Economics as a social science

Economics concerns human behaviour. One problem here is that individuals often behave in very different ways. People have different tastes and attitudes. This problems, however, is not as serious as it may seem at first sight. The reason is that people on average are likely to behave more predictably. For example, if the price of a product goes up by 5 per cent, we might be able to predict, ceteris paribus, that the quantity demanded will fall by approximately 10 per cent. This does not mean that every single individual’s demand will fall by 10 per cent, only that total demand will. Some people may demand a lot less; others may demand the same as before. Even so, there are still things about human behaviour that are very difficult to predict, even when we are talking about whole groups of people. How, for example, will firms react to a rise in interest rates when making their investment decisions? This will depend on things such as the state of business confidence: something that is notoriously difficult to predict. For these reasons there is plenty of scope for competing models in economics, each making different assumptions and leading to different policy conclusions. As a result, economics can often be highly controversial. Different political parties may adhere to different schools of economic thought. Thus the political left may adhere to a model which implies that governments must intervene if unemployment is to be cured; whereas the political right may adhere to a model which implies that unemployment will be reduced if the government intervenes less and relies more on the free market. This is no to say that economists always disagree. Despite the popular belief that if you laid all the economists of the worlds end to end they will still not reach a conclusion, there is in fact a large measure of agreement between economists about how to analyse the world and what conclusion to draw.