Economics as a discipline is deceiving in the way it seems to be consistent within its own rules, but often fails miserably to denote how the world works.
An introductory Economics student will often paint the world around them using the newfound models that they have fallen upon, at least I did. They will look at goods in the grocery aisle through the lens of supply and demand and look at the workers at the grocery store through the lens of the labor model. They will do these things, often without realizing how badly economic theory fails to capture the reality of these attributes. The assumptions of economics are too restrictive to denote how the world could be or even about how the world is currently. Economics should neither be about how the world is or the world could be. Economics a is set of ideas, models, and theories on which we input real-life phenomena to transform them through our assumptions so that we may get a better understanding of how the world could theoretically work, but it has no tangible applications to reality. Economics is a discipline that is entirely divorced from reality and has no grip in an earthly domain. It is a function that can transform our observations of our responses to scarcity as humans but has no real application in real life, hypothetical or not.
This topic brings up terminology that we talk about early on when we teach economics: the difference between positive and normative. Positive statements are a statement of what is currently occurring. For example, “the Dow Jones Industrial Index reached 20,000 points today.” Normative statements are a merit judgment of what is happening, “The Dow Jones could be higher.” We look at economics in the hypothetical middle of these two statements. We input what is happening and transform it through our judgemental understanding of economics to get a product of the two. This understanding that we can derive from this product could possibly aid us in our understanding of what is or what could be, but it is simultaneously divorced from the outcome. In other words, it is left up to the eyes of the beholder. The products of economic theory don’t have any basis in real-life but they can provide us with a valuable lens to look at how things work.
A really strong example of this Economic we view externalities in economics. We will often use the idea of the Tragedy of the Commons as a “problem” in externality theory and use the Coase Theorem as the “solution”. The Tragedy of the Commons is a true to real-life case in which a public resource gets overused by private interests because it is free. The Coase Theorem provides a very idealistic, contrived solution to the problem of the Tragedy of the Commons where individuals come to an agreement on the property rights (of a public good), without the intervention of government or political policy. The Coase Theorem is a product of economics that has no grasp on reality. It does not describe how economics should or should not work, but it describes a process by which a hypothetical problem could be solved but does not say that it should be solved in that manner.
Whenever we set out to make models in economics, one assumption that we tend to make is that goods are continuous in their representation. For the sake of example, the curves we draw in the simplistic, supply and demand model (Figure 1) are continuous lines that do not have gaps in the middle of the points between numerical quantities of goods to denote the discreteness of the good itself. We can never have half of an apple or a pi-halves of a bushel of wheat, but we look over this oversight so that we may be able to get a better idea of what is occurring. Some individuals argue that this oversight is perfectly fine because models in economics are not supposed to exactly true to real life, but others argue that economics should be true to real life and should serve to be more than a representation of an idealistic approach. This peels back the curtains on how economics assumptions are too tight to ever make a proper approach to reality. They are just a transformation of real-life phenomena based on the ideals of economic theory.
Economics is not a discipline that studies how the world is or how the world should be but a theoretical derivation of the two that does not have any intrinsic or extrinsic meaning. Economics takes real-life phenomena and transforms them based on theoretical assumptions to create hypothetical trends and ideas. Economics is not meant to mimic the way the world works, or how it could work, but it is meant to give us a theoretical framework from which we could possibly approach the world. Often times, economic theory is totally wrong in how it approximates the way things work, but it gives us a really solid foundation on which we can implement policy, etc. Economics gives us a, sometimes helpful, improbable lens of reality.
