Becoming an Economist?

When I started on my journey of Economist on 8^th July 2006, I felt that, since the name of the subject derives itself from economy it must be the study of the economy.  It seemed to me that by reading economics in my undergraduate degree, I would be able to have a thorough understanding of all what is written in economic dailies like The Economic Times.  I thought  that just like the articles in The Economic Times, economics  was merely common sense communicated in a very confusing way along with horrifying numbers and simple diagrams ( at least simpler than the ones I had to draw for my biology practical’s ). I expected economics to give me the ability to combine logic with number crunching and enable me to understand and participate in complex discussions.  

Little did I know that I was going to be so grossly mistaken, but in a pleasant way.  Studying economics for 5 years has not only enabled me to do the above; but has given me the ability I now look at pretty much everything from an economist’s perspective . On reflection, I realize that the choice of studying economics was my 1^st decision as an aspiring economist.   I had used my limited information set to form rational expectations about the subject which influenced my choice.   Also, like most economists, my expectations did not realize. Today, when I perform a cost benefit analysis of this journey in economics, I realize that the outcome has been far better than my expectation.  Not only has the subject given me ability to understand and make informed decision of everything around but also given me my identity. 

In this article I illustrate how an economist would analyze the transmission mechanism from an individual to an economist.

Transmission Mechanism

The study of economics is quite white noise or random.  Economics cannot be explained by anyone to anyone. In an econometric exercise the random error component affecting the desired outcome of independent variables depending upon what the explanatory dependent variables cannot explain. Similarly, the white noise element of economics ensures that whatever the dependent variables be (learned professor , innate ability  etc)  the  independent variable (becoming an economist) is not completely explained, i.e. to say one cannot learn economics in its entirety via any course or degree or any amount of learning, there is always a random unexplored  component. There is always a possibility of something unexpected and unknown yet rational to happen. 

BE= a +b(Quality of knowledge imparted)+c(innate ability) +e 

Economics as a subject evolves daily if not hourly and hence becoming an economist is a tough task as it is a dynamic process. As most econometrician would say that if the dependent variable (BE) is dynamic the dependent variables should also be dynamic in order to minimize the random error component at every time period (daily, hourly). Put simply, if one has to keep pace with economics, one has to put in extra effort to ensure our knowledge evolution closely follow the evolution of economics.

The journey of becoming an economist is a personal optimization exercise where you maximize your Quality (as an economist) subject to your personal limitations (cost, personal skills), environmental constraints (quality of know-how, economic atmosphere etc) etc. Clearly, you learn a lot more economics in recession times than boom times because you hear it all around you, if you have a fantastic supervisor who has sound understanding of economics you would learn more and if your innate ability enables you to questions things in an economically logical and analytical way you would learn more. 

max Q=Q(.)   s.t.personal limitations( c,skills ..) > 0

 environmental constraints (quality of teaching,economic atmosphere…)>0

Etc

Each individual optimization exercise is performed independently and the result gives the quality of the economist and also hints towards the individual future course of action. It is usually perceived that whose optimization exercise returns a high quality is more inclined to pursue another economics degree and vice versa.

Outcome

Our society judges the quality of an economist by the number of degrees, by their ability to predict macro-economic events consistently and with accuracy and their ability to model profound theories. While I do not dispute the latter as it is not at all easy to come up with any new theory, I do dispute the prior. Economist, or rather forecasters may be able to forecast with accuracy on a number of occasion but the random error component is always going to be uncertain and un-forecastable.  Economists are bound to go wrong as often as they go right and this should not disregard their quality as an economist.  On a lighter note, a good economist should not just be able to model profound theories but also have the ability to analysis everything in an economic way. For instance, analyzing relationships as a vector- error correction model where the girl and the boys’ lives are co-integrated vectors.  If it leads to marriage then it’s a structural break; where the co-integrating relationship becomes stronger post marriage. However, if there is a break-up then also it’s a structural break with the co-integrating relationship absolving post break up.

As confusing as the above is the journey of becoming an economist. A puzzle of sorts; which is most often incomplete.  However, I do not wish to discourage all the budding economists nor those who wish to explore this domain.  Instead I hope to motivate you all. Understanding that confusion is inherent in economics would enable a more fruitful optimization where you abstract from the confusion and go for the simplistic essence of economics. The next article would be the flipside of this one. It would illustrate how simple economics is…