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Why No One Invited the Economist to the BBQ

There is a joke for those who work in and around economics that when it comes to telling someone what you do for a living, it might as well be chemistry or mechanical engineering. People tend to lump all off these sciences together because they seem to impact their lives at about the same level.

We know chemistry is all around us—in our tooth paste, in our plastics, and in our food. But we don’t have to understand how it works in order to use and enjoy these products. We know engineering has built all of our cars, the buildings we go in and out of daily, and the rocket that took men to the moon. But we don’t have to be an engineer to appreciate the function of our cars or to be inspired by Neil Armstrong’s footprints in the lunar dust.

Is it not the same with economics? Decidedly not. This is because economics is ultimately the study of how people interact in the marketplace. If you have ever participated in the marketplace—meaning if you have ever purchased something, used money, or held a job, then you are using economics.

We wouldn’t say that you do engineering just by driving your car, but there are economic tools that we use all the time whether we realize it or not. If you participate in modern society, you actually do economics. And further, if you can identify and understand the economics around you, it can help improve your life and the lives of those in your community.

“If you can identify and understand the economics around you, it can help improve your life.”

Recently we’ve discussed the concepts of incentives and personal commitment devices. The latter we said was “the fanciful economic term for what you and I might call determination, or will-power.” There are fanciful economic terms for practically everything that we do.

Have you noticed fireworks stands popping up in your community? Depending on where you live, perhaps not, but if you have been almost anywhere within the United States outside of a major city in the latter part of June, you will likely have seen large tents along the sides of roads advertising fireworks. This happens because people want to purchase fireworks for the 4th of July celebration. Or, as was my case last summer, excited brides want to purchase sparklers for their wedding which happens to be on 4th of July weekend.

I’d imagine if you look around, there have been deals on grills and grilling accessories at your local home goods stores. Hotdogs and hamburgers have been stocked to the max in the grocery stores. American flags and red, white, and blue accessories fill the aisles. The 4th of July holiday is certainly an important one for most Americans and it brings with it a large amount of ritualistic spending.

This is an example of behavioral economics, and the concept around this ritualistic spending is called “social schema.” Another fanciful economic term for what we would simply call our celebration of this national holiday. These schemas are tools that we use to associate events and actions. When you think about the 4th of July you can hear the fireworks, smell the grill, feel the heat from the warm day, and experience patriotic feelings. These are all associations our culture has developed over several decades.

A savvy business man acting as an economist identifies these rituals of shooting off fireworks, grilling hotdogs and hamburgers in your backyard with friends, and decorating your home with American flags, and increases his supply of these products. An attentive bride uses economics to know that the sparklers are going to be sold on clearance if she waits until July 5th to buy them.

Of course, this is why the economist isn’t invited to the BBQ, because he is apt to discuss things like this while his friends are enjoying their food. So while I recommend not pointing out the social schema and ritualistic spending surrounding the 4th of July while you are celebrating it with your friends and family, please do remember that we are all practitioners of economics. It is all around us, and better yet, we can understand it and use its tools to improve our life and the lives of those in our community.

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