If economics is a way of thinking about behavior, what is the nature of the economic way of thinking? A key feature of economic thinking is its formality; that is, economic thinking is constrained by a number of explicit assumptions that have come to be known as economic principles. These economic principles force us to see and interpret the world a certain way. Just like the case of the wife, who was married to a man who thought he was dead. The wife took the man to doctor after doctor, but no one could convince the man he was alive. Finally, one doctor asked the man: "does a dead man bleed?" "No" was the reply. Upon hearing this the doctor took his scalpel and cut the man's finger, which of course, started to bleed a great deal. "What do you know," cried the man "dead men do bleed!"
The dead man had a theory about himself: he thought he was dead. This theory influenced how he interpreted the events around him. Likewise, in economics, our model based on economic principles influences how we see the world. Many people think this, in and of itself, makes economics special, but in fact, it really just makes it a religion ... like all of the other sciences. That might sound like a ridiculous thing to say, so let me defend it a bit.
This blog about the set of assumptions called economic principles. Many of these assump- tions are not observable or testable in any meaningful way, and ultimately economists accept them by faith (some economists don't really believe them, and you have to wonder why they ever became economists!). These principles, when put together, form a basic economic model, which in turn is what economists use to analyze everything from why vegetables are cheap in the summer, to why mules were used in southern U.S. agriculture but not in the north. Economists believe this model, ... they have faith in it. This is what's meant by "economics is a religion." If this were a book on sociology, biology, or any other subject, it would simply be about a different set of beliefs. Again, this isn't the least bit unusual, because ...
Everyone uses "models" to function in life
It is important to realize everyone operates with some type of "model" in mind. It's like the three scientists (a physicist, biologist, and mathematician) who were watching a building when two people went in and three came out. "We must have made a measurement error" said the physicist. "No" replied the biologist, "there must have been some reproduction." "Well I don't know what's going on," said the mathematician, "but if one more person enters the building it will be empty." Everyone interprets the world around them through a set of beliefs, and these beliefs we call a "model."
It would be impossible to interact with other humans or nature without some model to guide us. We all have a pretty decent model of local moving bodies. So much so I venture we all can imagine what happens if you jump in front of a bus moving 50 miles per hour! When it comes to explaining the way people behave, there is no shortage of models either. The sociologist, psychologist, and other social scientists all have different models. Feminists, marxists, and other "ists" have different models. And, of course, Joe Blow down at the local diner probably has a pretty explicit model of behavior as well. If everyone thinks with various types of models in mind, then the question comes up: what model should we think with? Hopefully, after reading this book you'll agree the economic model, or way of thinking, is particularly useful.
The point of having a good model is it makes us better thinkers. Consider the following riddle: A cow starts walking along a mountain path at 9AM one morning, and eventually makes its way to the top of the mountain by 6PM the same day. The exhausted cow lays down for the night, but starts out early the next morning at 8:30AM and is down at the bottom by 2:00PM. Is there a spot on the path where the cow was at the same time each day? Hmmmm. That seems difficult to think about, and your first reaction is probably only by chance would such an unlikely event occur.
The "cow on the mountain model" has a number of characteristics which make it attractive. The model is formal, testable, simple, and is consistent with the general facts of the world (that is, we didn't have the cow fly to the top!). In economics we'd like our model to be characterized by these features as well. These features are what make economics a ... science. Laying out our assumptions so the can be examined, creating models that can actually be tested and refuted, and coming up with theories which we believe are true, is all part of the scientific process. So sure, economics is a religion because we accept a lot of concepts on faith, but it is also scientific because we test our models and rely on logic to sift through the competing theories of explanation.
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