I love reading your comments on my blogs. It helps me understand how people think. I should have started at the beginning. It is important to understand that Economics is a Behavioral/Social science. Economics is about how people make choices and the collective effect those individual choices have on society as a whole. It is to a large extend based on quantitative data.
In my ideal world, everyone should have at least a basic understanding of economics. Apart from being fun, it also teach us a way of thinking, help us to understand society and global affairs and helps us to be informed voters.
Learn a way of thinking
One of my favorite economic concepts is opportunity cost. In the past, I would buy stuff and later realize that I need something important but there’s no money left. Nowadays I actually ask myself what I will be giving up when I buy that thing. The same applies to every limited resource in my life, including my time.
Another thing I learned from economics, is to watch out for marginal cost and sunk cost when evaluating different options in terms of cost and benefits . We should only take into account the costs that is actually relevant for the decision at hand.
To understand society
What society looks like today is the result of millions of economic decisions over hundreds of years. Our physical environment was shaped by people’s decisions on where to live and work, how to travel, what to eat… In South Africa, the discovery of gold and apartheid affected where people live today. It also affected the level of education and distribution of wealth. Globalization and technological changes also affects our lives daily. And our current lack of economic growth will affect us for many years into the future.
To understand global affairs
International events have enormous economic consequences. The destruction of the World Trade Center towers in New York and the subsequent war on terror in Afghanistan had major implications on tourism throughout the world.
The rapid spread of HIV and Aids in Africa had a profound effect on Africa’s economic development. The pandemic affects labor supply, leave us with thousands of child headed households and cause a huge burden on medical systems. People who was supposed to work and pay taxes end up getting grants.
Countries in the European Union first struggled to reach agreement among members to adopt the Euro as it’s new currency. Now Brexit is causing new uncertainty.
The ongoing trade war between China and the USA is also causing uncertainty and instability throughout the world. The developing countries are affected the most, and it is not even their war. All it takes is a tweet from President Donald Trump to turn our stock market upside down and reduce the value our currency.
Other important issues include the growing gap between rich and poor. 75% Of the world population earn less than 20% of the world’s income. Global warming and associated climate change is affecting water resources and causing natural disasters. The developing countries are affected most which contributes to the growing inequality.
To be an informed voter
Every voter needs at least a basic understanding of economics. We need to understand what the different political parties stands for and what the impact of their policies will be. South Africa is struggling with an unemployment rate of 29%. The education system is not producing the skills needed by businesses. People are hired in important positions because of their political networks rather than their ability to do the work. It is unclear how we are going to pay for the new National Health Insurance. Our electricity supplier is struggling to keep the lights on. We keep on bailing out failing state owned enterprises. Infrastructure was also not properly maintained. We are suffering the consequences of many years of corruption and misuse of state resources.
Politics is often so full of fake news, diversion and blame shifting. We really need to be well informed.
Karl E. Case, Ray C.Fair, Principles of economics. Seventh Edition, Pearson Prentice Hall, 2004, Chapter 1