When I started on my journey of Economist on 8th 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 1st 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
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…
Under what conditions, would you say, was your optimization fulfilled?
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