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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.

4 responses to “Why Economics Matter”

  1. Matt Parkhouse, RN says:

    Economics? If you have been observing the social service scene, you may have noticed that “helping the homeless” has shifted from a community effort to a large, established industry. An understanding of how money pays its part in determining what services will be offered in our town is definitely worth looking at. I have been involved in various agencies since the 1970s and have yet to see this community have a serious discussion of the topic of “helping vs enabling”. Colorado Springs is a great town to get help to exit homelessness, unfortunately it is also a great town to live on the streets. Handouts, with NO expectations attached to them, are plentiful here. We are handing out so much “stuff” that the E.P.A. Is expressing concern about how much of these handouts end up in Fountain and Monument Creeks!
    On a very different level, we have a large and increasing number of CEOs, vice-presidents, directors, supervisors and other executives who are pulling down comfortable salaries “in the business”. Such folks often are very comfortable with the status quo.
    If we examine what the “root causes” of homeless are, we find that these causes remain very much in place. It is the old “do we want an ambulance at the bottom of the cliff or a fence at the top?” Conundrum. As long as the Feds are paying for ambulances, that is what our community will have. We really do need to support our agencies that serve the homeless, but we need to take a close look – are your dollars helping or are they enabling?

  2. Matt Parkhouse, RN says:

    Economics? If you have been observing the social service scene, you may have noticed that “helping the homeless” has shifted from a community effort to a large, established industry. An understanding of how money pays its part in determining what services will be offered in our town is definitely worth looking at. I have been involved in various agencies since the 1970s and have yet to see this community have a serious discussion of the topic of “helping vs enabling”. Colorado Springs is a great town to get help to exit homelessness, unfortunately it is also a great town to live on the streets. Handouts, with NO expectations attached to them, are plentiful here. We are handing out so much “stuff” that the E.P.A. Is expressing concern about how much of these handouts end up in Fountain and Monument Creeks!
    On a very different level, we have a large and increasing number of CEOs, vice-presidents, directors, supervisors and other executives who are pulling down comfortable salaries “in the business”. Such folks often are very comfortable with the status quo.
    If we examine what the “root causes” of homeless are, we find that these causes remain very much in place. It is the old “do we want an ambulance at the bottom of the cliff or a fence at the top?” Conundrum. As long as the Feds are paying for ambulances, that is what our community will have. We really do need to support our agencies that serve the homeless, but we need to take a close look – are your dollars helping or are they enabling?

  3. Thanks to both of you Matts’! Mumbler Matt – I love this thread of writing and will keep a look out on the economic theory linkage to homelessness and poverty. I think we in the field sometimes forget that there exists contradictory, nonetheless valid, theories and that agreement on a direction — or at least recognition of diversity in perspective — is important to create change.
    Matt the commenter — what you said made me think of the “system’s” self-perpetuating nature when reliant on government dollars. Speaking as one of those directors who does make a very comfortable living working in the field of solving homelessness, I would say that healthy organizations must exist in order to have key services that allow people in the experience of homelessness to take the long, arduous journey off the streets. And, we do need to connect action to planning and sustainable difference making.
    We must be mindful to not, though, not to focus our advocacy on our own agency — and rather advocate for the agency of people experiencing homelessness. Making space for people to learn and then wield their own sense of agency to improve their lives has to start from where they are; and if that is addiction, substance abuse or untreated mental health problems, then shoveling the stuff out of their way first through housing, allows the future learning needed inside themselves to create change.

  4. Thanks to both of you Matts’! Mumbler Matt – I love this thread of writing and will keep a look out on the economic theory linkage to homelessness and poverty. I think we in the field sometimes forget that there exists contradictory, nonetheless valid, theories and that agreement on a direction — or at least recognition of diversity in perspective — is important to create change.
    Matt the commenter — what you said made me think of the “system’s” self-perpetuating nature when reliant on government dollars. Speaking as one of those directors who does make a very comfortable living working in the field of solving homelessness, I would say that healthy organizations must exist in order to have key services that allow people in the experience of homelessness to take the long, arduous journey off the streets. And, we do need to connect action to planning and sustainable difference making.
    We must be mindful to not, though, not to focus our advocacy on our own agency — and rather advocate for the agency of people experiencing homelessness. Making space for people to learn and then wield their own sense of agency to improve their lives has to start from where they are; and if that is addiction, substance abuse or untreated mental health problems, then shoveling the stuff out of their way first through housing, allows the future learning needed inside themselves to create change.

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