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Friday, March 1, 2024

Is Economics a scientific discipline?

Social ‘sciences’ and economics are two controversial areas of academia, where it is hard to judge the effectiveness of theories and models. It is seen that both these subjects tend to rely more on credentialism, defined as ‘belief in or reliance on academic or other formal qualifications as the best measure of a person’s intelligence or ability to do a particular job.’

Here, we share an insightful tweet thread on Economics by Sridhar Vembu, founder and CEO of the highly successful Zoho Corporation, a maker of cloud-based business software with headquarters in Chennai.

There is this technocratic idea that Economics is a scientific discipline like Physics. But this is not true. Subject to the “conservation law” that the world cannot consume what it has not produced yet, economic relationships arise from our personal, social, cultural and moral choices.

A productive community can express a moral preference for an egalitarian ethos. At Zoho, we express a moral preference for all of us having the same food and setting for everyone i.e, no special executive dining rooms. No economic law dictates a “correct” course here.

As I once joked, I made a choice to invest in designing an LTE modem vs buying a private jet. Again, no economic law can dictate this choice. Yet, these choices greatly influence economic outcomes and the overall well being of a community.

Political economy – and economics is explicitly political outside of the “conservation law”, which sets a mathematical boundary – is about how a company or community makes these choices of where to commit resources. LTE modem or private jet? Bullet trains or rural broadband?

I respect politicians more than economists for this reason: politicians grapple with the political economy choices, however, (very!) imperfectly, while economists pretend to give objective answers from their mathematical models. Most of those models are garbage in, garbage out.

Bharat’s curse is that among Asian nations, Bharat has had the most economists advising us. East Asian nations like Japan, Taiwan or South Korea have historically produced few economists. I see a direct connection between their prosperity and their producing few economists.

We must get rid of the technocratic obsession with credentialed economists and go by experience and observation on the ground. We must always keep the political economy of choices in mind, governed by our cultural and social ethos. Good politics is good economics.

(This article has been compiled from the tweet thread of Zoho’s CEO Sridhar Vembu @svembu )

Another must-read skeptical take on Economists is by scholar Nassim Nicholas Taleb and his ‘skin in the game’ theory.

(Featured image source: VectorStock)

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