Monday, June 21, 2010

Why Study Economics?

From Practical Economics by Dean Kalahar

The first question that needs to be answered is why do you need to learn economics and what relevance does it have to your life? A simple analogy can be used to capture the life and death nature of economics.

Understanding economics is analogous to piloting an airplane that is flying in the fog. To be successful, a pilot must stop looking out the window for easily seen visual clues and put aside his instincts, feelings, common sense, and conventional wisdom. Instead, the pilot must rely solely on the instruments to safely fly and land the plane. To ignore the data, calibrations and technological concepts of aeronautics is to fly blindly in the fog.

The costs of flying “by the seat of one’s pants” will lead to immediate and deadly consequences not only for the pilot, but the passengers as well. Because of the relationship between pilot and passenger, unknown scores will have their livelihood, well being, and quality of life profoundly influenced by decisions made by the pilot. Relying on cold, impartial, instruments that go against what feels so certain may look like behavior of an overly trusting pilot, but this will prove to be the most successful and effective strategy for making decisions that affect so many people. Although the pilot will be motivated by self-interest, namely to save his own life; this will drive them to act in efficient and productive ways that benefit the greatest number of people, most notably the passengers.

“Piloting” economics works in the same way. The successful economist and economy must also be steered toward efficient decisions and outcomes based on facts, empirical evidence, and sound economic principles. True compassion for the greatest number of people lies in decision making that is based on economic reality and not on what sounds, feels or looks correct. Improper economic decision making has long term ramifications and far reaching effects on unknown scores of others within the society; the impact of which can be of tragic proportions.

The tools of economics offer all members of society the greatest chance of survival as well as the highest possible standard of living. The big question is: can you override your instinctive emotional decision making processes to engage in actions based on economic principles, formulas, functions, and paradoxical truths; or will you pilot the economy by flying by the seat of your pants?

Your decisions carry a weight and responsibility that you probably have not realized up to now. If you are ready for some formal instruction, this text should serve to enlighten and provide you with the cognitive skills necessary to use economic thinking to promote not only beneficial ends for yourself, but for others as well.

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