Economic schizophrenia

Schizophrenic, is perhaps the word that best defines economists today, or maybe paranoid. It seems as though the economic science has devolved, from a point of trying to understand human behavior to the point of trying to pinpoint alleged “flaws” in our behavior in order to justify some sort of intervention.

It’s actually very amusing if you are studying economics to listen to professors argue two completely opposed points of view in a matter of 30 minutes.

For example, economists often argue about whether the price of something is right. You would think that lower prices would be preferable, but this is not always the case…apparently. Sometimes too much competition is bad to the point that we have to limit it. Sometimes you have to protect small companies, and sometimes you have to help big companies. Sometimes we condemn monopolies and others we support them,(specifically when it is a State monopoly) Sometimes we consider humans purely selfish and sometimes we think they are benevolent. Sometimes we assume people make rational choices, just to later say, well it’s actually not quite like that.

With all this uncertainty it would seem the study of economics is futile.

The problem, of course, is in how people are learning economics.

The way economics is taught nowadays, is in my opinion the opposite of how it should be taught. Rather than trying to fully comprehend human intentions and accepting the limitations of models that try to make general assumptions about something specific and personal (human behavior) we do just the opposite.

We accept our limitation in understanding how human beings work. But of course if we just did that, there’d be no economics left to teach. So what we do is use a very limited understanding of human behavior and build from this shaky foundation thousands upon thousands of “models” supported by sound, but yet, irrelevant, mathematics.

It’s a great way to make yourself sound more important, plus the exams are easier to correct.

In short, we should focus more on the essence of economics, human action, rather than simply mathematically exposing one of millions of scenarios that may or may not occur.

This is for me the key to understanding economics.

What are human beings like? Different and unique.

Yes, we may all be bound by our natural instincts and rationality, but in the end we are all individuals, and we also make mistakes. There is no point trying to model a world of complete rationality as much as there is no point in modeling a completely irrational world.

There is no argument of whether humans are selfish or benevolent. They are both, selfish first and benevolent second.

There is no point in trying to pinpoint 101 ways in which a company might make a bad decision, or an individual might make a mistake when buying something. You live and you learn, and that’s an intricate part of economics.

Incentives go hand in hand with failure and success, and failing is arguably a more important part of learning than succeeding.

Let me finish with a plea to all economists out there.

Beloved scholars and charlatans, please stop thinking that making two lines meet in a graph makes you qualified to judge and take decisions for other people.

The only things your overcomplicated mathematical models prove is that what you are studying is too complex to derive any conclusive or definitive answers.

In other words, stop thinking yourself a doctor(the real kind not the PhD type) that can cure the flawed human condition. Those who study economics should embrace this.

In the words of F.A. Hayek

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

James Foord, estudiante de 3º de economía en la UPF y autor de 21stcenturyeconomics.wordpress.com

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