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Friday, December 9, 2011

Macroeconomics-difficult to understand for MBAs yet important

This post may seem more fitting in my finance blog, but the reason I chose to place it here, will be evident in some time. Unlike microeconomics which can be explained by words/examples/logical theories, macroeconomics tries explaining and predicting human behaviour when they economically behave/interact in aggregates. As a student of Chaos theory/network flow would know(I've never studied these subjects but been told by students of them that they help to understand macroeconomics), understanding and modelling complex interactions is never easy.

More so in macroeconomics where two economists can spin the same data in 3 ways to tell 4 stories(ok i made up that quote but I am surprised on a daily basis how people can argue different points of view with the same data! And if one back enough in history, there is data to support or refute any view. Hence, without a grasp of economic history or connection with real world recent data, macroeconomics becomes just another abstract pseudoscience and a mess of equations and contradicting theories, based on fundamentally weird edifice of assumptions.

And yet, macroeconomics is important. In the business world, one needs macroeconomics for
  • Mean reversion happens often in the stock markets, and the reason it happens is usually that someone looks at the macro data and decides that we are at the start/end of another cycle
  • People wake up to the reality(Greece, PIIGS etc) only when they connect the dots with demographics, trade and macroeconomic data
  • Demand Forecasts of any value(the base of conventional business plans!) need sound macro data
  • Deciding on career choice especially location! one cannot combat poor economics though like India sometimes one can make a hash out of good circumstances. 
And so on. Yet, the present way the subject is taught in many bschools exposes one to the same field of thought the concerned professor is teaching(there have been instances where the professors within the same department could not agree on the curiculum, so they used separate textbooks/quizzes/exams!).This is nothing short of indoctrination, and leaves the student open to tunnel vision by not appreciating the whole field.

So what I would suggest is to read introductory primers first that cover the basics like the NCFM module(http://www.nseindia.com/content/ncfm/ncfm_mfme.pdf) and a 'For Dummies'/'Demystified' version as well. That should broaden your mind enough to critically question what goes on in class. I do wish I had done this before I learnt the subject in bschool.

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