How is Economics preparing you for life?

Extracted from an essay by Tim Phillips

It might seem an odd conclusion from a course where my smallest text book is 683 pages long, but what I’ve discovered late in life is that when you want to make an argument that changes the way people think, the back of an envelope is often the right place to do it.

Coming late to economics after a career in business, I thought I didn’t have very much to learn. Instead I’m not only filled with fresh ideas, but with a new principle: be economical with what you say if you want to be understood.

When I return to work I know that studying economics has given me the precious ability to grab the back of an envelope and sketch two pictures to help someone who asks questions like “why did that happen?”, “what’s controlling this?” or, the question that a million businesses are asking: “what next?” – and to surprise myself with the answer. It’s a skill I never knew I lacked: I’ve seen the disease of information overload, and information anxiety (its symptom) run out of control, but I never appreciated that I was part of the problem.

As I write this it’s the middle of exam revision and I’m surrounded by index cards. On each one I’ve drawn a small diagram to make a point: supply and demand, long run and short run, in equilibrium and out of it – but every one tells a small story of cause and effect, problem and solution.

The thought experiments on my index cards often disagree with the conventional wisdom. A prisoner is better off admitting to the crime; someone finishes with everything and someone else with nothing, but there’s no way to change it without hurting someone; if I just drop money from a helicopter, ultimately none of us will be better off.

I’ve drawn diagrams about what I’m hearing on the news, where lenders become borrowers, and where optimistic people earn more in good times, but usually save less. My index cards contain subtleties, surprises and counter-intuitive conclusions about the way we live today.

None of the arguments took longer than five minutes to sketch out.

Einstein captured the essence of the solution for economists. We understand each other better when we do what one of the greatest thinkers of the 20th century advised us: make everything as simple as possible, but no simpler. And for that, the back of an envelope is often enough.

Tim Phillips is studying a Graduate Diploma in Economics at Birkbeck College, University of London.