A Basic Understanding of Economics
The problem of infinite desires and limited resources is at the core of the study of economics. Adam Smith, one of the first modern economic thinkers, said economics is the study of the allocation of scarce resources. More broadly, economics is concerned with how individuals, businesses, governments, and countries decide to allocate their resources.
Economics can be broken into two areas: macroeconomics and microeconomics. Macroeconomics focuses on the health of an aggregate national economy, focusing on how fiscal and monetary policy affects output levels, inflation, and interest rates.
Microeconomics tries to explain how individuals and businesses respond to changes in price and how these changes influence levels of demand. This area tries to find why goods are valued differently and how individuals make buying decisions.
Economists use models to gauge efficiency and productivity in the production and consumption of goods and services. They calculate and disseminate many economic figures, most notably the Gross Domestic Product (GDP) and the Consumer Price Index (CPI). These indicators help assess the growth of the national economy and how prices influence consumer behavior.
Most economists choose an area within economics to specialize in such as microeconomics, macroeconomics, industrial economics, international economics, public finance economics, and monetary economics.
They work in corporations, economic consulting firms, and government. The economists in government consult with Congress on the effects of changes to Social Security, the effects of tax cuts, the deregulation of industries, and the effects of tariffs.
They also work with local and state governments on local issues such as the growth of prison populations, school funding, and local employment and their effects on spending.
How Economists Impact Policy
Economists are employed by Congress, the White House, and Federal Reserve, directly impacting policy selection.
In Congress, economists are employed in Committees to serve in quantitative and policy analyst roles. For example, in the Joint Committee on Taxation economists study tax proposals and apply modeling to assess revenue estimates.
They work with member staffs to find impacts of policy on specific populations within their jurisdictions. Finally, they write memos to report on the effects of possible tax proposals to tax-writing committees in the House and Senate.
The Chairman of the Council of Economic Advisors directly advises the President through policy evaluation and recommendations. They ask questions about a set of data, apply economic theories, analyze the causes and effects of different economic conditions, and build the models that allow them to simulate the impact of different policies. The Council of Economic Advisers produces an annual report that is read by the President’s staff, congressional staff, and academic economists.
While not always visible, economists create models and give recommendations that help inform Congress and the President on the effects of proposed economic policy. They also work on a diverse range of topics including climate policy, tax policy, and trade policy.