Beyond Assumptions

Secondary title: A rogue economist explores the hidden side of everything.

Which is more dangerous, a gun or a swimming pool? What do schoolteachers and sumo wrestlers have in common? Why do drug dealers still live with their moms? How much do parents really matter? What kind of impact did Roe v. Wade have on violent crime? Freakonomics will literally redefine the way we view the modern world. Through forceful storytelling and spectacular insight, Levitt and co-author Dubner show that economics is at root the study of incentives ,how people get what they want, or need, especially when other people want or need the same thing. In Freakonomics, they set out to explore the hidden side of everything. The inner workings of a crack gang. The truth about real-estate agents. The myths of campaign finance. The marks of a cheating schoolteacher. The secrets of the Ku Klux Klan.

Steven D. Levitt is a different type of economist with an amazing outlook. He sees everything in a different way and tries to connect every aspect of a scenario by thinking behind the scenes and predicting things that a normal person would have never thought of.

“I’m not good at math, I don’t know a lot of econometrics, and I also don’t know how to do theory. If you ask me about whether the stock market’s going to go up or down, if you ask me whether the economy’s going to grow or shrink, if you ask me whether deflation’s good or bad, if you ask me about taxes-I mean, it would be total fakery if I said I knew anything about any of those things.” Thus he’s of one a kind.

The book offers some fascinating statistics. The real message is not in the details, but in the overarching picture: the tools of economics ( in our minds, data science) can be used to identify unexpected patterns in real-world occurrences but scientists are still needed to interpret these results. The book looks into such data and finds a way to measure an effect or phenomenon that most would consider unmeasurable and that very thing is what makes this book one of its kind , a work of art that would make readers interested. The book also covers a few other topics which stress the importance of information and tackle issues such as proper parenting. The book does discuss in significant detail about proper parenting and things that actually made a child perform better in school. Till now you yourself must be curious to know the answers of the above stated questions for which you have to grab a copy as soon as possible. I would recommend every person having even the slightest interest in economics,data science or statistics to read this book and change the way you observe certain things and broaden your mind horizon.

In one word – recommended. In two words – highly recommended. A truly enjoyable book.

 

Raj Abhisar Agarwal.

Date – 1st November 2018

Time – 12:30 PM

Venue – Room No. 212, SGTB Khalsa College

1. The meeting started with an introduction of each council member wherein each member took the stage to enunciate their vision for Khalsa College and their expectations from their fellow students.
2. The floor was then opened to questions. A lot of important issues were raised, all of which are illustrated pointwise as follows-

• A Photocopy Shop was promised within the college. The progress so far is that the Union approached the authorities multiple times, but each time were told that this facility was only meant for official use. However the Union promised to follow through and find solutions for the same.
• Questions on Water Coolers and Clean Drinking Water were raised. The President assured that water coolers were being regularly cleaned. As a followup we intend to ask the Union to display a sheet wherein the last date of cleanup and the signatures of the required person are clearly shown.
• The deplorable condition of washrooms was brought up, as the second floor has two washrooms that are not functional, while the other floors lack in Cleanliness, proper lighting, dustbins, water supply and sanitary pad stocks.

The Joint Secretary Pankaj Jaiswal, took up the responsibility of displaying the numbers of two union member incharge and the cleaning staff assigned to the washroom. Also a chart wherein an hourly update of who has cleaned the washroom will be displayed. The deadline has been set after Diwali for the same.

• The interaction of the Union with the ICC was inquired, which was satisfactorily answered by the Union.
• Cultural Societies present at the meeting raised the issue of not getting a room to practise and having to toil in the sun, despite the Old Sports complex having certain stipulated rooms. They also raised their contentions about not having been assigned any space to store their equipment. The Central Councillor Akansh Saroha, empathised with the society heads and urged them to protest for their demands along with the union.
• An issue of the ground not being accessible to the students during the day was raised, which led them to play cricket in the basketball court. The ball often hurt practising society members and hence the Union couldn’t provide a conclusive solution but we hope that the matter will be looked into.
• The Head for NSS raised the issue of their Diwali Mela being cancelled despite them having made all preparations and having the consent of two teachers in charge. The Union raised their contention of not being apprised before but couldn’t clear their stand as to whether they would do something about the material that has been prepared till now.
• The NSS head also raised the problem of the NSS room being converted into a Medical Room, however this room is never open or accessible. So, no purpose is being solved and hence the matter needs to be looked into.
• The meeting had to end a bit abruptly, but the Student Union gave the assurance of a second Townhall Meeting as an accountability Mechanism which is an essential part of democracy.

The Minutes were shared with each and every Council Member, having endorsed all points, they gave their assurance to achieve the same.

The cold chilly winds of December signify the arrival of the much dreaded Exam Month at Delhi University. Hoping to compensate for their paltry attendance, students plan to work their asses off, burning the midnight oil for nights at an end, fully aware of how they’ve just got a month to save their semester. Mugging up, pulling  all nighters, indulging in group study, photocopying notes, going to expensive crash courses are all tricks of the trade they  use to float their graduation. But amidst all this chaos and cacophony, the real essence of education and the asking of whys and hows gets drowned somewhere. In an effort to write this article, I did something no undergraduate would have dared to do before, I picked up my Semester Readings after the semester got over. An integral aspect of Education and ideally a good way to start meaningful learning is by asking “Why are we studying this?” and only then can we even expect to reach anywhere near the actual learning outcomes the course was actually designed to achieve. As a first step towards the same, I decided to trace the evolution of our course in Economics.

The DU website could get me access to syllabi from three time periods, the one from 2011-12, the other from 2013 (when FYUP was introduced) and the third being our present syllabus that came into force from the year 2015-16.

A thorough comparison between the detailed syllabi of these 3 time periods clearly signalled how the dynamism of Economics had died a silent death in the evidently static syllabus of Economics over the years. At best, there had been a good job of shuffling the same syllabus over the semesters, Generic Electives had been introduced – but the real choice being offered due to non-availability of staff or lack of funds, by Colleges gave it little scope for experimentation. Some courses like the Economic History of India before 1947 and Economy, State and Society which gave an overview into the workings of capitalism had been scrapped. An interesting feature however was that students could take up a project or dissertation in their last semester in place of a specific elective now under CBCS, however guidelines for the same are non-existent and thus rarely taken up by students.

The Economics Department of DSE holds regular meetings involving teachers of various colleges of Delhi University to discuss the changes to be made to our syllabus. An exhaustive reading of the Minutes of Meeting gave an insight over the acceptance of the following facts – Firstly, It was agreed that interrelationships between readings should be emphasized. Secondly, the suggestions were made to find more suitable and conceptual papers for the course, and to cut down relatively old materials and find contemporary articles. But the updated syllabus seldom found a prominent place for these or was grossly understated in the suggestions that concluded a meeting.

Whatever new courses that have been offered, are through Generic Electives Or Specific electives and thus they simply become a part of the wider choice structure, and are conveniently ignored by the complacent college authorities.

The Global Financial Crisis of 2008 triggered a global movement – students across the world demanded a shake-up of the way their subject was being taught, saying that the dominance of narrow free-market theories at top universities harmed the world’s ability to confront challenges such as financial stability and climate change.

In his bestselling book Capital in the Twenty-First Century, the economist Thomas Piketty attacked mainstream economic teaching, accusing academics of believing mathematical models without looking at growing evidence that undermined their conclusions.

Neoclassical economics is given such a dominant position in our modules that many students aren’t even aware that there are other distinct theories out there that question the assumptions, methodologies and conclusions of the economics we are taught.

As a consequence, economics students never develop the faculties necessary to critically question, evaluate and compare economic theories, and enter the working world with a false belief about what economics is and a knowledge base that is limited to neoclassical theory.

Economists using this mainstream economic theory failed to predict the crisis spectacularly. Even the Queen asked professors at LSE why nobody saw it coming. And now five years on, after a bank bailout costing hundreds of billions, and unemployment peaking at 2.7 million and plummeting wages, economic syllabi remains unchanged.

Paul Krugman wrote: “As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.”

At the moment an undergraduate, graduate or even a professional economist could easily go through their career without knowing anything substantive about other schools of thought, such as post-Keynesian, Austrian, institutional, Marxist, evolutionary, ecological or feminist economics. Such schools of thought are simply considered inferior or irrelevant for economic “science”. We are simply taught to memorise and regurgitate neoclassical economic theories and models.

 The real world should be brought back into the classroom, as well as debate and a pluralism of theories and methods. This will help renew the discipline and ultimately create a space in which solutions to society’s problems can be generated. Special departments need to be established that could oversee interdisciplinary programmes blending economics and other fields. Confronting all theoretical frameworks with evidence and encouraging a healthy scepticism towards all assertion from whatever source.

In this way,the discipline is opened up to critical discussion and evaluation. How well do different schools explain economic phenomena? Which assumptions should we build our models upon? Should we believe that markets are inherently self-stabilising or does another school of thought explain reality better? When economists are taught to think like this, all of society will benefit and more economists will see the next crisis coming. Critical pluralism opens up possibilities and the imagination. Our syllabus definitely needs to be shaken up and students should be proactively agitating to make this a reality.

Ria Sethi

 

Economics is all about management of scarce resources. Limited natural resources are the main impediment in the process of economic growth and economic agent’s knowledge of production methods determine how well we deal with such scarcity. Economics helps us in developing models of scarce natural resources and knowledge, so that we can study the future welfare of humanity by analyzing long run sustainable growth.

Every year the Nobel prize is awarded in the memory of Alfred Nobel to outstanding people who excel in different fields of academics and life.The Nobel prize in Economics is called Sveriges Riksbank Prize.

This year’s Nobel Laureates in Economics are William Nordhaus and Paul M Romer.

They have broadened the scope of economic analysis by constructing models that explain how the market economy interacts with nature and knowledge.

Ideas driven technological progress & economic growth – Paul Romer

Romer’s model, also called endogenous growth theory got selected for Nobel prize this year. In this theory, Romer demonstrates how knowledge can function as a driver of long-term economic growth.

Previous macroeconomic theory like Solow’s model had emphasised technological innovation as the primary driver of economic growth, but had not modeled how economic decisions and market conditions determine the creation of new technologies. Paul Romer solved this problem by demonstrating how economic forces govern the willingness of firms to produce new ideas and innovations.

Romer’s Model explains how ideas led technological innovations are different from other goods and require specific conditions like patent rights/monopoly power/R&D subsidies to thrive in a market.

Romer’s theory is significant in the sense that it has helped governments across the world in the formulation of the policies that encourage creation of ideas by incentivising innovation and technological progress.

Economic development and climate change- William D Nordhaus

“Climate change is a result of the greatest market failure the world has ever seen”

William Nordhaus’ theory has integrated climate change into long-run macroeconomic analysis . In the mid-1990s, he became the first person to create an integrated assessment model, i.e. a quantitative model that describes the global interplay between the economy and the climate. His model integrates theories and empirical results from physics, chemistry and economics to arrive at the long run impact of economic progress on climate change and it’s economic consequences to humanity.

Nordhaus’ model shows how the economy and the climate co-evolve in the long run. It has been used to examine the consequences of climate policy interventions, like carbon taxes and emission quotas. According to Nordhaus’ research, the most efficient remedy for the problems caused by greenhouse gas emissions would be a global scheme of carbon taxes that are uniformly imposed on all countries. Such a scheme would wipe out market inefficiency like environmental pollution which gets generated due to economic activities of human.

The extent of significance of this theory can be judged from the fact that nowadays global policymakers rely on Nordhaus’s theory to decide carbon credits and emission limits for developing and developed countries.

Thus, Paul M. Romer has given us new tools for understanding how long-run technological change is determined in a market economy, while William D. Nordhaus has pioneered a framework for understanding how the economy and climate of our planet are mutually dependent on each other. Their research highlights technological change and climate change as key aspects of sustained and sustainable long-run economic growth in a global perspective.

Tushar Deshwal

Central bank and government – the two most powerful organisations in any nation, work for the development and betterment of a country. However, the reality is that the government and the central bank do have conflicts and difference of opinions which might lead to serious dilemmas.

The proof of this reality finds a clear mention in history too. In 1937, India’s central bank’s first governor Sir Osborne Smith and in 1957, the then governor Sir Benegal Rama Rau resigned due to differences with the government. Since then there are instances of spats between the two institutions on certain issues like recently in 2018, when the government was unhappy with the rise in interest rates by RBI.

 

PROBLEMS:

The main problem any central bank faces is the lack of autonomy for them to make decisions and the government sometimes has this issue that the Reserve Bank Of India doesn’t work in line with the government. There is also a blame game which goes on, like the RBI accuses government for interference within their work and Government blames them for not meeting their stipulated goals.  

Recently,the RBI’s independence has been affected due to the unprecedented use of Section 7 (1) of the RBI Act,1934 by the government, under which the centre has issued directions to the central bank to work according to them in public interest on matters specified in such directions. In a way, it transfers decision making autonomy from central bank’s governor to a Central Board of Directors in the RBI. In 2018, there were few major issues which became a reason for using this contentious provision for the first time since 1934.

WHAT CAN BE DONE?

Such differences are common across globe and are necessary as they provide different views on a particular matter and then the best alternative can be chosen. However, the central bank should be given more autonomy in monetary policy decisions; and the government should interfere only when it becomes very crucial for them to do so. Both institutions should realise each other’s role and responsibilities and therefore work in harmony.

The difference of opinions should exist only till a point where it doesn’t create major problems and after that ,it becomes necessary for both institutions to have autonomy in their respective core domains. These are the fountainhead of development in our country and are needed for the proper working of any economy. So, it is very important for them to work together.

I would conclude by saying that,

“The RBI and Government are parallel to each other; they should never cross each other and should not go apart, rather they should work hand in hand.”

 

Rochelle Rayan

“Uneasy lies the head that wears a crown.”

To whatever extent the government tries to intervene for good, it ends up being criticized. There have been continuous debates over the desirability of government intervention in the free play of market forces. Another underlying issue is the extent of this intervention. Economists put forward views that are poles apart. Some argue for strictly limited intervention while others advocate a strong case for government intervention in different fields.

The concept can be traced to English and Dutch thinkers of the 17th century who influenced French merchants during the reign of Louis XIV, a monarch who was keen on mercantilist policies and intervening in the economy. Reportedly, when a French minister asked a merchant what the government could do for him, the merchant replied, ” laissez nous faire, morbleu, laissez nous faire” or “leave us be, dammit, leave us be.”

In terms of Smith’s theories, some government intervention is warranted to some specific areas like education and transportation, however, policies restricting trade are not just inefficient for the market but also distortionary in terms of trading with other countries. At its heart, Smith’s views are centred on an undistorted market, and that capital will find the way to its most productive use. In his words, “Upon the whole, it is by far best police (government policy)  to leave things to their natural course.”

Modern economists have also put forward their views on this tumultuous issue. While monetarists believe that monetary policy can help encourage economic stability, real business cycle economists believe that, at best government intervention makes no difference to the length of a recession, but may just create additional problems, such as accumulation of public sector debt. However, this is only the tip of the iceberg. Others argue that when states own industries, it leads to inefficiency as politicians do not have the same market discipline as private firms to maximize the use of limited resources. Government intervention causes more problems than it solves. For example, state support of industries may encourage the survival of inefficient firms. If government bailout banks, it may create moral hazard where the future banks will have less incentive to avoid bankruptcy because they will expect a government bailout.

There is no real model of a society in the absence of government intervention. Even the most extreme libertarian economists would accept some government involvement. As a result, the problem shifts to the extent of this intervention. Excessive intervention would force economic activity into unproductive channels. Moderate intervention is therefore the legitimate midway  between market distortion and market power and it is also necessary for the proper functioning of the economy.

 

Jyotsana Thareja

Rent control is a form of price control that limits the amount a property owner can charge for renting out a home, apartment or other real estate. Rent control acts as a price ceiling by preventing rents either from being charged above a certain level or from increasing at a rate higher than a predetermined percentage. The purpose of rent control regulations is to limit how much money individuals and businesses must spend on renting real property. The amount of rent permitted may vary across jurisdictions and property types, but is generally set at a level considered affordable to renters and fair to property owners. Many historians believe Julius Caesar enacted a law stating a landlord could not charge more than the ancient Roman equivalent of $100 per year for a home in Rome. This came after a Roman senator appealed to the courts claiming his landlord tried to double his rent and he could no longer pay it. That said, the concept of rent control we’re familiar with today, likely started sometime between World War I and World War II. It’s not uncommon to experience a housing shortage after a major war because of the decrease in new developments during the war combined with population growth and the number of U.S. soldiers returning from overseas. To combat this, many countries started government-controlled housing that limited how much a landlord could charge. However, the U.S. didn’t immediately pass such a restriction on a federal level. The growing tension between public landlords and tenants, though, caused a few specific states and cities to implement laws of their own. 

The basic theory of demand and supply works here. By putting a regulation on rent the equilibrium price falls as the demand of houses, due to affordable price increases and at the same time the supply falls substantially. However the effect of rent control has different outcomes in short and long run. In short run the landlords cannot increase their supply of apartments to rent therefore there supply of apartments is fixed but at the same time the demand is also not very responsive as it takes time for people to adjust and move from one place to another. Hence both short run demand and supply are inelastic. Still it creates a bit of shortage in the market as some of the people consider to move. 

 In the long run the story is different where both demand and supply are relatively elastic the aftermath of which is a drastic shortage of houses. Due to low rent the supply side gets affected as the builders get discouraged but on the demand side the people get attracted to moving into new houses and increasing their standard of living. Not only does rent control stop new construction, but by putting a stranglehold on supply it destroys neighbourhoods. Real-life experience with rent control has been predictably awful, with entire neighbourhoods in New York City becoming decayed and abandoned. Because demand outstrips supply, there is little incentive for landlords to keep their properties in a decent state, especially in poor parts of town. It also gives birth to discriminatory practices as owing to shortage, landlords make waiting lists and give priorities to the people of their own caste and colour. Rent control also encourages the existence of underground economy as people are willing to pay bribes in order to get their new houses, it distorts the market and harms both the economy and the people. A classic disadvantage of rent control involves housing quality. Simply put, critics argue that rent control discourages landlords from making repairs and upgrading their properties. In a market without rent control, when a landlord improves her property, she has the option of passing the cost on to her tenant in the form of higher rent. Even though the tenant must pay higher rent, he still stands to benefit from the improvements made to his living quarters. Why should a landlord put in any effort to maintain the quality and living standards of the property when people are willing to move in as it is? The conclusion is that even though the tenants get lower rents, they end up with lower quality living conditions. In India the Rent Control Act provides tenants with security and restricts landlords in their ability to evict their tenants. It eliminates loopholes, which laid both, landlords and consumers, open to the possibility of deceit. The Act ensures that tenants cannot be evicted from the premises, without sufficient cause.The Act contains various protections for tenants facing eviction. Similarly, the Act mandates that no landlord can cut off or withhold any essential supply or service enjoyed by a tenant, without just or sufficient cause. 

 Rent control is one of the most debatable topics the economists face. Various policies are formulated to tackle the ill effects of rent control like the landlords are required to provide minimal living conditions and to avoid the discrimination on the basis of race. However these measures are hard and costly to enforce. A few economists argue that rent control is one of the worst way to control the market outcome calling it the ‘best way to destroy a city, other than bombing’. The government can tackle the problem of rent control by providing subsidies but that will lead to the taxation problem which will come out of the peoples pocket only. Thus real life economics is like a complicated art, each and every step taken has various outcomes and everything comes at a cost. As one of the ten principles of economics says ‘people face trade-offs’. Everything has a cost and in the case of rent control too we can see steps taken to benefit the people comes at the cost of creating problems for them in a different way. The aftermath of lower rent is the shortage of houses and poor living conditions. Thus it still remains as one of the most controversial topic for any economist and has wide implications subjective for every country and region. 

 

Raj Abhisar Agarwal.

As a student of Economics, I have always been overwhelmed by the large body of historical schools of thought that revolves around economic questions. I cannot recall the number of times I have struggled to organise the differing views of the great economic thinkers of the past. I have tried to dissect what they wanted to say, how they saw society and what solutions they proposed to counter its problems. Moreover, the enormous weight of our course material (quite literally!) fails to acquaint us with these thinkers in a organised way. I was always fascinated about these people and how their ideas changed the course of what is termed as ‘the dismal science’.

 

Cue to the present, I can now boast of having a fair, organised idea of the world of economic thinkers. And I have only one book to thank. The Worldly Philosophers : The Lives, Times and Ideas of The Great Economic Thinkers by Robert Louis Heilbroner is a book all about what its name suggests. It is a chronological account of the greatest of economic thinkers of the past, their life, the socio-economic conditions of their time and the ideas that they were proponents of. It is everything that one needs to understand the diverse world of economic history. And the best part? One does not have to be a student of Economics to understand what the thinkers had to say.

 

The book begins with a very lucid description of what the book is all about and introduces us to the main characters i.e. Economic thinkers, through some of their character traits. As the readers progress through the book, they’ll be able to relate these character traits to each individual. The introduction also details the development of economic philosophy. It informs us as to how economic thought was shaped before the time of the ‘father of modern economics’, Adam Smith. It is a fascinating account of those times and can surprise readers by showing the prevalence of economic thoughts before their theorisation. The chapter also explains the origin of the title of the book and what it actually means. The introduction is a perfect briefing of what a reader can expect and what is to be understood before delving into the main content.

 

The book is divided into 11 chapters, each concerning itself with a particular economic thinker or a group of thinkers subscribing to a particular school of thought. For example, there is an entire chapter dedicated to Karl Marx and another chapter to a group of thinkers called the Utopian Socialists containing the likes of John Stuart Mill, Charles Fourier etc. The first Economic thinker introduced to us is inevitably Adam Smith. The chapter dedicated to him details his life, his upbringing, his outlook and his ideas. It gives a brief and simple description of what he wrote about. There are also detailed sections about particular arguments, like the nature of labour and capital, in order to familiarise readers with the nature of these economic terms.

 

The book progress chronology through the ages linking various times and thoughts smoothly so that the reader does not feel stumped by the transitions.Every chapter transmits the context and the predominating ideas of some worldly philosopher about the changes and disruptions that economics has undergone. The underlying idea of the book is to tell the tale through the heroes of the story rather than the processes. In this sense every reader could disagree with the selection that the author made to tell the story. Why not this or that economist, but in this sense I would paraphrase the sentence that J. L. Borges used to settle the point,”there is no anthology that doesn’t begin well and doesn’t end bad.” And this selection –like any other– is not an exception.

 

Every economist is presented with his history together with his legend. All of them were really strange and freaky guys. All of them were smart and clever enough to grasp the contents of a world –our world– which is very introspective and it doesn’t speak so much about itself. So they explain the world and then they say what would happen to it in the next future if it follows the same path.

 

The various economists covered in the book include Robert Malthus, David Ricardo, John Stuart Mill, Karl Marx, John Maynard Keynes and others. One will find thinkers that they may not have heard of before, like Saint-Simon, Thorstein Veblen, Robert Owen and the like. Each of these people are equally fascinating as others and the author has done an excellent job in representing their work as briefly and comprehensively as possible .

 

The book ends with a last chapter dedicated to speculation about the future of ‘the worldly philosophy’. It is as interesting as the chapters preceding it and wonderfully concludes the book. I will not speak about it here for it may ruin the anticipation for some people.

 

All said and done, I cannot recommend this book enough to students all around and others who are even minutely interested in understanding the world of economic philosophy. Do yourself a favour and grab a copy now!

“An economic crisis is a pandora box made by decisions involving unethical behaviour and poor moral value system”

 

“AN ECONOMY runs on trust and faith” and the responsibility of maintaining it, lies on the economic agents like government(state),policymakers,economists running corporations and common people in general. A crisis comes into being either due to gross mismanagement of economic fundamentals or due to assymetric information with economic agents that ends up making economic scenario blurred.

CRISIS in any economy is a consequence of bad economic decisions taken with lack of moral values and ethics. What lies at the core of the problem is a corrupt,deceitful and sometimes false behaviour exhibited by economic agents which is forged by vested self interests. Lack of moral values and ethics promotes ill economic activities like hoarding,black marketing,rent seeking,money laundering and risky activities like excessive speculation . At the bottom of all this, are “individuals, who can be you,me or some-one taking key policy decisions from the comforts of his conveniently distant government office.”

The world economy could have avoided the Global Financial Crisis of 2008 if economic policymakers on government payroll had done their due diligence while regulating US financial markets, if Credit Rating agencies headed by a bunch of top economists would have given the correct ratings to junk securities which spiralled up the entire boom, that ultimately led to the bursting of an asset price bubble.If those in power had done their duty faithfully by upholding ethical behaviour then it could have been possible to save millions from homelessness, unemployment , poverty and turmoil.

Similarly, vote bank politics often gets blended in economic decisions and policies so much that later the whole economy has to pay a huge price for the wrongs of policymakers.It not only cripples the fiscal policy through huge deficits but in general also imposes a large burden on future taxpayers.Such a scenario led to the financial crisis in Greece imposing a huge burden on the masses and currently,the Venezuelan economy is facing the toll of such unethical economics leading to a hyperinflation of more than 1000% and a humanitarian crisis marked by a shortage of essential commodities.

So what’s the ultimate solution?

The Invisible Hand works more efficiently when interests of a few do not undermine the interests of all others. It is rightly said “It is better to be a human dissatisfied rather than an animal satisfied”

For wanting to be of any real service as economists, one needs pure conscience,ethical and moral conduct. Good ethics can lead to prudent decisions irrespective of situation so that every poor or unemployed can be given a life of dignity.

So the real burden lies on the shoulders of future leaders,economists and policy makers.I would say building characters will build nations that are capable of providing a decent standard of living to all and eradicate most economic problems .We the people,students,teachers and everyone else have to take this responsibility and strive forward to not sacrifice our moral values for vested self interests whenever there is a conflict of interest or duties in future. Thus, good economics certainly centres around good ethics.

By – Tushar Deshwal

The basic assumption in theories of economics is rational decision making. Rationality assumption implies that economic agents make decisions to maximise their benefit. The question is whether people are always rational or there are some behavioural effects that guide their decisions. This can be explained by behavioural economics.

What is behavioural economics?

Behavioural economics is a method of economic analysis that applies psychological insights into human behaviour to explain economic decision making. An example of this could be the fact that we consume junk food which, although pleasurable, is harmful to our health and this it’s consumption, irrational. Hence economic agents are not always rational and are influenced by factors that do not fall under the purview of rational behaviour.

Does behavioural economics have any significance?

Behavioural economics is helpful to know why people make the decisions that they make, not the ones they should make. John Maynard Keynes used the term ‘animal spirits’ in his 1936 book, The General Theory of Employment, Interest and Money to describe the instincts and emotions that influence and guide human behaviour, and which can be measured in terms of, for example, consumer confidence. It describes the psychological factors that drive investors to take action when faced with high volatility in the capital markets.

Behavioural economics and public policy-

Talking about the role of behavioral economics in public policy, policies are made in view that people are rational. A policy is made assuming that people will only make that choice which will help in achieving the policy goals that is people will make rational decisions. However this cannot be true in all the situations and this is where behavioural economics comes into play. If the policy makers know how consumers behave rationally as well as irrationally they can take appropriate measures in the policy to help achieve economic goals.

Conclusion-

Behavioural economics is gaining importance. It helps in finding a missing link between psychology and economics. It provides us with a different approach as to how people behave differently in different situations and how their choices can be irrational.

 

By – Rochelle Rayan