A session with Professor Wahiduddin Mahmud
FE online |
February 26, 2022 1:26:52 p.m.
What are the limits of economic models to describe or explain economic phenomena in real life? What are the main differences between what economics students learn in the classroom through their textbooks and what we actually encounter in the markets?
In a chat-like session titled “The economy crosses borders: possibilities and constraints” At the 4th Bangladesh Economy Summit organized by the Center for Economic Studies (ESC), Professor Wahiduddin Mahmud, Chairman of the Economics Research Group, attempted to explore and answer these questions.
The conference was moderated by Dr Atonu Rabbani, Professor, Mushtaque Chowdhury Chair, Health and Poverty, BRAC James P Grant School of Public Health.
ESC President Namira Shameem opened the session by welcoming the audience to the eight-day programme.
According to his book, Markets, ethics and developmentProfessor Mahmud began his discussion by emphasizing the quantitative aspects of economics based on the model of a rational consumer and how it fails to fully explain major events in the global economy, including the global financial crisis of 2008.
While the advent of fields such as behavioral economics and finance have addressed the truly irrational behavior of human beings in small-scale decision-making, this has yet to be implemented at the macro level.
More importantly, Professor Mahmud argued that despite widespread inequality and environmental degradation resulting from belief in the free market or even neoliberal capitalism, the economy continues to be seen as the panacea to the world’s problems.
He explained that we only hope to achieve sustainable economic development because developing countries do not depend on a positive economy based on Western models but rather on an economy that is interdisciplinary and more adapted to the cultural and socio-economic context.
Professor Mahmud also highlighted the importance of merging both moral philosophy and economics to address the limitations of traditional economics in the face of inequality.
“If a rich man employs a poor man to work 12 hours a day in exchange for
food and shelter, is that right? Even though both parties are better off from the interaction, one party clearly benefits more than the other,” he noted.
Asked about the discrepancies between what students learn in their textbooks and what they encounter in real life when applying economic theories, Professor Mahmud pointed out that Adam Smith’s principle of a self-interested economic actor does not stand up. at the exam.
This occurs particularly in light of John Nash’s game theory, where although in a one-time game market participants are inclined to be selfish, in repeated interactions they are going to be cooperative.
However, he agreed that in the information age where market and consumer data are widely available, the Marshallian system of equilibrium price calculation and optimization can be applied.
Professor Mahmud reminded the students that developing countries host a wide variety of markets that are not as homogeneous as those in the West, which signals enormous research potential for the field as a whole.
Finally, he stressed that economists and policy makers should not focus on development for development’s sake but rather on improving social welfare and reducing corruption.
To improve the different aspects of economics and decision-making, the synergy between economics, psychology, law, politics and even literature is essential. Without a reliable framework for trust, civility, law and order, markets cannot function effectively in a developing economy.