So in one of my recent sojourns, on a plane ride from Argentina, I happened to sit next to a Harvard economist.

I was reading Fault Lines and I guess, he was intrigued, and so our conversation started.

Being in an plane with generally verbose economists for 10 hours lends itself to long conversations. And a long conversation it was.

My contention during the whole conversation was that economics is an abstract science. By definition, when we try to define human behavior in logical paradigms (e.g. will low taxation rates lead to greater enterprise activity), it by definition is a reductive science. That tells you that a statistically significant number of humans will act a certain way based on ex-post observations. My contention was economics (or most self important economists) doesn’t factor in a vastly changing world ex-ante. And hence the field of behavioral economics. 

He, the wise Harvard economist indulged me and then proceeded to give me statistics of things that I fundamentally disagree with. For e.g. how easy credit allows for more innovation (nothing wrong there) or how during economically slow times, government sponsored liquidity is generally beneficial ( again, totally agree). 

What he failed to convince me on were two things. One, and most importantly, how does economics include vastly different cultural contexts in its macro-economic theories. Its tough, I know – to have archaic academic theories, with its predisposition to quantitative validation to engage in such questions. Second, if indeed, economists really can predict human behavior to this extent (which ultimately is what economics is – the ability to predict mass human reactions based on certain inputs) – why is it that behavioral economics and macroeconomics are not much more closer as academic disciplines. 

Ultimately, I think it all comes down to a certain philosophical disposition. And for all that’s its worth – here’s mine. 

Human being react differently. For e.g. there are cultures that wouldn’t think twice before charging their kids rent if they live in their parents after they turn 18. And there are cultures for which it would be the most uncivilized thing to do. So, do people in these two cultures react exactly the same when faced with the exact same macro-economic factors. My contention is no. 

And then there are core social factors. Guanxi in China. Jugaad in India. The whole world is not an arms-length economics set up like the western world generally is. 

Unlike most shareholder based corporate structures in the west, most Asian corporate cultures are family based hierarchies – even though they are publicly traded companies – and unlike the west, they are tolerated, even encouraged by their shareholders. And there-in lies the rub. 

Personally, my opinion is that most macro-economics theories – because they originate from the west, fail to account for critical cultural differences in non-western cultures. And because of the inexorable wealth transfer from the west to the east, my thought to our revered Harvard economist was that current macro economic theories are going to be irrelevant in the future.

I am not an academic. I could be wrong. And yes, the Harvard economist didn’t agree. But I am from Columbia too. I couldn’t care less:). 

After all, we have more Nobel laureates then they do!

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