense.
1The falsehood that scholars in the middle
ages believed that the earth was flat was popularized in the
1870s in the war for public opinion between science and
religion of that day. See Steven Jay Gould, Rock
(Ballentine, 1999) pp 111-124.