IN DEFENCE OF ECONOMICS – A PASSIONATE TAKE11/04/16
Our Chief Business Editor, Jackson Barton recently penned an op-ed piece for “The Wealth Academy” in conjunction with the QUT Economics and Finance Society. Full text below:
I’m of the strong belief that economics is something really overlooked in modern academia. In high school, many staff and students dismiss it as “boring” numbers, or “abstract” models. In the tertiary environment, many write economics off as a social science, or something where merely numerous schools of thought are grouped together and researched, with no real world, applicable outcomes. How wrong they are.
I’m writing today in conjunction with the QUT Economics and Finance Society, and it is our job on campus as the most awarded, most established faculty-based business society at QUT to promote the study of and career progression within the diverse, and dynamic streams of economics and finance. We do at a tertiary level exactly what the Wealth Academy does within high schools – and what an important job it is.
I’m personally studying economics and international business, and I hope to one day having worked in both the public and private sectors. I potentially see myself doing strategic consulting for businesses wishing to invest in overseas markets or import and export goods and services, I see myself possibly working in corporate restructuring to advise clients on where their business could be improved, commercial property, marketing, or even formulating policy for the federal government within the Australian Trade Commission – it’s early days within my professional career, but economics truly does give me a wide variety of career options to head into, it just depends on what niche I eventually settle on. There truly aren’t many other fields of study that can provide graduates with as much variety, or flexibility quite like the study of economics.
As many are aware, economics is all about maximising utility at the margin – ultimately, much of what is taught in economics is about rational decision making to maximise utility (happiness) from finite resources. This backbone of rational thought can really help in making wise financial decisions, especially for young people. While it may seem silly for many, having a well-rounded understanding of economic principles can often go a long way when trying to budget finite resources (money) efficiently – the ultimate goal is to really choose the option which provides the highest level of utility in the most cost-effective manner possible, whether it be groceries, a holiday, a night out – things must be sacrificed in order to achieve a set level of utility from a certain good.
Here’s my favourite example: let’s say I really love Big Mac hamburgers, let’s also assume that I’ve just been paid and I haven’t eaten in days due to poor budgeting. Now, I walk into a McDonald’s and order 10 Big Mac burgers in order to satisfy my hunger. The first one, two, three burgers are an absolute joy, they taste amazing, and I feel great. Four, five, six – by now, I’m really full and not feeling so great. I try to get to ten but I only manage seven and eight – I’m feeling pretty sick at this point and I regret spending so much of my new earnings on so many Big Macs.
This is what’s known as the theory of diminishing marginal utility and is basically the crux of my argument with regards to utility maximisation. Assume buying 10 Big Macs was a relatively rational decision under the circumstances, it can be said that as each additional unit is consumed, my marginal utility will decline steadily – therefore, 10 Big Macs was a poor investment as utility was not maximised – I should have stopped at three or four.
Another case for the study of economics is government budgets. Applied macroeconomics, possibly my favourite stream of economics, relates heavily around the fiscal and monetary decisions made by both government administrations and central banks. We’ve all seen the news; bad polling numbers after budget night, phrases like “in the red”, “black hole”, “fiscal debt and deficit disaster”, but how does it affect you and I? Ultimately, and this is a pretty widely disputed point by many, but budgets can be used by governments to manipulate the economy in any which way they desire – many believe on the contrary that the power of the markets should not be altered and that government spending and taxation should be greatly reduced, but for the purpose of this piece, let’s assume that Scott Morrison’s 2016-17 budget is largely Keynesian.
If say, the economy around the globe dramatically started to slow, the government could begin borrowing large sums of money to spend on public works and projects to ensure that growth remains stimulated and unemployment remains low, and central banks can cut their key rate in order to promote consumption spending, so this spending can act as what is known as an automatic stabiliser. The same can work in reverse, in times of economic boom, spending can often be cut and monetary policy be tightened to prevent inflation from becoming unsustainable. That’s a pretty macro view on fiscal and monetary policy though, obviously government budgeting influences taxes on income, businesses, consumption, capital gains, procurement of goods etc, as well as many socially intrinsic goods such as the ABC, SBS and federally supported arts programs which provide social utility for those who partake. Hospitals and education are also greatly impacted by changes in government expenditure; changes here can create many externalities, both positive and negative. So next time you see Chris Uhlmann, or Laurie Oakes talking about a government budget, take a minute to listen and look deeper – see how it will in fact affect you.
So that’s our take. We’re pretty passionate about finance and economics especially, and feel it must play a bigger role within the high school classroom and beyond, into our tertiary institutions and then into the professional workplace where only an economics degree can get you.