Politics & Society

From Paul Krugman's MasterClass: What Is Economics?

Written by MasterClass

Apr 23, 2019 • 3 min read

Paul believes that at its heart, economics is about people—how they earn a living and how they spend their income.

Topics include: Economics Is About People • People Are Predictable Enough • The Incredible Complexity of Ordinary Life • Economics Studies Good Times…and Bad • Don’t Expect a Happy Story • Economics Makes Us Better Thinkers

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Preview of What Is Economics?

This is an excerpt from Paul Krugman's MasterClass.

Economics is, it's about people. I mean, that's the most important thing that economists often forget, and certainly, other people do. It's not about money. Money may come into it. It's not about corporations. It's about people. It's about what people do.

But it's about a fairly limited set of things that people do. So economics is not about love. It's not about the meaning of life. It's about the prosaic stuff. The great Victorian economist, Alfred Marshall, said it's about the ordinary business of life. It's about buying and spending and making a living. And you restrict the domain a bit. You focus on these relatively prosaic things, because those are the areas where you think that some relatively simple motivations, simple stories can get you a long way.

And it always ends up being about what people do. So we have a kind of a running joke among some of my friends in economics. With graduate students, particularly from some institutions, can we get them to actually say the word people? They'll have this elaborate mathematical model. And they'll be talking about what agents do. And can you get them to actually say, so what are the people in your model? And then he'll say, well, the agents are. If you can't bring yourself to say people, then you're not doing it. It's always a story about what people do.

If you're thinking about economics, it sometimes looks as if you're treating human beings as if they were mechanisms. You're talking about, you know, there's a supply curve, whatever and reducing the behavior of people to math. And at one level you say, but, you know, I am not a number. I am a free man. This is true, that people make choices that you can't predict. And yet, we wouldn't be able to have the economy as we do if people weren't at least on average reasonably predictable.

There's actually a passage in Adam Smith, where he talks about the fact that everyday, people in London count on being able to buy the food they need. Now, who's making sure that enough food was delivered to London, already a city of, or close to a million people? Who was making sure that the food was available? And the answer is nobody. It was all the invisible hand of the marketplace, which said that basically, you were able to count on people's self-interest to sell enough food. People were predictable enough that nobody even gave it a second thought, that there would in fact be a continuous supply.

And this is true all the time, that we count upon people being be predictable enough. I don't necessarily mean that you or this guy is going to. I know what this person's going to do next minute, but if we're asking what a million people are going to do, then on average, they're going to be predictable enough that we can build our lives on that predictability.

Economy most of the time is this miracle of success, of provision. We have a world in which-- and any ordinary object, you know, the jacket that I'm w...

Reviews for Paul Krugman's MasterClass

I enjoyed his way of thinking, and how straightforward he was. - willowtree

This made me more interested in 'boring' economics. Thanks! - Ari K.

Great class. Was a good refresher for me and I love reading Paul's column in the Times. - Bill R.

I've learned useful terminology and a lot of encouragement to be constantly learning, unbiased and logical hat unfortunately feels rare. I'm glad to see someone educating with facts as well with an emphasis on people. - Jacqui W.