Ben Ng @_benng

Economics Is The New Chemistry

This article in last week's issue of The Economist was particularly thought-provoking because it made me realize that my Economics class is starting to make me feel the same way Chemistry did: that the material was oversimplified in order to pass off a flawed understanding of the world as a coherent theory.

Professor Vasquez does a very good job in Econ 102 (Microeconomics) of applying basic economic principles to a range of contemporary topics like the legalization of marijuana and the college dating scene. While I understand that he is trying to do away with vapid textbooks and make economics relatable and entertaining, I usually leave class feeling like I have only one viewpoint on a complex issue.

For example, after discussing price floors and ceilings, we were asked about the effects of raising the minimum wage. The accepted answer: prices of goods increase because suppliers lose producer surplus, the market moves away from equilibrium, and society loses as a whole. I thought this was a little odd, because there are companies like Costco and Starbucks who pay their entry level employees very well and still run profitable businesses. So why do Republicans insist that raising the minimum wage will only hurt businesses by reducing producer surplus? Why do Democrats insist that raising the minimum wage would be good for the economy when basic economic theory dictates that imposing artificial constraints on a market in equilibrium leads to inefficiency? Surely there must be more to this story!

When it came to the war on drugs, we were asked what would happen if the penalty for possession of marijuana was increased. The accepted answer: since demand for drugs is inelastic, when supply decreases, suppliers just make more money, and the incentive to sell drugs only increases. But wait! Singapore has an extremely low drug abuse rate because of its no-tolerance policy on drug trafficking that has ruffled feathers in the past: capital punishment, regardless of nationality. So perhaps the accepted answer was what it was only because Professor Vasquez didn't consider harsher penalties than the slap-on-the-wrist that is given in America. When you consider that President Obama has said that he won't enforce federal laws on the possession of marijuana, then the answer to the question in class is obvious and has nothing to do with economics.

It is questions like these that make me feel uneasy about applying the concepts I'm learning in microeconomics. There is always another way to explain what's going on in the world, and the examples are oversimplified to lend credence to flawed theories. It seems like economists are searching for a Grand Unified Theory of their own that will marry microeconomics and macroeconomics.

Until that day comes, I'm afraid that I remain 60% student, 40% skeptic.