Economics Is... Yeah, Right!

Economics is a pervasive worldview. It presents the world, as we know it, as the outcome of the interactions among self-interested agents, whose guiding principle for choice and action is the pursuit of the maximum gain to themselves. This motive for gain is only held in check by a web of incentives and of both internal and external constraints, the foremost of which are bounded rationality and scarcity. This economic behavior is perceived to be omnipresent in all aspects of the individual’s existence: be it political, social, and even moral and familial. Thus, where there is human interface, economics come into play. Given this characterization of human nature, the economist’s task seems to be two-pronged: to explain the world as the outcome of non-static interactions amongst self-interested entities using slices of the economist’s perceived reality known as economic models; and to recommend alternative viable outcomes that reflect the preferences of society (efficiency vs. equity). Whereas the former is often viewed to be in the realm of theory, the latter is in the domain of economic practice.

Economic theory is, however, severely constrained by the “replicability,” testability and predictive powers of its models due to the very complexity of the variables it deals with: namely, humans and history. Unlike in the natural sciences, where the scientist can conduct controlled experiments to verify a testable hypothesis, the economist cannot invoke the magical phrase “ceteris paribus” to isolate the nature of cause and effect in attempting to understand an economic event. Further, economic interactions do not happen in a vacuum, but are rather embedded in the space-time continuum. As such, every interaction is unique and fraught with uncertainty: history never exactly repeats itself, as society evolves. Furthermore, that the economist himself cannot entirely be an impartial spectator signifies that the way he crafts his model reflects his perception of an economic event – whether it aptly reflects truth can be a matter of dispute. Because of this – and the relevance and pervasiveness of economics as a worldview – the practice of economics cannot be devoid of value of judgment: at the end of the day, the economist (either consciously or subconsciously) will have to make an uncompromising stand – oftentimes, either for efficiency or equity.