My thoughts to students at the end of the semester

Every semester I seem to make some changes and tweaks to the course in the hopes of making it better. And this semester too, I have made some. For example, incorporating the occasional cartoon in my slides was one of the tweaks I made. I also worked hard to make sure that materials were uploaded on Blackboard on time so that you had a more seamless experience. And finally another tweak that I am making is this: I am choosing to end this class by sharing some reflections and advice with all of you.

I want to start off by talking about some of the larger lessons that I hope you can draw from this course. One of the first principles that I hope you take away is that incentives matter and that people act rationally. I am not suggesting that people act rationally always in every single context; other emotions like envy or a sense of fairness come in which cannot be easily explained using the framework of rationality. That said, people behave rationally often enough that if you are trying to understand someone’s actions, you could start off by assuming that he (or she) is acting rationally. Put yourself in the person’s shoes and think about the factors that a rational person is likely to consider as he makes his decisions.

The second general takeaway from this course is that it doesn’t matter whether you like it or not – the laws of demand and supply are real and they matter, especially in the long run. Many an authoritarian regime has tried to behave as if the laws of demand and supply do not exist, but that willful ignorance of these laws has only come back to bite them in the rear. Venezuela and Zimbabwe are two examples from our present times but there have been many others over the course of human history.

Third, how competitive markets are matters. Through my own research (http://onlinelibrary.wiley.com/doi/10.1111/joie.12152/abstract) and the research of countless others, we know that competition is the consumer’s best friend when it comes to the quality of customer service, the diversity of product offerings, and the prices that consumers pay. To take a few examples, in two industries – cellphone service and brokerage services – the presence of at least four national players, along with several smaller players, has led to real benefits for customers.[1] Prices have been lower than they were ever before and there are more offerings to choose from.

Nevertheless in spite of all of these points, governments do have a role to play in the economy. The operation of the judicial system which helps resolve disputes that arise in the course of business transactions (especially, transactions among strangers) will always fall to the government. Governments also have a role to play in setting up the rules of the game which firms need to abide by. For example, the requirement that all publicly listed firms present audited financial statements on a quarterly basis, following what are known as Generally Accepted Accounting Principles, increases the confidence of the public in the financial markets and leads them to invest their hard-earned money in the first place. Financial markets would be far more chaotic, not to mention much smaller, if basic regulations around how companies can raise money from the public and how they must conduct themselves once they do so, did not exist. Thus, governments have a critical role to play in ensuring that markets work properly.

If I try to sum up what I have said thus far – it would be this: you could be the most bleeding heart liberal that there ever was but you would be better off (and your plans would be more likely to be successful) if you could leverage the natural strengths of markets and in providing incentives which induce people to act on them. The Soviet Union had a decent run by pretending that human beings do not need to be provided incentives to act on, but in the end that is what led to its collapse. By the same token, you could be the most diehard Tea Partier (if such a thing still exists) but you really can’t get to Nirvana by doing away with the government altogether. Building on an analogy that my advisor frequently made, if high taxes (and a large government) are the death knell that some make them out to be, then Nordic countries would be wallowing in poverty – but they aren’t. In fact, when you look at the data, it is quite hard to find a connection between the size of government and the level of prosperity people enjoy. Some of the places with the lowest taxes are failed states in Africa and the Middle East and some of the most prosperous societies are Nordic countries with some of the highest taxes in the world. Life is more complex than simply saying – smaller governments are always better governments.

Now pivoting away from what economics teaches us to what life has taught me, let me try to share two pieces of advice if I may. The first is very simple: you are likely to have heard it from your teachers in first or second grade and from your parents and now you get to hear it from me again – hard work matters. A few days back when I decided that I would talk to you for the last few minutes of this class I obviously had an idea of what I wanted to talk to you about in broad strokes. But that did not mean that I would come to class and talk about it extempore. If I added up the entire amount of time that it took me to work on this talk, it would amount to over three hours. I wanted to write things out so that I could choose my words carefully. And when I realized that trying to type a speech into a computer from scratch wasn’t a great idea and was preventing my creative juices from flowing, I put the computer aside and went the old-fashioned route of putting pen to paper.

But this hasn’t been the case just for today; my desire to come into class prepared has been my goal throughout the semester. On most days, I would take much of the time during office hours to look at the slides and go over what I wanted to say in class. On the few days when I did not get a chance to do that (or did not have the discipline to do it), it would take me longer to get everything right during class in the way that I would like things to be. It is a bit like what happens in a play – when an actor forgets his line and a fellow actor prompts him, the audience is unlikely to catch the slip right away but they may get the impression that something is off. And if it happens more often, then almost certainly they will figure it out. I believe that is true for you as well as students in my class and therefore if I had to avoid staring at the board for longer than is strictly necessary, I was required to have put in the work before coming to class – something I tried to do throughout the semester.

Let me offer another corroborating example because truth be told – I am a novice and should be reviewing my material before coming in. A few years back at a departmental reception, I was talking to one of the senior faculty members in my department. This is someone who is a little over 50 years old and had been teaching at the university for say, 25 years. Imagine my surprise back then when she told me that when she went into her classroom, she still spent a significant amount of time in reviewing her material. In other words, she wasn’t trying to wing it and neither should you. Hard work matters. In the future when you start working and you are being asked to attend a meeting, do your homework. Often material gets circulated ahead of meetings. Read it. The chances you will be able to make a favorable impression on your colleagues goes up if you spend effort into thinking and preparing for them.

If I can offer another piece of advice, it would be to eventually find a career path for yourself that you are passionate about. While we all work to pay our bills and our mortgages, that shouldn’t be the only reason we work, or maybe even the primary reason we work. I have held jobs in the past that came with significantly higher compensation than my current job and yet I have lasted a maximum of two years in these jobs. In contrast, I have now been a faculty member for 3 years and intend to be in this profession for a very long period of time – perhaps even at this university. The reason I say that is because I enjoy both facets of my job – the teaching and research. I hope you have felt that I have cared about my responsibilities as a teacher because it really makes a difference to me whether or not you understand the concepts of economics that I am trying to teach you. But I also greatly enjoy the other aspect of my job which involves research because I can pick questions or issues that I find most interesting and can pursue them to their logical conclusion – without worrying about whether my results line up with someone’s prior beliefs or not. That is a feature of my job which I enjoy greatly and I know that most of my colleagues (and your professors) do as well.

Now it is quite OK if you as a freshman don’t have a sense yet of what you are passionate about. I certainly did not embark on my current path of making a career in academia until the age of 28 when I started my PhD program. As I have mentioned, I was trained as a chemical engineer during my undergraduate studies; I went on to get an MBA but as it turns out the career paths that opened up for me after those endeavors were not good fits for me. It was however those less-than-perfect experiences which gave me a sense of what might work for me and I can certainly say that academia fits me to the T and I am significantly happier here than I was at my previous jobs. Likewise, if you try your hand at a few different things, you are much more likely to figure out what is it that you are really passionate about. If you marry my first advice – work hard – with this second piece of advice – work on something you are passionate about – then you are much more likely to be successful and happy regardless of what you end up doing.

With that, let me end and simply wish you the very best for your college careers and whatever lies ahead of you. May God bless you and may He guide you with wisdom and humility. Thank you.

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[1] See, https://www.wsj.com/articles/the-new-sticker-shock-plunging-cellphone-bills-1498232910 and https://www.investors.com/news/e-trade-slashes-trading-fees-to-6-95-as-online-broker-price-war-continues/ for examples.