Three Lessons in Economics


Many people might think that economics is just about numbers, about forces of demand and supply in markets, about politicians deciding how much money to give to people, or about well-dressed traders in suits on Wall Street. After the more recent Financial Crisis of 2007-08, “Economics”, a Greek word meaning the “management of the household”,  might have come to take a more abstract meaning, disconnected from the life of many. A situation by which the interests of the few seeking to increase their worth from millions to billions of dollars has determined the life of so many others from the pounds to the pence.

Today I would like to reflect about 3 basic economics that I believe have something to say about our household, the way we think and interact with the world and people around us.

 

1. The first thing that my first economics teacher in secondary school told as soon as he entered the class is that “We live in a world of infinite human wants but limited, finite resources”.  

In day-to-day life, we find ourselves with constant desires that push us to want evermore. On one hand, this unlimited and infinite human desire can become the motivation for us to better ourselves, to grow, and not to be happy staying in our comfort zone. On the other hand,  this relentless desire can become destructive, as it may lead us to feeling anxious. We might feel that whatever we do is never enough because there is always something better, so we run and chase the light at the end of the tunnel in despair.

We compare ourselves to people that might be better off – not only financially, but also spiritually – and forget our past journey. We might say things to ourselves like “She always gets better grades than I do as she is more intelligent” or “He is much more outgoing that I am” and other things that at the end of the day make us feel down and depressed. We forget to be grateful because we are always seeing something better, and never really and truly stop for a moment to appreciate what we have, but more importantly, who we are: our relationships, the people we love, and the many other little things that we might take for granted.

 

2. The second principle is that of the “opportunity cost”: the value of the next best thing you give up whenever you make a decision.

We are constantly faced by choices, and decision making is not an easy business. It requires us to think and evaluate the opportunities, to confront alternatives, to make SWOT and Cost-Benefit Analysis. The end of the decision making process is the decision itself: there comes a time when we need to make choices – and at times, courageous one. For example, with my €10 I can choose to buy a pair of shoes or a shirt. That “or” in the middle of the phrase is crucial: whatever I decide, I cannot have both.

As a youth of my age, choice is becoming ever harder because I want both and I don’t want to choose either “or”. Now I know – rationally and objectively – that I only have €10, but I still want both.

As a result, people tend to postpone their choices in the hope that they will be in a position to choose both perhaps at some later stage. We can see this happening for example in all aspects of our social life. For example in relationships whereby we would like to spend the time with our partners, we have to study or work, and at the same time still want to keep the freedom to do whatever we want with the rest of our friends. I would like to start a job with Organization A but will keep on waiting to receive a reply from Organization B in the hope that they will offer me something better and can bargain an even better deal with Organization A.

The cases when I do manage to choose, I keep on asking myself whether or not I have made the right choice. This happens to me all the time when people for example ask me whether I am sure about my choice of life: “Are you sure it is for you? Are you certain about it?” We constantly seek to be certain in the world that is full of uncertainty, and this disturbs us profoundly. It makes us doubt not only our choices, but something deeper: Who we are. And this doubt and fear can paralyze us. We slowly begin to lose hope in ourselves, and then the others around us. We start creating for ourselves the worst case situations – the many “What-If-Scenarios” that leave us uneasy.

The time and energy we invest in the decision making process, must be proportional to the decision we have before us. Simple decisions must be identified as such, and not be overinflated. We might feel more insecure about more complex decisions, and this is normal (In technical jargon: Post Decision Dissonance). That is why, for example, Saint Ignatius reminds us that those times when doubts start to arise, we take a moment to remember the evaluation process before we actually took the decision: how we went about our choice, in a time when we were “thinking straight”, when we were calmer, and how we believed back then that it was the best decision at the time, given our time and knowledge.

3. Trade can make people better off.

The classical example is that one country produces apples and another country produces oranges. Economic theory advocates that they should engage in trade because, like so, both countries will have a greater variety and be better off at the end. At times, we find ourselves not wanting to “trade” or to use another word to “share” with others. We think that other persons might take advantage of us, so we close ourselves off and say to ourselves that we are self-sufficient and don’t need anything or anyone. We are just good by ourselves.

Economics teaches us just the opposite: we need to interact and we need to share our resources and our talents with others as this creates a situation of peace and interdependence. Sharing who we are and what we feel can create a climate of acceptance in our social groups, it can bring down many barriers that have to do with the way we see the world and open us to realities that we might have never thought about. This kind of “trade” as a kind of sharing is a commitment of listening attentively to what someone else has to say and be willing to share who we are and what we feel. The links and relations we establish have increased value because of their diversity and quality.

 

From the fact that we live in a world of infinite human wants and finite resources that may drive us to desire something more and risk not appreciating what we have, the fact that choices come with an opportunity cost, and the benefits of sharing that can make us and other better off, these three basic principles – that any student studying economics will study from day one – shape the life of each and everyone of us.


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