Wednesday, August 6, 2008

Why Economics Matters

A report by the BBC suggested that last year only 3 people trained to become Economic Teachers. [link] As an economics teacher I should be happy, - a shortage of supply should in theory push up our wages. Alas, when it comes to the setting of wages for economics teachers, market forces seem to mysteriously disappear (either that or our Marginal productivity is much lower than we would like to believe).

Anyway does it matter whether people study Economics at A Level?

Some argue Economics A level doesn't matter - what matters is studying Maths so you can take Economics at University. However, I would argue the exact opposite - The obtuse mathematical models taught at University Economics are only necessary for specialists. Society would, however, benefit from more people understanding the basic principles of Economics. You will say I am biased, but, I really feel Economics should be taught at not just A Level but GCSE 15 year olds.

Why Economics matters

Economic and Financial literacy

There is a general economic illiteracy amongst the population. Many People don't know what is meant by concepts like National Debt, Inflation, Real Interest rates, Balance of payments. If people misunderstand concepts like real interest rates and inflation they will make poor financial decision for themselves. Many subjects lack practical application to the real world. Studying economics can improve your financial situation - there is a clear personal benefit from studying economics.

Political Process

The political process tends to promote populist policies, even if they are not beneficial for society. This includes calls for tax cuts, higher spending, tariffs to protect domestic industry. If people understood the concept of externalities it would be easier to implement new carbon taxes and taxes on rubbish. People would understand that new taxes can improve economic welfare, rather than the usual shrill opposition to any new taxes.

Opportunity Cost

The political debate seems to be framed without reference to opportunity cost. The other day, I was reading the Daily Mail, who in the same edition complained at the level of Government debt, were arguing for a 10p cut on petrol tax and also complained about underfunding of the NHS. Greater understanding of economics would enable people to appreciate the opportunity cost of populist policies.

Good Intentions are Not Enough

It is not enough to have good intentions about overcoming poverty - throwing money at developing countries and campaigning against free trade and the WTO do not necessarily improve the living standards of developing countries - whatever ill informed campaigners may claim. Learning economics would help demystify a lot of the myths and claims surrounding issues like free trade and globalisation. (Free trade policy and paradox)


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