Back to basics

Updated: May 19 2006, 05:30am hrs
In his column, Arent economists in a rut (FE, May 18) the Boston Consulting Group chairman, Arun Maira, accuses economists of intellectual laziness, saying they tend to over-simplify their assumptions to enable mathematical modelling. Like Robert Clive, the East India Companys governor in Kolkata, who, when confronted with his excesses by the House of Commons, said he stood astonished at his own moderation, we can only say we too are amazed at how mildly he has put it. As journalists, with scant respect for todays rocket scientists-turned-economists, we would like to ask more directly: Have economists lost it

Its an entirely valid question, one that none less than John Kenneth Galbraith raised over five decades ago. And got short shrift for his efforts from fellow economists. As one of the obituary columns on the economist-diplomat put it, he made economics comprehensible to the ordinary man in an era where economists competed to make it more esoteric and divorced from reality. Since then, that trend has only aggravated. The dismal science has become only dismal for most who try to make sense of it.

The basic problem springs from the premise that people can be put into neat boxes, and that they make rational and consistent decisions. As any social scientist will tell you, nothing could be farther from the truth. Unlike the pure sciences where experiments under laboratory conditions can yield the same results over and over again, no two human beings ever behave the same way. Indeed, no individual behaves the same way even over time. As for being rational, we are all perfectly rational when it comes to others. But when it comes to ourselves and our loved ones, well, rationality goes for a toss. Economists have an answer for this as well. They call it Behavioural Economics. This is not to say that economics has no use for complex mathematical models. It has, and beyond the obvious one of keeping doctoral students busy. The problem is when economists begin to see their models as the only answer rather than as a rough guide, even when their equations throw up absurd answers.