by Scott Cawfield
On Economics: The Science of Choice
Here are a few quotes on economics and economists, from a humorous point of view:
Societies, businesses, and households constantly have to make choices, given that none has unlimited resources. Think for a moment about two of your scarcest resourcestime, and money. Don't you have to make plans and schedules for every day so that your goals are reached? Plans and schedules are choices; by choosing one plan over another, you make a positive choice for one and reject the other.
Often you have to make difficult choices about how to make money (you may want to have several revenue flows) and how to spend every dollar. These income and spending plans represent choices that influence your life, your travel, and even your leisure time every day. If you run a business, or want to, you have to make an initial array of choices about products and services, your place of business, funding, prices, and revenue. When the business is up and running, you have to make choices about costs in relation to your revenue level. And, especially if you are successful, you will want to make some hard choices about expansion and growth.
In Macroeconomics: Canada in the Global Economy, Michael Parkin and Robin Bade suggest that the following questions are the key economic choices that have to be made by any society:
1. What goods and services will be produced, and in what quantities?
2. How are goods and services produced? Well-planned and employed technologies are key to efficient and effective business planning.
3. Who consumes the goods and services that are produced or provided? The distribution of income will answer this question in any society.
4. Where are goods and services produced? New global trade patterns, for example, are changing business locations all over the world and creating havoc with job security.
5. When are goods and services produced? North America, for example, now appears to be in the last part of an economic expansion that has lasted almost ten years. Manufacturing and GDP are declining now, and we may be headed for another recession. Such macroeconomic trends reflect changes in the economy, and such trends are watched closely by business leaders who make choices with respect to their firm's inventories.2
How your society makes these kinds of economic decisions will directly affect your individual standard of living. How would you have liked to have lived in pre-revolutionary Russia, or Germany in the 1920s? These societies were run by individuals who were considered by many people to be hopelessly out of touch with the majority of their citizens, and who often made decisions based more on traditional authoritarianism than on meeting peoples' needs. The inflation (or, more correctly, hyperinflation) in the German economy of the 1920s was 700 billion percent; some German people used currency as fuel for their stoves.3 In 1994, Venezuela's government injected money into the economy at the rate of 9.5 percent of GDP on an annual basis, and the inflation rate jumped to 65 percent.4 These were the results of the choices of people in power with respect to monetary policy. In North America, we currently have choices being processed in our fiscal policy (tax and spending) which will see a likely $1.6 trillion tax cut by the new Bush administration in the United States, and a possible $100 billion tax cut planned by the Chrétien government in Canada for the next ten-year period. These choices, it is hoped, will stimulate aggregate demand (spending on goods and services), create a corresponding increase in aggregate supply, and possibly avert a major downturn in the economy.
On an individual note, the way you make choices concerning your own economyyour revenue generation and your spending allocationswill have the effect of determining your future wealth and status. Opportunity cost is a concept in economics that measures the cost of the alternative you have to forego or give up when you make a choice. For example, by continuing your college studies, you normally have to give up a full-time worker's income. You could consider individual choices as creating a template for your future, opening some doors but closing others.
If you are studying macroeconomics, you will likely have heard something about John Maynard Keynes, a British economist who is credited with shaping macroeconomic policy, particularly in the Western democracies. Keynes was born in 1883 (coincidentally in the same year that Karl Marx died). Robert Heilbroner, an American economist and historian, describes Keynes in his later years as "a lover of life, at ease, and consummately successful." (Keynes had made about $1 million (Cdn.) as a trader in commodities and currencies!) Heilbroner described Marx, regarded as the literary inspiration for Communist regimes, as "bitter, heavy, and disappointed with life."5
Many of us will never be a Keynes or a Marx. But we all make choices that shape our respective futures. Is it in your life plan to "love life, be at ease, and be successful," or to end up "bitter, heavy, and disappointed"? Economics is not personal finance. It does not, as a subject, purport to help you with specific life choices and budgetary strategies. However, it can help you to become a lot more conscious of your personal choices and costs, and it can help a rational person to develop a reasonable assessment of the value of different societal approaches to solving the basic economic questions.
1. E.C. McKenzie, 14000 Quips and Quotes, New York: Wings, 1980, p. 147.
2. Michael Parkin and Robin Bade, Macroeconomics: Canada in the Global Economy, Toronto: Pearson Education Canada, 2000, pp. 2-5.
3. Roger L. Miller and Nancy Clegg, Economics Today: The Macro Perspective, Toronto: Addison Wesley Longman, 1999, p. 177.
4. Karl E. Case, Ray C. Fair, J. Frank Strain, and Michael R. Veall, Principles of Macroeconomics: First Canadian Edition, Scarborough: Prentice-Hall Canada, 1998, p. 308.
5. Ibid., pp. 112-3.