by Scott Cawfield
School of Business
Centennial College


Is Economics Useful?

As someone who has taught economics for over twenty years, I have found that a few students in each class think that economics is "useless, because it's all about graphs and curves." They imply that because the subject employs mathematical methods to establish and to test relationships, it is not realistic. What they come to understand is that business enterprises use arithmetic computations to measure such things as revenue, expenses, net income/net loss, and cash inflows and outflows. These measures don't make business less realistic. In fact, the practice of business would be chaotic (and perhaps impossible) without measuring results, which are often based on computations.

The study of economics will provide you with at least four thinking and life skills.

1. Economics provides us with a classification system for economic phenomena, and thus a valuable way of thinking about the world. For example, most of us have had a notion of a good's price ever since we started buying things. However, economics teaches us the concept of all prices in an economy through the concepts of aggregate expenditures and gross domestic product (GDP). There are other total aggregates for any economy that are important to compare year to year—the total number of employed, the total number of unemployed, the total number in the working-age population, the total number in the labour force, and many other macroeconomic statistics. A study of microeconomics provides the student with a thorough knowledge and some key working tools concerning how individual units of the economy function, while macroeconomics provides the student with a knowledge base and some tools to understand how an entire economy functions. Without such knowledge, it would be difficult to classify economic phenomena and think conceptually and logically about economic matters.

2. Economics gives us some valuable working tools to analyze how an economy is performing, or underperforming. We can compare year over year real GDP, for example, by adjusting nominal GDP (the total expenditure on goods and services in any economy, and total incomes) downward to allow for increases in the price level. Thus we can measure economic expansion in any economy by continuous increases in the real GDP or measure a recession, which is defined as two successive declines in real GDP. Whether you are a businessperson, a macroeconomics student, a business analyst, or an interested citizen, you need such concepts to measure an economy's performance. Without these valuable tools in microeconomics and macroeconomics, we would lack a common framework of analysis of economic performance.

3. Economics teaches us how to more intelligently read about and evaluate our society, economy, and its policy-making processes. The Canadian Liberal Party claims that they are the best political party to govern the country. In a democratic country, this is for the electorate to decide. Al Gore, the Democratic candidate for President in the 2000 U.S. election, ran his campaign on the same premise. It is not easy to appraise these claims, but a knowledge of economics helps a voter to become more informed about economic management issues in society (and they are frequently intertwined with political structures and issues), and to assess critically what political leaders have to say in any situation. An example of such a critical appraisal of events in the U.S. and Canadian economies in the first part of 2001 follows.

Case Study on the U.S. and Canadian Economies in Early 2001

In January 2001, many Canadian economic forecasters, including Finance Minister Paul Martin, were predicting economic growth in Canada of somewhere between four and five percent of GDP. However, in late January, U.S. Federal Reserve Chairman Alan Greenspan warned that there had been a dramatic slowdown in the U.S. economy. Growth was negligible, weaknesses were spreading, interest rate cuts were necessary to stimulate aggregate demand, and tax cuts looked like the right medicine for an economy gone flat.

Martin and Ontario Premier Mike Harris announced the same response, namely that their policies would have the effect of insulating the Canadian and Ontario economies from the worst effects now appearing in the American economy. By February, Statistics Canada released a new report, scaling down probable Canadian GDP growth to the two to two-and-a-half percent range. By mid-February, a few weeks after the rosy predictions, Paul Martin was saying that he was very concerned about trends in the Canadian economy, noting that thousands of job cuts had been announced in the automobile and information technology industries.

What observations concerning economics and policy leaders can we draw from this? Well, one is that economic forecasts switch quickly, based on the findings about the economy made by Statistics Canada. Another is that some of our political leaders don't appear to be in touch with the trade and economic integration policies their own governments, particularly the federal government, are pushing. Both Martin and Harris underestimated in their comments the influences on the Canadian economy of the trade agreements made in the past fifteen years—the 1989 Canada-U.S. Free Trade Agreement, and the subsequent 1994 North American Free Trade Agreement. Since they have been put in place, integration of trade has been underway, which serves to change the dynamics of the North American economies making them more homogeneous and subject to very similar trends. If key industries in the United States go into a slump, it is very unlikely that those same industries will not feel the effects a few weeks later in Canada.

4. Economics teaches us how to develop an awareness of the potential of the growing integration of the world economy. Business has been vastly changed in recent years. The effects of computer use have been felt in all sectors, from automobiles to finance and banking. Vast new markets have been opened up through e-commerce. Markets themselves, once thought of as involving direct, usually face-to-face interaction between seller and buyer, are changing in nature. New markets have greater scope and are more anonymous in nature. For the right kind of business people, they are also more lucrative. Businesses can now reach markets with information never before possible. A person with the right qualifications in Sri Lanka or Taiwan can shop for a job in New York. Students doing research have access to an array of helpful research materials not just in general subject areas, but right down to specific topics. If you ask Lycos for websites on macroeconomics, for example, it reports 102,918 sites are available; a few years ago, a student doing a similar search using the card catalogue in a library might have found a few hundred entries. In my view, these resources help make learning about the global economy a far more rewarding and critically important experience than in the past. You may not just want to study the global economy. You may want to participate in it and use Web resources to research your business proposal or launch your e-commerce business. I also think that the World Wide Web makes learning more fun! (For more about Internet research, see "Using the Internet for Research in Economics.")

Knowledge of economics is required in many careers. Refer to the section of this site entitled "What Can I Do With my Economics Degree?" for more information on career preparation, educational preparation, and job possibilities in economics and related fields.


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