Why Economics Matter
Posted on December 4, 2015
Over the next several weeks, we’ll explore the economics of poverty and its impact on social, psychological, and biological functioning. To introduce the series, let’s examine the importance of economics for those of us working in the helping professions. The best way I can think to do this is with my own personal experience with economics, and why I make sure I include it in my reading and study.
I can’t remember studying anything on economics until I was working on my Masters in Business Administration (MBA). I’m sure I probably learned something in high school or my undergraduate studies, but nothing I can recall. I entered my MBA program with the goal to better understand how to be a leader in the social service/public health fields. I chose to focus on health care because the curriculum and focus came closest to my future aspirations.
As an inexperienced leader who had only taken one business class in my life, I was really over my head in the MBA program. This showed me very clearly how much I didn’t know about finance, human resources, business law, management, and economics. While most of my learning was focused on what happened within an organization, economics gave me a context to examine the environment in which the organization operated.
Thanks to a great (and patient) professor, I started to see the importance of economics in my own work. Years later, I can formulate four key roles that economics has played in my thinking and work.
First, economics fit well within the graduate education I had just completed in psychology, before getting my MBA. Economics tries to explain the behaviors of markets, which is really the collective behavior of people (consumers) within the market being studied. Much of what we know about altruism, greed, collaboration, and motivation comes from economic, not psychological, experiments, which we’ll look at in future posts.
At one point, I remember telling my classmates that economics is just psychology with a bigger bank account! While psychological studies are often funded through grants and by colleges, economic studies are often funded by corporations trying to maximize profits where billions of dollars might be at stake. Both share a common focus on human behavior, and economics allowed me to see a more complete person and helped put human behaviors into a deeper and richer context.
Second, economics helped me to understand the organizational behaviors and struggles of the nonprofit organizations I was working for early in my career. I saw that few leaders took time to understand the markets in which they operated. Economies impacting nonprofits include both macroeconomics (world, national, state, and local markets) and microeconomics (donor, foundation, funding, employee and client behavior). These combine to determine the health and effectiveness of the organization, and directly or indirectly impacts it ability to provide quality care.
Third, nonprofits and the clients we serve are greatly impacted by competing economic theories. There are as many theories of economics as there are of psychology. Unlike arguments in psychology, competing economic theories play out on the largest political stages. Marxian vs. Capitalism, Keynesian vs. Friedman, supply vs. demand, and many more show that there is as much disagreement on taxation and government entitlement programs as there was between Freud and Skinner.
It also became clear that these economic disagreements had huge impacts on the ability of nonprofits to serve communities in need. We witnessed the impact of Reagan’s trickle-down economics, Clinton’s welfare and criminal justice reforms, and Obama’s use of Keynesian economics during the great recession and to guide healthcare reform. One does not need to search long to see the impact of these theories on rates of poverty, homelessness, and unemployment. Look a little deeper, and you can also see impacts on mental health, substance abuse, and violence in our communities.
My fourth and final conclusion was that few people, including myself, who felt the impact of these decisions really understood the theories driving the decisions. I also realized that many of the politicians implementing the theories do not understand them, and are working more from the dogma of their parties. It is my goal over the next few weeks to bring my own research into a context that can help us examine our work and those we serve from an economic perspective. I hope that from the controversies, we can establish a language that can help us communicate more effectively with our neighbors, policymakers, and clients.