Re: Do economics explain everything?

Description: Where do theory and implementation diverge?

Question: Do economics explain everything?

Transcript: It’s an adequate lens to look at virtually any human issue. So you can look at marriage from an economic point of view. You can look at child rearing. You can certainly look at environmental issues. So I certainly think it’s a very powerful lens from which to study human behavior, but it’s not the only perspective. So I’ve always tried to keep up good ties with academics, and political science, and sociology, and history especially. And I think there are different lenses and they bring different perspectives. So I try not to be an economist chauvinist. I think we have a powerful toolkit, but I try to learn from other disciplines, and other types of academics, and non academics.

Question: Do economics take culture into account?

Transcript: I think cultural perspective can be brought into the economics framework. We think of that in terms of preferences. In different societies, people have different types of preferences about male-female relationships, child rearing, all kinds of different aspects of life, and you can bring that into the economics toolkit as a kind of differences and preferences. In practice what that means is when you’re thinking about how a particular policy will play out in China, a policy that had a certain affect in Mexico is not gonna have the same affect in China because institutions are different; because the cultural history is different; the geography is different. I think that’s probably the most common mistake economists make is to simplify too much, and to think that because a policy worked in Mexico in 1985, that it’s gonna have the same affect in China in 2007. And I personally think the world is much more complicated than that. So culture and preferences very much come into what are the affects of different policies or different changes.

Question: Where do theory and implementation diverge?

Transcript: Well one thing I think I’ve learned is the power of institutions. And this is a somewhat vague word that can mean different things to different people. But I think of it as fundamental norms of behavior. Kind of deep seated rules of society which have often grown up over thousands of years, or certainly over hundreds of years. So I do think the institutions very much mediate what the affect of policy are on human behavior, and on what are the final outcomes. So I have developed a very health respect for economic history. If you really want to understand what the affect of policies will be in China, then I think it is important to understand the history of the country, how the institutions have developed. And that gives you an insight into how people are gonna react to different changes.

Recorded on: 7/3/07