Why is economics so important?
Updated: Feb 20
What is Economics?
Before we approach this topic, it is important to know what exactly is economics. Economics put simply, is the study of making choices in the face of scarcity. The textbook answer would be "it is the study of allocating limited resources among unlimited wants".
Understanding economics matter even if you're not an economist
Scarcity is a fact of life. Human wants for goods, services and resources exceed what is available. Resources, such as labor, tools, land, and raw materials necessary to produce goods and services exist in limited supply. Finally, the ultimate scarce resource is time – everyone, rich or poor, has only 7 days a week, 24 hours a day to use it on activities such as leisure or making more money. As you can see, from individual decisions, family decisions, career decisions, business decisions or even government policies, everyone can benefit from a good understanding of economics. To put it in perspective, if you see how well you do in life as a cumulative outcome of all your individual decision-making, you would then understand how important economic literacy really is!
Economics is the study of mankind in the ordinary business of life. - Alfred Marshall
How does an economist looks at the world?
As a trained economist, economics has provided me with a systematic structure for analyzing, researching, breaking down and explaining about a broad range of real-life issues and phenomenon. It has provided me with a methodology for making sense of our complex environment. To an economist, almost everything can be broken down using one or a combination of demand and supply, opportunity cost, externalities and behavourial economics. Those who would have read books such as "freakonomics", "undercover economist" and "predictably irrational" would have known what I mean.
Now, as a consultant, it has helped me in issues such as setting optimal pricing strategy for products to designing incentives to motivate employees through solving principal-agent problems.
How would an economist look at the issue of the ban on PMDs in Singapore?
In recent weeks, the issue of the ban on personal mobility devices (PMDs) has taken Singapore by storm and generated much discussion and controversy. Is the ban necessary? How would an economist regulate this transport mode?
Most economists I know would frown upon direct government interventions such as a ban if the problem at hand can be solved by market forces. In this particular incident, there exists ways where market forces would have come in elegantly to resolve this thorny issue. Insurance would be one such elegant way, especially if the government had came in early mandating all PMDs to be licensed and insurance be bought to be used, just like a motor vehicle.
Nobody spends somebody else's money as wisely as he spends his own. - Milton Friedman
Would it solve the issue of pedestrians getting knocked over and injured? At the individual level, probably not. However, in the event of an accident, it would have provided compensation for the victims. More importantly, insurance premiums for PMDs riders would rise across the board as accidents increase. In particular, premiums would spike for riders involved in these accidents. This would serve as a deterrent and disincentivise reckless riding. Such a method could also be applicable for gun controls in the U.S.
Some may criticise that such mechanism only serves to fatten the pockets of the insurance industry. Perhaps so, but at least these costs doesn't have to come from taxpayers and there is no need for a ban of PMDs on pedestrian walkways.
Do you have a better way of solving this problem or regulating firearms in the U.S.? I would love to hear more from everyone how they would go about approaching these issues! Please leave them in the comments below.