Cafe Hayek

« Definitions | Main | A Fair Price» Russell Roberts

September 22, 2005

Useful Micro

Russell Roberts

Jason Briggeman  at Productivity Shock disagrees with my claim that the economic way of thinking isn't terribly useful:

Did he really mean to say that understanding economics isn't a particularly useful investment of time and energy for most people, or did he mean macroeconomics?  I agree wholeheartedly if it's the latter -- and all of the examples he uses are macroeconomic, so maybe that is what he meant.

All of us can benefit immensely from solid microeconomic thinking as we "go about our lives, trying to do our jobs".  Two simple examples:

• To understand that each of the persons we meet is an individual who is out to choose from among the set of alternatives he/she faces that alternative which best suits his/her values, is a profound economic insight that can help us in our relationships with our bosses, coworkers, family members, girlfriends, etc. 
• To correctly understand the concept of opportunity cost is to avoid not just the broken-window fallacy of macroeconomics, but also the sunk-cost fallacy, which is absolutely vital to consistently making good decisions in everyday life.

Opportunity cost, consumer sovereignty, sunk costs are sunk and comparative advantage are all very useful.  Most of us, not all, learn these lessons from experience.  These lessons are intuitive.  (I know, comparative advantage is not intuitive, but its application to everyday life is fairly well-understood by most people—sometimes it's better to hire someone to do something than to do it yourself.)  These insights are the source of the common complaint among some economics students that "economics is just common sense."  The complaint is correct.  Most of the underlying principles are common sense.  Not everyone has common sense.  Some struggle to learn its lessons.  But studying economics is not the main way that people live their lives using these principles.

It is the application of these principles, what I called "the economic way of thinking" that is not common sense.  The idea that things exist in the world that are the product of human action but not human design is highly unintuitive to most people.  My claim is that understanding these phenomena, which is economics main gift to human understanding, makes you a more civilized person and a better voter which is lovely but has little direct, tangible personal benefit other than the satisfaction of understanding how the world works. (Incidentally, I call this micro, not macro.  I invite my co-host, Don Boudreaux to post on this distinction.)

Finally, a paraphrase of a quote I heard from Milton Friedman or that I heard attributed to him.  "Economics is easy.  All you have to remember is that people act in their own self-interest and demand slopes downward.  It's applying these insights that's hard."

Posted by Russell Roberts in Education | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d834518ccc69e200d83425113d53ef

Listed below are links to weblogs that reference Useful Micro:

» More on the Econoblog from William J. Polley
Arnold Kling at EconLog noticed the WSJ Econoblog yesterday. He poses the discussion question: If your goal were to have first-year economics understand, say, the role of markets in addressing the disruption in gasoline supplies caused by a hurricane, ... [Read More]

Tracked on Sep 22, 2005 5:52:02 PM

» Learning microeconomics is worthwhile, pt. 2 from www.productivityshock.com
Could it be the case that widespread elementary education in economics would increase the number of people we see exhibiting "common sense" in later life? [Read More]

Tracked on Sep 23, 2005 12:15:03 AM

» Human Action vs. Human Design from voluntaryXchange
Russ Roberts of Cafe Hayek hits on a fundamental problem of applying economics:The idea that things exist in the world that are the product of human action but not human design is highly unintuitive to most people. That's the whole [Read More]

Tracked on Oct 3, 2005 5:34:55 AM

» Macro-who? Micro-what? from Not PC
WTF is the difference between 'macroeconomics' and 'microeconomics'? The Austrians at Cafe Hayek have a helpful way of distinguishing between the two, (even if Austrian economists generally don't recognise the distinction as a valid one). In passing,... [Read More]

Tracked on Oct 12, 2005 6:46:01 AM

» Estrogen-Only Hormone Therapy Deemed Safe from illions of Women
illions of Women Affected When HRT Was Found to Pose Health Risks [Read More]

Tracked on Mar 25, 2006 2:36:27 AM

» MP3 File Search from The Mp3Database
Download mp3 audio music and song lyrics. Mp3 search engine to music links for free download ... Quick Database Search search in 250209 mp3 entries ... [Read More]

Tracked on Mar 26, 2006 1:15:35 AM

» Nanoporous 'sponge' Removes Mercury From Offshore Produced Waters from heavy metals.
platform drilling contains mercury and other toxic heavy metals. Mercury concentrations in these retrieved waters [Read More]

Tracked on Apr 3, 2006 1:41:56 PM

» Cell Phones from mobilebum.info
News and ... Sep News of Safety phones, new cell phone phones Cell time ... [Read More]

Tracked on Apr 8, 2006 1:30:32 AM

» Most popular words 2006: from Reader's Favorites at Scientific American
The articles includes Editor's Favorites, top e-mailed stories, and most popular articles. ... Babies Can Learn Words as Early as 10 Months ... [Read More]

Tracked on Apr 12, 2006 7:27:57 PM

» Free & Open Source Software Portal: Search from An Online Directory
Popular links · Discussion Forum. Directory Search. By Keyword. Advanced Search. Directory New Links. New links added this week. links in Portal... [Read More]

Tracked on Apr 26, 2006 11:41:09 PM

» 2006 Colleges, College Scholarships and Financial Aid Page from Database of Online Corporate Financial Information
Information on college scholarships and financial aid, featuring a free college scholarship search... [Read More]

Tracked on Apr 30, 2006 3:51:59 AM

» Find search engines across the world with Search Engine from World Search
Gain quick, efficient access to search engines from countries around the world with Search Engine Colossus - International Directory of Search Engines. [Read More]

Tracked on May 7, 2006 12:28:02 AM

» University Search from Worldnet Service
Searching the University web servers, the Internet, for telephone numbers and ... Use this page to search for people (by surname) or for institutions within ... [Read More]

Tracked on May 16, 2006 9:35:07 AM

» Dictionary Search Page from Dictionary Search
An unabridged dictionary from aalii to zymurgy, including a pronunciation guide... [Read More]

Tracked on May 21, 2006 5:04:20 PM

» FBI Says It Tracks Government Worker Calls from Monday that it
of criminal investigations of leaks of classified information, but the bureau denied that it routinely tracks calls made [Read More]

Tracked on May 23, 2006 11:45:08 AM

» Die Schweizer Suchmaschine from dir.pogovorim.com
Suchmaschine fr die Schweiz mit regionaler Volltextsuche (im domain und in weiteren Sites mit... [Read More]

Tracked on May 27, 2006 4:08:55 AM

» News Online from JapanHorse
Features weekly articles, archives to past issues, and timelines of scientific importance. [Read More]

Tracked on Jun 2, 2006 4:44:29 PM

» /POEZIQ/What-s-new from StihiNew
new Илья Янкелевич Габай. ( 2k) GABAJ_I/stihi.txt Илья Габай. Посох ... new Орхан Вели Канык. ( 6k) ORXAN_VELI/stihi.txt Орхан Вели Канык. Избранные стихи ... [Read More]

Tracked on Jun 5, 2006 4:02:28 PM

» Internal Audit: Resources for Internal Auditors from Audit Company
Internal Audit - is the Web portal and online community for the internal audit profession provides free audit work programs, ICQ's, checklists, ... [Read More]

Tracked on Jun 6, 2006 7:45:51 PM

» Flesh-Eating Bacteria Kills College Football Player from ggressive Strep
ggressive Strep Infections May Be on the Rise, Experts Say [Read More]

Tracked on Jun 12, 2006 6:37:08 PM

» CELEB: Mia Farrow Holds a Serious Grudge from Soon-Yi from
the apartment of Farrows’ long-time partner (and baby daddy) Woody Allen. Allen and Soon-Yi confessed [Read More]

Tracked on Jun 15, 2006 6:25:27 PM

» States and Capitals from All USA States
State information resource links to state homepage, symbols, flags, maps, constitutions, ... All Rights Reserved. Press Ctrl - D to bookmark this page. ... [Read More]

Tracked on Jul 17, 2006 6:46:58 AM

» RB Toolbar from rbtoolbar
RB Toolbar - уникальный и наиболее перспективный и продуманный проект... [Read More]

Tracked on Jul 19, 2006 7:30:46 AM

» Clinical Trials Update: July 21, 2006 (HealthDay) from News) -- Here
- (HealthDay News) -- Here are the latest clinical trials, courtesy of Thomson [Read More]

Tracked on Jul 24, 2006 4:12:21 PM

» site map: earring jackets from myjewelrystore
Select your jewelry...14K White Gold .43ct Diamond & Sapphire Ring G-H SI3 [Read More]

Tracked on Jul 28, 2006 6:51:17 AM

» People Search in Internet 2006 from Plot Summary for Words
Words - Cast, Crew, Reviews, Plot Summary, Comments, Discussion, Taglines, Trailers, Posters, Photos, Showtimes, Link to Official Site, Fan Sites. [Read More]

Tracked on Jul 31, 2006 2:35:27 PM

» Handbags from handbags - Offers for handbags - exporters, manufacturers ...
handbags supplier directory - over 3000000 registered importers and exporters. handbags suppliers from China and around the world, handbags, .. [Read More]

Tracked on Aug 3, 2006 10:19:55 AM

» Bvlgari from Bvlgari Watches
Great Saving On Bvlgari Watches Bulgari Watch Bvlgari Assioma, Bulgari Zero1, Bulgari Watch Tubagas, Bvlgari Diagono Aluminium, ... [Read More]

Tracked on Aug 4, 2006 8:24:54 AM

» clinique from clinique: Read reviews and compare prices
Shop our selection of Clinique fragrances and cosmetics online. ... Search results for "clinique". Item 1 to 10 out of 580 Show all, sorted by Popularity ... [Read More]

Tracked on Aug 4, 2006 4:01:18 PM

» amura sushi from Words
Posters, Photos, Showtimes, Link to Official Site, Fan Sites... [Read More]

Tracked on Aug 7, 2006 3:32:53 PM

» amtrol tank from People searching
Searchable keywords online... [Read More]

Tracked on Aug 7, 2006 3:50:11 PM

» Энциклопедия рунета from Internet Search
Выберите интересующий Вас раздел: 0-9 B C D E F G H I L M O R S T V W А Б В Г Д Е Ж З И К Л М Н О П Р С Т У Ф Х Ц Ч Ш Щ Э Ю Я TOP 20... [Read More]

Tracked on Aug 14, 2006 8:37:44 AM