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.
While it was an experiment to bring them together, nothing has divided Europe as much as the euro.
What I did not know yet about hunger, but would find out over the next twenty-one years, was that brilliant theorists of economics do not find it worthwhile to spend time discussing issues of poverty and hunger. They believe that these will be resolved when general economic prosperity increases. These economists spend all their talents detailing the process of development and prosperity, but rarely reflect on the origin and development of poverty and hunger. A a result, poverty continues.
Everyone may have some advise for the RBI. Some may advise, 'Cut your lending rates and raise the deposit rate.' How will a bank function? We take a medium term view. The bank has an 80-year-old history. I don't want to destroy it for a few decisions.
The rich do not have to invest enough in the poorest countries to make them rich; they need to invest enough so that these countries can get their foot on the economic ladder . . . Economic development works. It can be successful. It tends to build on itself. But it must get started.
Fair treatment in the work force is no longer exclusively a labor issue, nor is it a women's issue - it is a fundamental economic issue.
The failure of Lehman Brothers demonstrated that liquidity provision by the Federal Reserve would not be sufficient to stop the crisis; substantial fiscal resources were necessary.
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