Lecture 1 What is economics?
ECONOMICS
The study of how people interact with each other and with their natural surroundings
in providing their livelihoods, and how this changes over time.
WHAT MAKES ECONOMICS A SCIENCE?:
- Science gives us principles, known as facts, of any discipline, and art turns all
these principles into reality and makes aims to achieve. Economics is a
science because they hold on to the facts like the data (statistics) that was
founded, see things simply ‘how they are’.
- Science: quantification = mathematical expression of economic ideas which
should be measured by economic statistics.
- using inductive/deductive
- a positive/normative/art science
- experimental method/modelling/econometrics
- Because it used empirical methods
- uses logic reasoning/mathematics (the language of science)
And one of the important things in economics is logical reasoning. In every
science it is necessary to simplify, to abstract all the data from the infinite
mass of detail like for example all the data of the economy.
- Empiricism: we focus on revealing preferences (the choices a human makes,
based on the utility theory) economics and not on mental things, because
otherwise it would not be a science.
TURNPOINT ECONOMICS INTO A SCIENCE
- By Ragnar Frisch
The original description of econometrics by Ragnar Frisch is about the
combination of economics, mathematics and statistics, OR about building
bridges between theory (general economic laws), mathematical models and
statistics OR general economic laws can be translated into mathematical
models, symbols and equations, and these models can then be applied to
statistics, data
- New economic discipline which arose in 1930s
- The aim of Econometrics was to put economics in to a empirical science
- Explicit aim to turn economics into a (empirical) science → the same as
physical science (popular Einstein)
,TODAY ECONOMETRICS:
The current meaning of econometrics mainly ignores the connection between theory
(math) and data and is merely applied statistics
WHICH KIND OF SCIENCE IS ECONOMICS?
See next page
FOUNDATION OF A SCIENCE? WHY RELIABLE?
Because it uses:
- Ratio (theory, thought, ideas, first principles, axioms, dogmas etc): rationalism
← deductive method (Mostly in Microeconomics)
- Empirics (data, statistics, experience, observations = facts) ←
Inductive method (Mostly in Macroeconomics)
HUMAN ECONOMIC BEHAVIOR
- Based on rational choice (optimize utility) = the assumptions/actions have to
be consistent, no contradictory assumptions (think about formula, greater
than….)
WHAT WENT WRONG IN THE ECONOMY
- Removing controls over the finance sector paved the way for its rise
to dominance, which in turn has led to a transformation of the global
economy and increased instability. Financial institutions, we contend,
no longer act as servants to the real economy but as its masters.
- In the process, elected governments have stripped themselves of
key economic powers, hollowed out democratic institutions,
transferred powers to markets, and undermined our ability to meet
democratic mandates of their electorates.
- Independent central bankers, supported by finance ministers and
governments, have acted recklessly and abdicated their role as
guardians of the credit and financial system.
CONSEQUENCES
- An enormous increase (or ‘bubble’) in the stock of financial assets
in relation to the ‘real’ economy ....
- As a counterpart to this huge increase in assets, an explosion in the
level of indebtedness amongst households, corporations, and
governments.
, - There will be a further collapse in the credit system in the rich world,
led by the United States, leading to soaring personal and corporate
bankruptcies.
- If default rates reach 2 per cent, then the probability of a financial
crisis rises appreciably.
- The risks of a debt-deflationary spiral in the rich world are
significant.
REAL WORLD PERSPECTIVE
- Is a strong awareness of the complex socio-economic reality:
human behaviour is not always rational and markets are not always in
equilibrium. Institutions are important for understanding economic
dynamics and so are the dimensions of time and space. → the
economy is very complex and can not always be reduced by models.
- Leads to a multidisciplinary economics approach, a research profile
that favours crossing borders between academic disciplines, but also –
within the economics discipline – between economics and business.
- U.S.E. aims to contribute to a society where people thrive, by
taking a broad view on welfare and all factors involved. Well-being,
cooperation, innovation and curiosity are the core values in the
academic profile of the U.S.E.
LOOKING FROM A REAL WORLD PERSPECTIVE
Multidisciplinary
- John maynard Keynes → the multiplier, the economy is
multidisciplinary according to him
- Paul samuelson’s → introduce economic analysis
- Also using multidisciplinary approach
- Economics is Multidisciplinary because it overlaps with the other
studies such as psychology, sociology and history etc. ‘’And because it
uses deductive methods of logic and geometry, and inductive methods
of statistical and empirical inference’’. by samuelson’s
SCIENCES USES TWO POINTS OF REASONING: THAT’S WHY ECONOMICS IS
A SCIENCE
Inductive Reasoning → statistical and empirical interference
= Reasoning: the process of inferring general claims
(theories,laws) from particular events or individual observations.
observations → to general
Method: Empirical method:
ECONOMICS
The study of how people interact with each other and with their natural surroundings
in providing their livelihoods, and how this changes over time.
WHAT MAKES ECONOMICS A SCIENCE?:
- Science gives us principles, known as facts, of any discipline, and art turns all
these principles into reality and makes aims to achieve. Economics is a
science because they hold on to the facts like the data (statistics) that was
founded, see things simply ‘how they are’.
- Science: quantification = mathematical expression of economic ideas which
should be measured by economic statistics.
- using inductive/deductive
- a positive/normative/art science
- experimental method/modelling/econometrics
- Because it used empirical methods
- uses logic reasoning/mathematics (the language of science)
And one of the important things in economics is logical reasoning. In every
science it is necessary to simplify, to abstract all the data from the infinite
mass of detail like for example all the data of the economy.
- Empiricism: we focus on revealing preferences (the choices a human makes,
based on the utility theory) economics and not on mental things, because
otherwise it would not be a science.
TURNPOINT ECONOMICS INTO A SCIENCE
- By Ragnar Frisch
The original description of econometrics by Ragnar Frisch is about the
combination of economics, mathematics and statistics, OR about building
bridges between theory (general economic laws), mathematical models and
statistics OR general economic laws can be translated into mathematical
models, symbols and equations, and these models can then be applied to
statistics, data
- New economic discipline which arose in 1930s
- The aim of Econometrics was to put economics in to a empirical science
- Explicit aim to turn economics into a (empirical) science → the same as
physical science (popular Einstein)
,TODAY ECONOMETRICS:
The current meaning of econometrics mainly ignores the connection between theory
(math) and data and is merely applied statistics
WHICH KIND OF SCIENCE IS ECONOMICS?
See next page
FOUNDATION OF A SCIENCE? WHY RELIABLE?
Because it uses:
- Ratio (theory, thought, ideas, first principles, axioms, dogmas etc): rationalism
← deductive method (Mostly in Microeconomics)
- Empirics (data, statistics, experience, observations = facts) ←
Inductive method (Mostly in Macroeconomics)
HUMAN ECONOMIC BEHAVIOR
- Based on rational choice (optimize utility) = the assumptions/actions have to
be consistent, no contradictory assumptions (think about formula, greater
than….)
WHAT WENT WRONG IN THE ECONOMY
- Removing controls over the finance sector paved the way for its rise
to dominance, which in turn has led to a transformation of the global
economy and increased instability. Financial institutions, we contend,
no longer act as servants to the real economy but as its masters.
- In the process, elected governments have stripped themselves of
key economic powers, hollowed out democratic institutions,
transferred powers to markets, and undermined our ability to meet
democratic mandates of their electorates.
- Independent central bankers, supported by finance ministers and
governments, have acted recklessly and abdicated their role as
guardians of the credit and financial system.
CONSEQUENCES
- An enormous increase (or ‘bubble’) in the stock of financial assets
in relation to the ‘real’ economy ....
- As a counterpart to this huge increase in assets, an explosion in the
level of indebtedness amongst households, corporations, and
governments.
, - There will be a further collapse in the credit system in the rich world,
led by the United States, leading to soaring personal and corporate
bankruptcies.
- If default rates reach 2 per cent, then the probability of a financial
crisis rises appreciably.
- The risks of a debt-deflationary spiral in the rich world are
significant.
REAL WORLD PERSPECTIVE
- Is a strong awareness of the complex socio-economic reality:
human behaviour is not always rational and markets are not always in
equilibrium. Institutions are important for understanding economic
dynamics and so are the dimensions of time and space. → the
economy is very complex and can not always be reduced by models.
- Leads to a multidisciplinary economics approach, a research profile
that favours crossing borders between academic disciplines, but also –
within the economics discipline – between economics and business.
- U.S.E. aims to contribute to a society where people thrive, by
taking a broad view on welfare and all factors involved. Well-being,
cooperation, innovation and curiosity are the core values in the
academic profile of the U.S.E.
LOOKING FROM A REAL WORLD PERSPECTIVE
Multidisciplinary
- John maynard Keynes → the multiplier, the economy is
multidisciplinary according to him
- Paul samuelson’s → introduce economic analysis
- Also using multidisciplinary approach
- Economics is Multidisciplinary because it overlaps with the other
studies such as psychology, sociology and history etc. ‘’And because it
uses deductive methods of logic and geometry, and inductive methods
of statistical and empirical inference’’. by samuelson’s
SCIENCES USES TWO POINTS OF REASONING: THAT’S WHY ECONOMICS IS
A SCIENCE
Inductive Reasoning → statistical and empirical interference
= Reasoning: the process of inferring general claims
(theories,laws) from particular events or individual observations.
observations → to general
Method: Empirical method:
