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WHAT ECONOMICS IS, IS NOT

(taken from "Undergraduate Economics at Harvard: A Guide for Concentrators" (2005) Department of Economics, Harvard University, pp. 1-2)

WHAT ECONOMICS IS

Economics is a social science that is at once very broad in its subject matter and unified in its approach to understanding the social world. An economic analysis begins from the premise that individuals have goals and that they pursue those goals as best they can. Economics studies the behavior of social systems - such as markets, corporations, legislatures, and families - as the outcome of interactions through institutions between goal-directed individuals. Ultimately, economists make policy recommendations that they believe will make people better off. Traditionally, economics has focused on understanding prices, competitive markets, and the interactions between markets. Important topics such as monopolies and antitrust, income inequality, economic growth, and the business cycle continue to be central areas of inquiry in economics. Recently, though, the subject matter of economics has broadened so that economists today - and especially economists at Harvard - address a remarkable variety of social science questions. Will school vouchers improve the quality of education? Do politicians manipulate the business cycle? What sort of legal regime best promotes economic development? Why do cities have ghettos? What can be done about grade inflation? Why do people procrastinate in saving for retirement - or in doing their homework? In understanding what economics is, it is crucial to keep in mind that economics today is a scientific discipline. Bringing their particular perspective to the questions of social science, economists formulate theories and collect evidence to test these theories against alternative ideas. Doing economic research involves asking questions about the social world and addressing those questions with data and clear-headed logic, employing mathematical and statistical tools whenever possible to aid the analysis. An undergraduate education in economics focuses on learning to analyze the world in terms of tradeoffs and incentives - that is, to think like an economist.

WHAT ECONOMICS IS NOT

Economics is not business. Business classes teach professional skills that are useful for starting and operating companies. Business strategy and financial management classes often exploit insights from economics in providing better advice to businesses, much the way clinical psychologists apply the relevant research from academic psychology to help them treat their patients. Economics and business are related, but business is professional training ultimately aimed at making profits, while economics is a science that pursues an improved understanding of our social world. Economics is also not policy. It is true that policy considerations often motivate economic analyses, that economists often make policy recommendations on the basis of their analyses, and that insights from economics are relevant to almost every policy debate. However, economic analyses usually do not address moral, cultural, or political considerations. As a result, although economic analysis is essential, it must be supplemented by other perspectives for a fully informed policy evaluation.