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Is economics’ perception of itself as a torchbearer of scientific objectivity misguided?
Tomáš Sedlácek, chief macroeconomic strategist at ČSOB, has suggested that classical economics hides moralism within its models. Yes, there is mathematical rigor in economics, but the math was developed in service to the mindset and values of the Western World, much of it based on the mythology and moralism of the three Abrahamic religions: Judaism, Christianity, and Islam.
Sedlácek has a habit of standing astride boundaries, between two economic philosophies, between practicality and politics, and between the quantitative and qualitative. He served as an economic adviser to the Czech Republic president Václav Havel as the country transitioned from communism to capitalism and as an adviser to the minister of finance, Bohuslav Sobotka, leaving when he believed his role was becoming overly politicized.
Sedlácek moves beyond mere criticism to propose that accepting the sociological roots of economics can improve its practice. That is, once we acknowledge the underlying values hidden in economics, then smarter decisions may be made. Sedlácek’s book, Economics of Good and Evil: The Quest for Economic Meaning from Gilgamesh to Wall Street, elaborates on his argument that economics is not just about mathematical objectivity, but also about the societies — both in place and time — in which economists find themselves.
As part of making smarter economic decisions, Sedlácek emphasizes the importance of considering the proper scale of the decisions involved. Microeconomics, for example, is about the allocation of resources at the community level. These allocation decisions, which he considers to be nanoeconomics, have their own unique rules separate from the economic considerations and rules of macroeconomics.
On the opposite end of the scale stands megaeconomics. Here, Sedlácek considers the scope to be that of the entire international financial system. Questions to be considered in this realm are things like: What happens when there is a transnational financial crisis? What about when an important country goes bankrupt? Or a globally important systemic financial institution goes bankrupt?
One reform advocated by Sedlácek is to change the emphasis of economic considerations from favoring “growth” to reinforcing “stability.” Modern economics facilitates growth through debt formation, trading future pain for pleasure today. Sedlácek compares this to getting drunk on alcohol: We know when we drink that we may enjoy the fun and giddiness in the short term, but that there are long-term effects to be realized. Not just hangovers, but in the long run, death.
What if economists changed their mindsets to focus on something like stability instead? To do so would require a change in values and morals of the practice of economics.
This article originally appeared on the European Investment Conference blog.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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