E

conomics is easy. This is not a message that an economist should be keen to deliver; it undermines the value of being an economist.

Nonetheless it is true. The core of economics, the '€œeconomic question'€, is how to best allocate the limited resources that we have between the competing, unlimited demands that we are subject to.

This allocation is something everyone does, every day of their lives. How we allocate our time (the '€œwork-life balance'€), how we allocate the family budget, whether we chose to study or find a job; every one of these decisions is economic in its nature. We start making economic decisions at a very young age.

Once a child knows that one course of action leads to treats of some kind, and another course of action leads to them being sent to their room, the child will make economic decisions.

The economist Joan Robinson wrote '€œthe purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.'€

Robinson was a little narrow in her analysis. To be fair she was writing years before the advent of the internet, blogs, chat rooms and the like.

Nowadays, the purpose of studying economics is to learn how to avoid being deceived by sensationalist bloggers and media.

In recent years, global business and consumer sentiment data has become more volatile than the underlying economic data it is supposed to be tracking.

This suggests a bias towards overreaction on the part of businesses and consumers, and media may well be to blame. The conventional and social media seem inclined to sensationalize economic events in an ever more desperate attempt to win readers and obtain site '€œhits'€.

When economic surveys are conducted, the respondents are more likely to reply in a way that fits
with this sensationalized media view of the world than with their experiences in reality. Media influences perception.

Further evidence of the economic consequences of sensationalism comes in academic research about the reporting of mergers.

Two American academics (Ahern and Sosyura) recently demonstrated that media reporting of rumors of mergers and takeovers had steadily risen from 2005 onwards, without there being any increase in the trend of mergers.

Their work also found, critically, that these rumors (most of which did not, in fact, herald a merger) would influence financial market prices. Investors did not appear to quality check the media reports before they acted upon them.

Investors therefore suffered losses when bad quality reports were subsequently shown to be false. Rumor and sensationalism can seriously damage your investment wealth.

The world economy is now running into the problem of '€œdigital wildfires'€ '€” rumors that, once started, spread inexorably with little prospect of being extinguished.

In economics these wildfires flare up around oversimplification of data, misrepresenting theories and basic errors and misunderstanding.

Once the digital wildfire has taken hold, the economist-firefighter has little success in pointing out the flaws in the original assumption, or the greater complexity of the problem. There is only so often an economist can protest '€œcorrelation does not mean causation'€.

So what can we do? This is where an economics education, even a modest economics education, can play a role. Economics is about solving the economic problem, and one of the main tools in achieving that is to ask questions at every opportunity.

Challenging economic relationships and demanding evidence and a logical thought process is critical.

Many of the arguments in the internet chat rooms or blogs collapse when asked to provide evidence of a logical underlying economic chain of events.

The habit of rigorous economic questioning is one that should be learnt as early as possible '€” hence a recent book I contributed to designed to teach economic theory and practice to nine and 10 year olds.

To those who suggest this is too early to start studying economics, it is worth going back to the initial point. Nine and 10 year olds are adept at making economic decisions, because they have been making economic decisions for most of their lives.

What economics can do is give children the tools and framework to challenge the assumptions of others, to question the sensationalism that they will inevitably come across, and to emerge better informed from the process.

Such an education will not only improve the quality of the decisions that we take, it will also increase the number of economists in the world. That, of course, can only be a good thing.