We Are the Subjects of Economics
Over the past few weeks, I’ve explained why economics matters and shared the story of a razor clam’s journey to Las Vegas. Now we dive into the foundation: What makes economics so important? Over the next few chapters, we’ll explore why economics studies real people making real choices. Today we start with the most important subject: you.
One Takeaway
Economics studies how we all act, make choices, and work together in the real world.
What Economics Is All About
Most people already have an idea or opinion of what economics is. Chances are if you ask a room of ten people to define it, you’ll end up with ten different definitions (twelve if any of them are economists).
Some say it’s about money. Others say it’s about resources, wealth, or maybe incentives. Some simply say it’s about “the economy,” without explaining what that means. None of these answers are entirely wrong, but none quite get to the core, either.
Here’s a better way to put it: economics studies how we all act, make choices, and work together in the real world.
At the fluffy, abstract level, economics is the science of human action. It starts with the simple fact that people act with purpose to improve their lives as they see fit. These improvements require time, energy, and resources that are limited and that others want too. It studies the process of our choices, and how those choices ripple out in a world filled with other people.
Anytime you weigh options or trade one thing for another, you’re practicing the logic of economics. In fact, if you’ve ever asked yourself, “Is this worth my time, money, effort, etc.?” you’re already thinking like an economist.
Why This Matters
The goal of every science is to make sense of the world we live in. Understanding how people make decisions isn’t just for academics. It’s for everyone. Whether you’re a plumber, teacher, IT guy, or someone running a household, thinking like an economist can help you focus on what matters.
This isn’t just about theory or lines on a blackboard. It’s about survival. In the long run, the wealth of our family, friends, and communities depends on understanding how decisions are made, how trade-offs work, and what happens when cooperation between people breaks down.
When the ideas of economics are misunderstood, or ignored, entire societies can drift into slow growth, waste, or ruin.
The good news? The basics aren’t difficult. What is difficult is being consistent and remembering the basics in a fast-moving, complex world. That’s where the real challenge, and the real insight, lie.
Where Economics Begins
Economics is built around a few foundational truths:
People have endless wants and goals, but limited resources to get them.
Everyone wants to improve their situation but in their own way.
We make trade-offs every day because every choice comes with a cost.
We don’t act alone.
Time is extremely important.
Rules and systems matter.
These may sound simple, but they’re powerful. They explain why things happen the way they do, and how things could be better.
Judgment-Free Zone
Economics doesn’t tell you what your wants or goals should be. It takes your wants and goals as given and asks if your actions align with them. That means economists shouldn’t be concerned with casting judgment on what you want and value.
The fact is, each of us is different. We have different knowledge, different resources, and we want different things. None of our differences make us better or worse than anyone else.
If one person uses $5,000 to go on a vacation and the other uses the same amount to start a business, neither is “right” or “wrong.” What matters is the basic fact that each person has their own wants. They were each willing to give up something they had to get closer to something else they wanted.
This kind of thinking asks simple but useful questions, such as:
What is it that you want or value (your ends)?
What resources, information, and limits do you have (your means)?
What are you willing to give up to get what you value (your costs)?
After this, you can better understand if your choices are helping you or holding you back. That then leads to questions like:
Are your actions helping you get what you value or not?
Can you get what you want by giving up less?
How does what you value complement or conflict with what others value?
Do your choices lead to any costs you didn’t expect?
The Bottom Line
Economics offers a way of thinking that helps us deal with the real world. It gives us the tools to understand trade-offs, see unintended consequences, and appreciate systems and rules that make cooperation and progress with others possible. The basics are simple. Learning to think this way, even just a teeny bit, can change how you see the world.
This is Chapter 1 of Economics for Busy People, a book I’m sharing weekly on how economic thinking improves everyday decisions. [Read the Introduction: Is That Thing Alive?] | Subscribe for weekly insights