What does it mean when we say that economics is a social science?

When we say that economics is a "social science," it means that economics studies human behaviour, decisions, and interactions, particularly in relation to the production, distribution, and consumption of goods and services. As a social science, economics is concerned with understanding how individuals, groups, and institutions make choices under conditions of scarcity, where resources are limited but human wants are infinite.

Here's why economics is categorized as a social science:

1. Focus on Human Behaviour: Economics examines how people make decisions about allocating resources, which involves psychological, cultural, and social factors, similar to other social sciences like sociology, psychology, and political science.
2. Interactions and Institutions: It studies how individuals interact within markets and how institutions (governments, corporations, etc.) influence economic outcomes. Economics is interested in understanding not just individual choices but also societal patterns like income inequality, unemployment, inflation, and economic growth.
3. Use of Empirical Methods: Like other social sciences, economics employs both qualitative and quantitative research methods to study and analyse human behaviour. Economists use models and data analysis to make predictions, explain phenomena, and suggest policy solutions.
4. Ethical and Normative Dimensions: Economics often involves ethical considerations about fairness, welfare, and justice. Questions like "How should wealth be distributed?" or "What policies reduce poverty?" are normative questions that reflect economics' role in addressing social concerns.

In summary, economics is a social science because it fundamentally seeks to explain social phenomena and human behaviour in economic contexts.

By examining how economic principles apply to social problems, we can see how economics directly engages with human behavior, institutions, and societal outcomes.

1. Human Behaviour and Decision-Making: Inflation and Consumer Choices

One of the key areas where economics as a social science is evident is in the study of how inflation affects consumer behavior. When prices rise, individuals and families have to make tough choices about how to spend their money. Should they cut back on non-essential goods? Should they buy cheaper alternatives? These are not just questions of dollars and cents but also of psychology and social behavior.

For example, during periods of high inflation, as seen in 2022 and 2023 globally, consumers tend to reduce discretionary spending and shift to discount brands. In the U.S., inflation led to reduced spending on luxury items and more on essentials like food and fuel. This illustrates how economics, as a social science, analyzes how people’s behaviors adapt when faced with external pressures like rising prices.

2. Market Interaction: Housing Market and Social Inequality

Economics studies how markets function and how these markets shape broader social outcomes. One example of this is the housing market and its link to growing inequality. In many cities, especially after the COVID-19 pandemic, housing prices skyrocketed, driven by demand, low interest rates, and limited supply. Economists look at how this affects different social groups.

For instance, young people, particularly those from disadvantaged backgrounds, have struggled to afford homes, widening the wealth gap between homeowners and renters. This exacerbates social inequality, as those who can afford property accumulate wealth while those who can't are left behind. The social science aspect of economics explores not only the numbers behind housing prices but also the human impact: how homeownership affects families, neighborhoods, and long-term financial security.

3. Institutions and Policy: Climate Change Economics

Another critical area where economics interacts with social concerns is climate change. Climate change is a global issue that requires collective action, and economists are deeply involved in analyzing policies that can mitigate its impact. This includes studying carbon pricing, subsidies for renewable energy, or the economic costs of climate inaction.

For example, economists have been influential in advocating for carbon taxes or cap-and-trade systems, which aim to reduce greenhouse gas emissions by putting a price on carbon. However, the social science aspect is evident when we consider the distributional effects of these policies. Who bears the cost of a carbon tax? Lower-income households might face a heavier burden because energy makes up a larger proportion of their spending. Thus, economists consider not only environmental outcomes but also the fairness and social equity of climate policies.

4. Empirical Research and Data: Employment and Remote Work

Since economics is rooted in empirical research, it often relies on real-world data to explain and predict behavior. A topical issue is the shift to remote work, accelerated by the COVID-19 pandemic. Economists have been studying how this change affects productivity, employee well-being, and urban economies.

For example, some studies suggest that remote work can boost productivity and reduce costs for businesses, but it can also create social isolation and blur work-life boundaries for employees. Additionally, cities reliant on office workers, such as San Francisco and New York, have seen economic downturns in their downtown areas as businesses that catered to office workers—like cafes and retail shops—struggled. This analysis goes beyond pure economic efficiency to consider the social and human dimensions of work, a hallmark of economics as a social science.

5. Ethics and Normative Economics: Universal Basic Income (UBI) Debate

A more philosophical aspect of economics as a social science is its involvement in normative debates—questions about what should happen, rather than just what does happen. A current example is the debate over Universal Basic Income (UBI). UBI is a policy where every citizen receives a fixed amount of money from the government, regardless of their income or employment status.

Proponents argue that UBI could reduce poverty and provide a safety net in an age of automation, where many jobs might disappear due to technological advancements. Opponents question whether such a policy would disincentivize work and be economically sustainable. This debate is not just about budgets and growth but about deeper ethical concerns like fairness, human dignity, and the role of government in society. Here, economics engages in discussions that are both technical and moral, making it a deeply social science.

6. Global Economics and Social Impact: Trade and Globalization

The rise of globalization and international trade is another area where economics functions as a social science. Global trade affects not just prices and goods availability, but also social structures, employment, and cultural dynamics. For example, while free trade agreements have generally increased economic growth, they have also led to job losses in industries unable to compete with cheaper imports, such as manufacturing in the U.S.

The social science aspect comes into play when economists study how to balance the benefits of trade (like cheaper goods and economic growth) with its downsides, such as job displacement and rising inequality in certain sectors. This has become a politically charged issue, especially in debates around tariffs, labor rights, and trade agreements such as NAFTA or Brexit.

Conclusion

Economics as a social science goes far beyond the analysis of numbers and market mechanisms. It involves understanding how individuals and groups make decisions, how markets interact with social structures, and how policies impact society at large. Whether it's studying how inflation affects daily choices, how the housing market contributes to inequality, or how climate policies balance environmental and social goals, economics is deeply embedded in the fabric of society. Its role as a social science helps to connect abstract models and theories with the real-life challenges and opportunities that shape our world.