Entrepreneurs Are The New Economists. Here’s Why.

As soon as I say entrepreneurs are the new economists, you might think that I am disrespecting traditional economists. However, I would like to clarify at the outset that this is not what I mean.

In this essay, I will be presenting the case where modern entrepreneurs represent one of the very few subsets of trade folk who efficiently replace the traditional notion of the “economist”.

As for the modern academics who label themselves as “economists”, I do not even consider them to be economists, let alone disrespect them. At this point, you might find my stance confusing and peculiar.

So, let us start by clarifying what I mean by a “traditional economist” and an “academic fake-onomist”. But even before we get there, we need to start with what “economics” means first.

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What is Economics?

Economics is actually not hard-science; it is a field that belongs to the category of “social sciences.” This field was not invented by a single person. Many deep thinkers throughout history formulated theories and studied how society produces, buys, sells, and consumes goods and services.

Over time, we retrospectively termed these theories and works as part of the field of economics. As for the term ‘economics’, Investopedia defines it as follows:

“Economics is the science and study of a society’s ability to produce goods and services, buy and sell them, and consume them.”

— Investopedia.

Now that we have touched upon what “economics” basically means, we can proceed to the discussion of the traditional economist vs. an academic fake-onomist.

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How to Tell the Trees Apart from the Forest?

The Traditional Economist

Let us start by noting the fact that even though “economics” is a relatively newly coined term, the works that belong to this field are some of the oldest works in human history. This is due to the fact that we retrospectively chose to add them to this field.

Consequently, we termed the contributors of economic works (who ranged from philosophers to mathematicians) as economists. These people were mostly trying to solve a practical problem for the society in terms of planning and budgeting.

Many of them were practitioners of trade themselves. Be it the original ancient Code of Hammurabi (approximately 1810–1750 B.C.) or the well-known Adam Smith (who is known as the father of modern economics), none of these thinkers called themselves “economists” or held such positions, even though they were trying to solve society’s economic challenges.

The Academic Fake-onomist

As the field of economics continued to develop, it started to gain influence in terms of political, fiscal, and monetary policies. Out of the blue, in came entire university departments and positions with advertised positions of “economists”. Thus, the modern fake-onomist was born.

These researchers started their research with traditional economists’ work as the basis. However, over time, they got so disconnected from the notion of reality, that in my opinion, their work has done more harm than good in the past decades.

Consider the notion of the “rational” market agent from behavioural economics for instance. When the modern fake-onomist dresses the utilitarian rational agent up with mathematical variables and expressions, people are somehow charmed.

But if we would translate these equations into plain words, we would learn that this rational agent acts with his own self-interest as his core function; the agent does not care for his family or friends or society. In fact, every individual in early utilitarian models was designed as a purely self-interest-driven agent.

When we assign a similar description to a human being in the field of psychology, that human being would get classified as a sociopath. And any academic calling such a human being “rational” would be thrown out. Yet, in the fake-onomist world, it’s what “economists” do for a living.

Thanks to them, we have absurd mathematical models that are painfully disconnected from reality that plague us even today.

Before we move on to how entrepreneurs fit into this discussion, let me linger on fake-onomists a little longer and elaborate on a few other things that they get wrong.

What Do Fake-onomists Get Wrong?

When you and I go out into the real world and talk to, say, cab drivers, we get to learn how real people take real decisions in real life. Each person out there has subjective, complex models of their respective worlds.

Everyone in our society makes economic decisions based on self-interest, ethics, moral values, culture, impact on family, life purpose, etc. The factors are endless. Mathematics is mighty, but it is not so mighty that we can model such complex decisions at an individual level.

So, any “economist” who claims that individual consumer behaviour is predictable based on statistical/mathematical models is, in my opinion, a fake-onomist. Furthermore, any economist who claims that markets are efficient is also a fake-onomist in my books. And I have first-hand experience with financial markets to back this rationale.

My issue is not with academics per Se. I see a lot of profound economic work from academics. But the reality I see is that a disproportional number of these works come from professionals of other fields than from the economics departments.

Usually, such people (retrospectively) get inducted into the economics departments, and this enables the wolves to still wander about in sheep’s clothing.

To be fair to the contemporary field of academic economics, there are genuinely good professionals in economics departments who carry on the traditional economist’s role.

However, if most of the fruit is rotten, it really is a hard sell to look for a good slice (I do find some though; check the references at the end of the essay if you’re interested).

In any case, I think we have lingered on fake-onomists long enough. Now, let us turn our attention to entrepreneurs.

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Entrepreneurs are the New Economists. But Why?

To understand the role of entrepreneurs in the context of economics, let us turn back to Investopedia’s definition of economics:

“Economics is the science and study of a society’s ability to produce goods and services, buy and sell them, and consume them.”

— Investopedia.

Entrepreneurs are at the heart of producing and selling goods and services in society; they excel at what fake-onomists don’t: predicting consumer behaviour. I know what you must be thinking now.

“Hang on a minute! Didn’t you just say that consumer behaviour is not predictable using mathematics?”

Well, yes, consumer behaviour using mathematical models is not predictable, for individual customers/agents. However, for the aggregate (a population), behavioural prediction using mathematical models works well, and this is what entrepreneurs excel at.

Even there, the caveat is that such predictions are subject to black swan risks. For instance, a startup might specialise in predicting how human beings make decisions about vacation flights. But if a pandemic shuts airports down, all of a sudden, those prediction models are not going to work any more.

This is why entrepreneurs go bust all the time, which brings me to the next point about entrepreneurs.

Entrepreneurs Have Skin in the Game

Unlike fake-onomists, entrepreneurs have to deal with the consequences of their decisions. In this sense, those who survive long enough realise that their very intent to understand consumer behaviour actually affects consumer behaviour.

This is what George Soros, for instance, refers to as reflexivity. This also partly explains why markets tend to exhibit a self-reinforcing force.

When prices go up, more buyers jump into the band-wagon. This makes the price go even further up; the cause and effect affect each other in a circular relationship until a discrete event (a black swan, for instance) happens.

Entrepreneurs’ skin in the game combined with reflexivity is both an advantage and a disadvantage in the economic context.

They study how society produces and consumes goods and services. However, while studying the economy, they also drive it. This brings me to the next part of our discussion.

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Why Economics is Not Hard Science

There is a reason why economics is not a hard science. It is impossible to do proper scientific studies with the economy. For instance, most experiments at a societal level are one-time events and not repeatable.

On the other hand, closed experiments don’t reflect society’s reality and are limited as objective scientific instruments that study how the real economy works. So, in a way, even traditional economists never practised objective scientific reasoning (in the strictest sense).

In this sense, it is perhaps a good thing that entrepreneurs have skin in the game. It is not that fake-onomists have no consequences for their actions. It is just that they often choose to pretend that those consequences are not their responsibility.

Last time I checked, entrepreneurs were still going bust, whereas fake-onomists still held high positions after making blunders. At this point, I must also clarify that when I refer to “entrepreneurs”, I mean a specific subset of the bunch that is not too big to fail. Let me elaborate.

Entrepreneurs Are the New Economists — But Not All of Them!

The key element that connects entrepreneurs and economics is capitalism. Capitalism has evolved over the past couple of centuries and still continues to evolve to cater to the needs of our growing societies.

But if capitalism keeps evolving, why is it that entrepreneurs/economists are able to predict aggregate behaviour? Should evolution not outrun predictive models? The reason is that the core of capitalism has not evolved, and might never evolve:

1. Businesses have an incentive to move from high cost to low cost (for example: office rent, labour wages, etc.).

2. Businesses have an incentive to move from low profitability to high profitability.

This is also the reason why entrepreneurs are able to predict aggregate consumer behaviour in our societies. But on the other hand, the extreme outliers who have made it to very high profitability levels become systemic risks.

Consider large conglomerates who employ so many people, that if they fail, the entire society is at a risk of collapsing. Usually, when such organisations get into trouble, governments have to step in to bail them out.

Such business entities, by their very nature, cannot and would not fit the traditional economist’s role. But it’s not like entrepreneurs who have skin in the game wanted to be economists in the first place. This point brings us to the final part of the discussion.

Entrepreneurs are the New Economists that No One Wants

I chose to focus on entrepreneurs in this essay because I felt that they fit the role of the traditional economist best. Traditional economists study how societies produce and consume goods and services.

It just happens to be that entrepreneurs, by their very nature, are aligned with this goal. There is inherently nothing special about them. There are also other entities that share this alignment in interest, but entrepreneurs were the clearest example I could see.

While I see most academic economists as fake-onomists, I acknowledge that they publish their research work regularly, whereas entrepreneurs are more protective of their research (I’ve got to give credit to the fake-onomists here).

Nonetheless, this situation is changing slowly, and we are getting access to more and more open research material from businesses of all sorts. Literally every business these days benefits from running a blog that transparently (as much as possible) shares business research information.

In this sense, capitalistic competition ensures that the best (possible) information eventually becomes available to the public. Fake-onomist research work might be available to the public (at a premium cost, mind you). But what good is it if it is misleading and harmful?

To conclude, the role of the economist turns out to be a bit like that of the pursuit of the philosopher’s stone. While everyone who tries to attain the treasure fails at it, the treasure goes to the one who does not wish to have it. Entrepreneurs are the new economists that no one wants; even they themselves don’t wish for it!

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References: Anwar Shaikh, George Soros, Adam Smith, and John Maynard Keynes.

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Further reading that might interest you:

• How To Easily Outperform High IQ Individuals?
• Startup Ideas: Is There Value In Ranking Creators?
• Are There Really Secrets To Success?

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