Monday, September 13, 2010

Things as they are and things as they ought to be

I had started writing something on this topic few months back but stopped abruptly. While writing, my argument was in favour of how things ought to be. The context was each and every field, right from politics, philosophy to student life and the purpose was general gyaan on how things ideally should be. But in the end, I thought that it is not wise to go on advising the world and instead I should look after what I do, like the famous saying ‘be the change you wish to see’.

But few days back, I was having an interesting argument with a friend on John Nash vs. Adam Smith and in the course of discussion, my friend said, “theories are meant to explain how thing are, not how they should be.” Though my initial reaction was “nooooooo”, later I had to question myself because this friend almost always talks sense. Was I being too idealistic? I did quite a bit of brainstorming on the topic as I felt everyone, knowingly or unknowingly answers this question to himself/herself and more often than not, it decides course of his/her behaviour. Probably the contexts in which we both were talking were different, but still the question demanded answer. What should be the approach?

The logical answer seems to be seeing things as they are. That means getting hold of reality and acting accordingly. But what if the reality is not what it should be? What if it is based on wrong premise? It might be moral issues like, ‘it is almost impossible to get things done in government offices without bribe’- a common belief among people. It might be small issues like college administration making a big deal of ‘registration’ at the beginning of each term which is nothing but a signature on a piece of paper. (As if a student who has paid 10 lakhs is going to run away in between the course!!) It might be issues like business practices or company’s production line or introducing new financial instruments in market. It might also be about economists forming theories based on so-called reality, like Keynes. I read on Greg Mankiw‘s blog where he said, "The sad truth is that we economists don't know very much about what drives the animal spirits of economic participants. Until we figure it out, it is best to be suspicious of any policy whose benefits are supposed to work through the amorphous channel of 'confidence." I don’t even see the point of ‘understanding animal spirits’. Whereas not optimising production line will hamper only that company’s progress, wrong economic policies and wrong decisions in financial markets can hamper global economy. There is no point in discussing the recent global crisis again here, but if we continue to scoff at the basic premise of human beings as rational animal, and form policies saying, “Nothing is right or wrong, see the reality and act accordingly”, be rest assured that this so-called reality will change often. It will be a vicious cycle.

The other day I was reading ‘The Toyota way field book’. If Taichi Ohno would have left things as they were, probably we would have never seen ‘lean manufacturing’. Toyota way suggests that failing and correcting the shortcomings is a way to improve results in long term. Taichi Ohno had a vision how things should be and he patiently worked towards it and got the result. He surely didn’t bother about the concepts like ‘bounded rationality’ or ‘animal spirits in human beings’.

So, I think my friend is right in saying “understanding things as they are is very important.” It would always be the first step, no matter which field it is. But after that, reason and ethics would be the tools which would help in comparing with things as they ought to be and identify the gap. In the end, in my opinion, the ultimate aim should be striving for things as they ought to be.


  1. Some food for thought: Who decides "How things ought to be?" By what authority and on what parameters???
    Taichi Ohno didn't aim at Lean Manufacturing instead stumbled upon it through continuous improvement.

  2. @Rahul
    who decides:- everyone for himself
    parameters:- reason & ethics

    Agree that Taichi Ohno didn't aim at lean manufacturing, it is just a term. But again, my point is same. He aimed at continuous improvement rather than letting things as they were

  3. truly speaking, the whole thing just went over my head....not too good wid economics n stuff...
    but the title caught my attention.....things as they are and things as they ought to be....ok, so m gonna take a completely different view here, maybe it doesn't relate to ur topic up there at all, but....
    seeing things as they are is easy...aaannddd restrictive, if you know wat i mean...
    but seeing them as they ought to be is the real challenge..everyone wants to question, but no1 seems so keen on answers! they want their voices heard, but aren't they jus rumbles and complaints completely void of WANTING change...its jus crib...its no good...
    seeing things as they ought to be and bringing that change is the real deal here. alas, i too jus talk! :P

    a pretttyyyyyy long comment, sorry! n i guess it doesn't make ne sense at all....but m readin blogposts after a very long tym....ders a lot to say, to EVERYONE! :D

  4. @Dandelion

    I got your point. It did make sense :)
    yes, bringing that change is real deal and I too probably only talk, but it would make a great difference if everyone sees it and acts on it. Thats what I wanted to convey :)

  5. Nice post. Given the context, it's correct that people individually decide how things should be based on their moral judgment. Even though it raises the fundamental question of 'but who decides whats right and what's not?'; every person has the right to exercise his/her value judgment to decide how things should be. And have an opinion.

    But I have to point out certain things. Since you've mentioned economics and economists rather freely in the argument. When you mention that 'economists form theories based on so-called realities, like Keynes'. J.M.Keynes revolutionized economics. He refuted many Classical theorists (in the context of your argument, people who framed theories for how economic situations 'should be' and not how they 'actually were'). The economy does NOT work at its full potential and full employment. What may be true at the micro level, may not hold true at the macro level. (macroeconomic paradox). Yet, in an equilibrium(ideal) situation, there is full employment, the economy achieves its best potential, demand=supply, saving=investment.

    This is how things are SUPPOSED to be in the economy. Its an IDEAL condition. But no economy is in an ideal situation.

    Classical theories were based on how things are 'supposed to be' not how things 'are'.

    And that is why we had some of the biggest economic crises in the history. (case in point-great depression,1929).

    And that is when Keynes came up with more realistic models, where equilibria is attained at 'less than perfect conditions'. And how the government needs to actively formulate policies to manipulate the savings level, demand and supply level in an economy so as to bring it out of the depression. Also, I believe Keynes' use of the term 'animal spirit' and Mankiew's criticism of it is based on different premises. Hence, putting them together gives a slightly misleading picture. Animal spirits cannot be always predicted. But for any policy, it's extremely important to understand human reactions(i.e. animal spirits). It only takes one policy gone slightly wrong to make many economies collapse. eg. In international currency markets, currencies are supposed to be traded freely so that the 'invisible hand' of the natural market forces will eventually assign each currency it's actual value. If the British economy goes stronger, value of pound will increase compared to other currencies.' But when acc to this policy, currencies in East Asia were deregulated, it led to a huge speculation in the market(animal spirits) and that led to the Asian financial crisis(1997); of which most economies have still not recovered.

    The point of this whole argument being that; there is a difference when you talk in terms of an 'individual' and a 'collective' entity. What may hold true for one person, cannot be generalized for an economy. And considering how things are before forming a policy/theory/taking a business decision, and considering the 'animal spirits' becomes essential. These things, if not considered, will lead to crisis.

  6. Totally agree with Rahul. The mere fact that you're in authority doesnt mean everything you think is right, is right.

    Nice read.

  7. @Mangoman

    I haven't said that what someone in authority thinks right, is right. In fact, the point is quite contrary. Everyone thinking on 'how it should be' in whatever he/she does. We can probably take it offline to discuss in detail. Thanks for reading :)


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