The theoretical foundation for how people and firms make decisions about consumption and production of goods and services. Alfred Marshall, a noted economist, referred to economics as the “study of mankind in the ordinary business of life (Buchholz 1996:4)”.

The concept of scarcity that one can’t have everything, underlies economic thought.

Scarcity combined with choice leads to the primary economic problem: the determination and interaction of supply and demand. All of these questions, in turn, are central to American business, government and thought. Hence economics has been a popular discipline for students and policy-makers, and Americans have dominated Nobel Prizes in the field since 1970, especially through strong departments at the University of Chicago, Harvard, MIT, Yale, Princeton and the University of California (economists are also found at major business schools like Harvard, Stanford and Wharton).

Within the field, microeconomics deals with the behavior of individual consumers and firms. Macroeconomics focuses on the larger picture; the total level of economic activity such as employment, national income and inflation. The primary value of both is in their predictive power in the real world. Unfortunately most economic theory requires assumptions that cannot be replicated in life. The violation of “ceteris paribus”—the notion of “all other things constant”—makes extracting the effects of a single policy from all other noise factors nearly impossible. While economists have developed rigorous models through Econometrics and Chaos Theory they rarely tell the entire story For example, economics may be able to prove an association between interest rates and inflation, but it often cannot indicate which causes the other. The conservative nature of its proponents and the failure of economics to reflect reality accurately led Thomas Carlyle to refer to economics as “the dismal science.” Economic theory is often better at explaining what has happened than what will happen.

At the same time, data mining—the concept that if you look at enough data, you’ll eventually find something that proves your point—has supported some dubious economic arguments. For example, economics is often used to support political rhetoric. In the early 1980s, Ronald Reagan promoted a plan to cut taxes in order to increase tax revenue. The plan, now referred to as supply side economics, argued that reducing taxes can increase revenue by increasing general economic activity Then presidential candidate (and future supply sider himself) George Bush referred to this plan as “Voudou economics.” Politicians of every background use economic theories to justify their preferred policies.

The blending of disciplines has created new avenues for growth in economics. Urban economics, gender economics, environmental economics and many others have found their way into the curriculums of American universities. The subdisciplines often seek to quantify that which is not easily observed or explained using more traditional methods.

Increasing globalization also presents challenges for economics because assumptions may not be consistent across cultures and data are difficult to compare across borders.

The definitions of utility happiness and wealth, to name a few variables, are far from universally accepted, despite what economics may have one believe.