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This simply means developing nations that want to get out of their rut, like India, must invest in quality education and R&D.In more recent times this school of economics has been given greater importance and is reflected in the award of Nobel Prizes to behavioural economists like Daniel Kahneman of Princeton University and last year to Richard Thaler. Consequently, neo-classical economists distanced themselves from psychology and sought explanations for economic analysis heavily based on the concept of rational expectations. Amartya Sen (1998) was one of the few who broke this mould and won it in recognition of his work and abiding interest in welfare economics. Better late than never.

The fact that Indian students and scholars have to go abroad to fully harness their brilliance and gain recognition tells us what has gone wrong with our system. He called it "post colonial endogenous growth theory".Classical economics was linked closely with psychology. Smith emphasised the concept of empathy, the capacity to recognise feelings that are being experienced by another being. Recent Harvard winners for economics such as Oliver Hart (2016), Alvin Roth (2012) and Eric Maskin (2007) were rewarded for their work based on mathematical empiricism than behavioural speculation. Since individuals made choices the emphasis was on understanding human beings and their behaviour as individual and as groups. Jeremy Bentham described "utilitarianism as the greatest happiness of the greatest number that is the measure of right and wrong" and is considered by many as the father of the welfare state.Every politician worth his salt knows that the national mood and perceptions are decisive in determining national outcomes.The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was instituted in 1968 by the Swedish central bank, and laureates are selected by the Royal Swedish Academy of Sciences. But economists took their time recognising this, and the Nobel Committee even longer..Paul Romer has argued: "Technological change can be accelerated by the targeted use of state interventions in areas such as R&D tax credits and patent regulation"."There is a delicious irony in the award of the Nobel to Richard H. And often people do not always make rational choices, something that marketers of diverse products such as automobiles and soap, and political dreams know well. It is commonly called the Nobel Prize in Economics, though the Nobel Endowment has nothing to do with it. Adam Smith’s other great work was "The Theory of Moral Sentiments" and dealt with the psychological principles of individual behaviour. For most of the last century economics became increasingly mathematical.

The relevant verse for us is: Only inventions seemed to have any effect/ And from where these arose everyone was quite bereft/ So people then began to get rather weary/ Of the once almighty neoclassical growth theory/ A new explanation 600D Oxford fabric Factory arrived, over which there was quite a fuss/ Technical progress – innovation, ideas – were "endogenous"/ Invention was crucial but needed embodiment/ In people – in skills – and in capital investment/ So these were important to make growth shine/ Although others had known this for a very long timeBut how does one nurture invention without a national mood? For it is now well understood that how we do as a nation depends a great deal on how we perceive ourselves? This psychological factor is now understood to be critical to sustained economic growth. Now the trend from the esoteric and philosophical is moving towards the practical. Instead, our bureaucratic centralism has created a huge system whose outcomes are so low grade, that mediocrity passes off as brilliance.Neo-classical economists based their thinking on the assumptions that people have rational preferences; individuals maximise utility and firm’s profits; and people act independently.The dominance of the classical school on the world of economics can be gauged by the fact that since the relatively recent inception of the Nobel Prize in Economics in 1968, the Chicago economics department faculty have won the Nobel as many as 12 times, twice as many as MIT, which has six Nobel laureates. Incidentally Raghuram Rajan, who is also an economics professor, is a colleague, and was reported to also being considered for the Nobel Prize for his "contributions illuminating the dimensions of decisions in corporate finance". Seen from Harvard University’s ivory tower, even MIT is considered as leaning more towards classical economic theory.It is not as if the switch was complete.The co-winner – Romer – is seen as the prime mover behind the endogenous growth theory, "the notion that countries can improve their underlying performance if they concentrate on supply-side measures such as research and development, innovation and skills".This year two American economists, William Nordhaus and Paul Romer, were awarded the Nobel Prize in Economics for their work in two diverse areas, but current concerns. Much of economic theory came to be presented as mathematical models, mostly calculus, to clarify assumptions and implications. Classical economic theory, also known as laissez faire, claims that leaving individuals to make free choices in a free market results in the best allocation of resources. Nordhaus won it for his warning policymakers during the first stirrings of concern about climate change in the 1970s that their economic models were not properly taking account of the impact of global warming and he is seen as one of the pioneers of environmental economics. My professor at Harvard University’s Kennedy School of Government, Prof.

Much of economic research has tended to be quite remote from influencing public policy. Making the announcement, the Nobel Committee said: "His empirical findings and theoretical insights have been instrumental in creating the new and rapidly expanding field of behavioural economics, which has had a profound impact on many areas of economic research and policy. It has mostly tended to go to scholars doing esoteric research in economics. He works in the University of Chicago, the nursery of classical economics, where he is the Ralph and Dorothy Keller Distinguished Service Professor of Behavioural Science and Economics at the Booth School of Business. Thomas Schelling, who taught me "game theory" used in nuclear strategy, and only sometimes in economics, got an Economics Nobel for just that in 2005. Many great economists like Vilfredo Pareto, John Maynard Keynes and Joseph Schumpeter continued to base their analysis on psychological explanations. This famously inspired the Oxford don and economist Derek Morris to write an ode to endogenous growth with that title. It’s the history of economic theory in verse and is very witty and clever.