The Economic Way of Thinking

me economics

06 Jan 2014

Don Boudreaux recently wrote a post over at Cafe Hayek that inspired me to reflect on the importance of understanding economic principles. Here are four ways that economic principles have shaped my thinking:

  • Economics requires disciplined thinking. I try to avoid mistaking results for causality by looking beyond immediately perceived phenomena.

  • Economics is a science of tradeoffs. I constrain my thinking with the practical tradeoffs that attend all choices in reality. I recognize that reality’s constraints are far tighter and more inflexible than my romantic side fancies them to be. I recognize the fact that not everything that is good is worth the cost of its achievement – and that not everything that is bad is worth the cost of its obliteration.

  • Economics must consider the imperfections of reality. I try to avoid romantic notions of the knowledge of people wielding power and their ability to engineer solutions.

  • A market takes into account far more information than any single individual can. A functioning market is a complex discovery process that selects which individual goals are most valued by society. Functioning society is a spontaneous order that maximizes the prospects for individuals to each pursue their own individual goals with as much success as possible.