Meaning of economics, how it is an art and a science

Meaning of economics

The term “Economics” came from the Greek word “Oikonomos”. The word “oikonomos” can be decomposed into two parts, “oiko-” (means “house”) and “-nomos” (means “rule” or “law”). Therefore, “Oikonomos” means rules of household management (house manager). The oikos (household) served as the fundamental unit for organizing social, political, and economic life. Households have limited resources with unlimited needs, so, they have the problem of how to manage those scarce resources to satisfy their unlimited needs. Scarcity of resources and unlimitedness of needs turned out economics. Therefore, Economics is a social science which study how to use limited resources to satisfy our unlimited needs.

Economics as an art and as a science

Economics is both a science and an art.

How can we answer these questions “What do we know?” and “How do we know that what we know is right?”

Economics is science in terms of its accumulation of knowledge base, descriptive knowledge, and procedures. Economics make use of scientific methods of inquiry. Scientific method of enquiry involves defining concepts that are measurable, evaluated against given or available facts. It requires the development of hypothesis (hypothesis is the statement that is not yet tested and verified or proved that is whether right or wrong). If hypothesis is proved that it is right, it becomes a theory and it can then be used to predict future behavior or outcomes. So, in the study of economics that is how we shall come across many theories.

Economics is social science because hypothesis developed by economists can not be tested in a laboratory like physical sciences (for example: Chemistry, biology, and physics), but economic hypothesis are tested by analyzing data that are collected from society.

It is social science again because it examines the problems that societies face because individuals desire to consume more goods and services than what are available.

Economics is an art in terms of applying that knowledge to current issues and problems. In economics, there are three main ideas: the art of economics, positive economics, and normative economics:

Positive economics looks at how the economy works.  It deals with the factors that control economic activity; it is about what is in existence without being influenced by opinions on how should be in existence.  So, it studies the situation as it is.

Normative economics is about how economy should be. It involves opinions about how the economy should be. It combines economic ideas with what’s right or wrong.

The art of economics is about making decisions and policies. It uses the ideas from both positive and normative economics to figure out the best way to reach good outcomes.

Positive economics and the art of economics use different ways of studying things. Positive economics is more about theories and keeping politics and society separate from the economy. The art of economics is more complicated because it must think about how politics, society, and the economy (theories) all work together.

In practice:

Positive Economics: Imagine a positive economist studying the impact of a minimum wage increase. They would analyze data from different regions or countries where minimum wage changes have occurred. They might find that in some cases, increasing the minimum wage led to reduced employment among low-skilled workers, while in other cases, it had minimal impact on employment levels. Their focus would be on understanding these trends and identifying the factors that drive them, without making judgments about whether the outcomes are desirable.

Normative Economics: Now, consider a normative economist who argues for or against increasing the minimum wage based on ethical considerations. For example, they might believe that it's morally wrong for full-time workers to earn wages that keep them below the poverty line, and therefore advocate for a significant increase in the minimum wage to increase a standard of living for all workers. Alternatively, another normative economist might argue against raising the minimum wage, believing that it would lead to job losses for vulnerable workers and would be unfair to small businesses.

Art of Economics: Finally, let's look at the art of economics in action. Suppose policymakers decide to raise the minimum wage. They would need to consider various factors, such as the current economic conditions, the potential impact on businesses and employment, and societal values regarding income inequality and worker welfare. They might design a policy that gradually increases the minimum wage over several years to minimize disruptions to businesses while still improving the standard of living for low-wage workers. This decision-making process involves blending insights from positive economics (understanding the likely effects of the policy change) with normative considerations (evaluating whether the policy aligns with societal values and ethical principles).