That's the world we live in: when it comes to economics, people have emotions; it's not like chemistry or physics.
Interpretation
Economics is influenced by human emotions, unlike the natural sciences which are more objective.
This quote by Robert J. Shiller emphasizes the unique nature of economics as a social science. While fields like chemistry and physics rely on objective laws and principles, economics is deeply intertwined with human emotions and behaviors, which can lead to unpredictable outcomes and decisions. Understanding economics requires recognizing the emotional factors at play in people's choices and market dynamics.
In practice
During a lecture on market dynamics, this quote could illustrate the importance of psychological factors.
Those on the downside of rising economic inequality generally do not want government policies that look like handouts. They typically do not want the government to make the tax system more progressive, to impose punishing taxes on the rich, in order to give the money to them. Redistribution feels demeaning. It feels like being labeled a failure.
Speculative markets have always been vulnerable to illusion. But seeing the folly in markets provides no clear advantage in forecasting outcomes, because changes in the force of the illusion are difficult to predict.
Money management has been a profession involving a lot of fakery - people saying they can beat the market, and they really can't.
We should not be focusing on quick solutions. The really important concern for policymakers everywhere is to prevent disasters - that is, the outlier events that matter the most.
If we wait until income inequality is much more severe, we will have a whole class of new superrich who will probably feel entitled to their wealth and will have the means to defend their interest. That's already gone far enough. We shouldn't let it become more extreme.
I think that a lot of people in all walks of life have the impression, of course, that, 'I specialize in something. I can't - I don't have the time to read other things. I'll just go to pure entertainment when I'm relaxing, and then I'll come back to my pure specialty.' That produces - that attitude produces idiot savants, unfortunately.
The problem is this. The spread of markets outpaces the ability of societies and their political systems to adjust to them, let alone to guide the course they take
The economic position is only flourishing on the surface. Germany is in fact dancing on a volcano. If the short-term credits are called in, a large section of our economy would collapse.
If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility.
As soon as the recovery is well under way, we need to set up a long-term plan to reduce the structural deficit and make sure we are not leaving a mountain of debt for the next generation.
Economists specialize in pointing out unpleasant trade-offs - a skill that is on full display in the health care debate. We want patients to receive the best care available. We also want consumers to pay less. And we don't want to bankrupt the government or private insurers. Something must give.
It is better that a man should tyrannize over his bank balance than over his fellow-citizens and whilst the former is sometimes denounced as being but a means to the latter, sometimes at least it is an alternative.
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