Many people have viewed economics as just a subject studied to satisfy academic requirements, obtain degrees and certificates and secure jobs. Many students have been scared by the subject’s mathematical and analytical features leading to their dislike. Also, the poor conditions in developing nations have contributed to making economics unappealing to the public. The ordinary person on the street has also been naïve about the triggers of their economic behaviour. The need for everyone to understand the economic intuition underlying the behaviours of households, business firms, governments, and domestic and global economies has become very important for consideration nowadays.
Among the frequently asked questions in every economy are the following: They promised to fix the economy; why can’t they fix it now? Why can’t we satisfy all our needs at the same time? Will the world become a better place if all people were well educated? Where are the social overhead infrastructural facilities the ruling government promised to build across the country during its campaign? Why should the government use state resources to address the problems caused by privately owned institutions?
Why should citizens continue to pay taxes? Why should the government promise free water and electricity and turn around to impose a tax on the citizens to recoup that expenditure? Why do most developing nations endlessly borrow and yet wallow in the trap of poverty? Why do developing and developed nations borrow? Why shouldn’t governments print more money to enable their citizens to earn sufficient incomes for better living? Why should governments participate in economic activities or intervene in markets? Why do governments provide free education to students despite their economic and social statuses? Why should the government carry the Free Senior High School (SHS) burden alone? Why should nations be concerned about what happens in other economies? Should governments participate in economic activities? Can an economy develop beyond aid, and how? Why do countries engage in international trade? Etc. I believe that ordinary people on the street, government officials, politicians, businessmen and women, policy-makers, and the media may attempt to answer these and many other economic questions differently. Therefore, for the various answers to have a common point of convergence, these groups must apply some economic methodologies. One may refer to these methodologies as the tenets of economics.
This article throws more light on the importance of understanding and appreciating the basic principles of economics that underlie the workings of economies, business organisations and influence individuals’ lives. Again, it explains that past and present economic happenings in domestic and global economies are inconsonant with the adherence to or breaches of their underlying economic principles. In addition, it is to show that economic development comes about through adherence to the tenets of economic management. Furthermore, it will help address the ongoing arguments among some Ghanaians about the need for the President of Ghana or the Nana Akufo-Addo’s government to fix the perceived malfunctioning Ghanaian economy. Significantly, it will promote the teaching and learning of economics.
- The Central Theme of Economics
According to Rice University (2016), John Maynard Keynes (1883–1946) believed that economics is not just a subject area of study but also a way of thinking. ‘Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor draw correct conclusions.’ This submission by Keynes means that economics teaches us how to think, not what to think. Therefore, economics is a way of life.
Economics explains how individuals, firms and societies allocate their scarce resources to satisfy their numerous wants and maximise their satisfaction. In other words, economics explains how economic agents attempt to match their needs or wants with the available supply of resources. The central theme of economics that has generated controversies of various kinds has been how to match the numerous wants of economic agents with the scarce resources. This problem has affected the educated, the uneducated, the poor, the rich, the underdeveloped nations and the developed nations. It took effect from the day Adam and Eve were ejected from the Garden of Eden by the Lord God of Heaven and Earth (Genesis 3:23). This central theme is what economists have referred to as the economic problem of life.
Scarcity explains a situation in which the available resources are inadequate to satisfy the numerous wants and needs of an individual, a firm, or a society at a particular time. Both rich and poor individuals, organisations, societies, governments and nations face the fundamental economic problem of allocating their scarce resources efficiently to maximise their satisfaction. In addressing the economic problem of life, economic agents make rational decisions or choices. A rational decision is a decision that produces results that are consistent with stated objectives. Economic agents know the consequences of their different decisions or actions, so they make the best decisions and take the best actions to avoid wastage of resources. Every rational economic agent is selfish in its behaviour, however, not an egoist. This statement means that the rational agent voluntarily shares what it has with others if it believes that it will maximise its satisfaction in the end. This behaviour of the individual economic agent is known as Homo Economicus.
Scarcity requires that whenever one takes a course of action, he/she makes a simultaneous decision to forgo some other course of action (s). The art of forgoing one decision for another is known as the concept of opportunity costs. The concept of opportunity cost affects all facets of life.
For example, if a business firm wants to spend more of its resources on advertisements, it will have fewer resources to buy inputs and invest in research and development.
Producers answer questions such as the following: what kind of goods should the firm produce or services should the firm render? How should the available inputs be combined to produce the goods or render the services? Who will consume the different goods that producers produce and the services they rendered? When should the goods be produced and supplied or the services rendered? Where should the goods be produced and the services rendered? What reasonable prices should the producers charge to the consumers of the goods they produce and the service they render?
When making consumption decisions, rational consumers consider the resources at their disposal (money or income) to decide what pressing needs they should satisfy. An individual consumer who wants to maximise his/her satisfaction may substitute more of good Y for less of good X or vice versa.
Furthermore, the government may abandon one project for another because of inadequate resources. Opportunity costs or trade-off occurs between government and private sectors in the use of scarce resources. When governments take taxes from citizens and business firms for projects, they deny them the opportunities to use the monies for their personal needs. Governments, business firms and households struggle to create wealth to satisfy their numerous wants to break away from the vicious cycle of poverty.
When an economic agent has resources in sufficient quantities, economics teaches that the agent must use the resources efficiently and wisely to have maximum satisfaction. Miguel de Cervantes Saavedra stated in the 16th century that the pleasure of wealth acquisition or accumulation is found in its wise application and not in mere possession or lavish spending (Ebrahimzadeh, 2016). Proponents of economic theories, including Clarence Ayres and Erich Zimmermann, argued that resources are not, but they become. Resources are not, but they become implies that an item becomes a resource only when a society has found a use for it. De Gregori (1987) explained the statement resources are not, but they become to mean that resources are not fixed or finite. Thus, they are not limited in size or extent. Based on this, an innovative society can discover many new resources to satisfy the numerous wants of the society, other things being equal. However, economic agents must not be wasteful with the use of resources. The amount of goods and services that a society can produce and render depends on the available supply of resources and the state of technology. New and improved technologies help societies produce more and quality goods, render quality services, and discover new economic resources.
The great depression of the 1930s seamed the subject of economics into microeconomics and macroeconomics. However, microeconomics and macroeconomics are interdependent. Microeconomics is the aspect of economics that explains the behaviour of individual economic agents. For example, microeconomics will look at how a particular company can maximise its production capacity to lower its production costs. This knowledge enables the firm to compete effectively in its primary market. Also, macroeconomics deals with the study of issues that affect the whole economy. Microeconomics forms the building blocks of macroeconomics. Macroeconomics considers national unemployment rates, inflation rates, external economic shocks, interest rates, economic growth, etc. Over the years, many sub-branches of economics have evolved out of microeconomics and macroeconomics. Examples include business economics, managerial economics, labour economics, public sector economics, monetary economics, econometrics, mathematics for economists, international economics, industrial economics, etc. We will soon look at how economists have gone about the study and application of their subject.
- Why Understand the Tenets of Economics?
Understanding the tenets of economics provides one with numerous benefits such as the following:
Economics is vital for decision-making at all facets of society. Business organisations, households, and governments make choices daily due to the scarcity of resources. Knowledge in economics helps these economic agents to use their scarce resources efficiently to maximise their satisfaction.
Understanding the principles of economics will make a person analytical and sober in thinking about economic issues. One will become more tolerant of the divergent views of other people about economic issues to know how and where their minds must converge to promote their economic well-being. Economics, therefore, helps economic agents to analyse their decisions critically. It is a tool for thinking aright.
Economics helps students understand other academic disciplines such as finance, marketing, commerce, accounting, operations management, business studies, business law, etc. These academic disciplines have their roots in economic thinking. When combined with knowledge in other academic disciplines, knowledge in economics will help business managers, economic managers, and workers make rational decisions. In dealing with national economic issues, governments resort to the formulation and implementation of appropriate policies to ensure efficient resource allocation. Governments make decisions on economic depression, economic recession, gross domestic product (GDP) growth, budget deficits, poverty alleviation, inflation rates, interest rates, taxation, unemployment, rural-urban migration, monetary and fiscal policies, and balance of payments deficits, etc. When government officials have adequate knowledge in economics, it helps them address these economic challenges adequately and appropriately for national development.
The study of economics enables the citizenry to understand the rationale for governments’ interventions in market activities. The theory of price mechanism suggests efficient allocation of scarce resources, but sometimes markets fail to allocate resources efficiently. These inefficiencies result from the existence of externalities, monopoly power, public goods and asymmetric information. Market failures need state interventions for the smooth functioning of an economy. Governments address these markets challenges by introducing maximum and minimum price legislation, taxes, subsidies, quotas, embargos, licenses, etc., into markets operations. In some situations, it becomes evident that efficient resource allocation can only result from private-public partnerships.
Economics helps a person acquire a career that enables him/her to earn a living. Some economists work with financial institutions, educational institutions, the manufacturing sector and almost every sector of all economies. Employers in the private and public sectors of economies employ economics graduates because of their understanding of economic problems and their ability to perform multiples tasks. Economists are analytical in their thinking and tend to be very efficient, which help to increase productivity. As a result of these excellent qualities, economists usually earn higher salaries than some of their counterparts in other professions.
Economics helps the citizenry to understand governments’ fiscal and monetary policies better. Economics helps them to understand that running budget deficits, for example, is not necessarily bad. If governments invest borrowed funds (deficits) in productive sectors of the economy, they ensure long-run economic growth and development. Economics helps a person understand and explain why governments impose taxes on goods, services and citizens; restrict the importation of certain goods and services; and manage exchange rates, interest rates, and the money supply. When citizens understand governments’ economic initiatives better, it helps to reduce social and political tensions. When outgoing government economic policies or projects are analysed, it may be devoid of partisan consideration. Governments’ policies may either be favourable or unfavourable, but their ultimate goal is to help improve the citizenry’s quality of life.
Economics helps individuals understand the need to contribute their quota to national development. Households and business firms produce goods and render services, so understanding this will help him/her contribute their quota to national development. Knowledge in economics will help reduce the wastage of resources resulting from corruption, stealing, money laundering, absenteeism, loathing, loot and share, and other underground economic activities.
Economics helps the citizens to understand and appreciate the causes of domestic and global events. Economics reveals that past and present domestic and global economic happenings are consonant with the basic tenets of economics. They are far from mysteries or the practice of voodooism. Adverse global and national events result from markets and governments inefficiencies and natural disasters. Whether global or domestic, economic crises are the results of breaches of the principles that underlie the workings of economies. Economics explains how these events impact domestic and global economies. Economics reveals how governments address these events’ problems and how governments and policy-makers use the events as guides to predict and prepare adequately for the future. Various economic situations have been dealt with differently and have produced mixed results. The reasons are that the events have different characteristics, human behaviour is unpredictable, and economies go through different cycles. Economic agents must analyse economic happenings, policies and their effects from an economic perspective. Also, economic agents must tackle economic management, business management and life management issues with circumspection.
Economics helps one to understand how and why economies depend on themselves. Globalisation has increased the interdependence of the world’s economies through trade. If citizens understand the tenets of economics, it will help them to understand the effects of changes in the economic variables in the rest of the world on local economies. Greater integration of the global economy has opened up new markets for producers in the developing world and brought enormous benefits to developing countries. Nations trade with each other, and financial resources and technologies flow among governments and nations, so each nation is directly impacted by economic activities or events in other countries: economic depressions, recessionary periods, and pandemics spread through economies. Remittances from relatives who live abroad may cease when the developed world is in an economic or financial crisis.
- The Way Forward
Economic management, business management, and life management revolve around the tenets of economics. Past and present global events, no matter their forms, have had some elements of economic causes and ramifications on the lives of people in the world. It is, therefore, imperative to know that mysteries and voodooism have no place in economics. Governments need to promote the study of economics and encourage the citizenry to apply economic principles to their decision-making processes.
These will promote their economic well-being and reduce wastage of resources in the public and private sectors of their economies. Public officials and workers must critically analyse their decisions regarding resource allocation to promote national development. Newscasters, political commentators, the media must be encouraged to take economics seriously to help them in their reportage. Ghana Institute of Journalism, schools of communication studies, and law faculties must introduce the teaching and learning of economics to their students as part of their curricula.
The writer is a Senior Lecturer, Wisconsin International University College, Ghana