"It's well and good to say that you want to study everything. But, you see, the physical sciences and the social sciences differ by one important thing- the Human Factor"
- A professor
As a student of both the Social Sciences and the Physical Sciences, or Applied Sciences rather, I try to understand what role the human factor plays in the organization of knowledge.
The question that one can start out with is, "Should one try to predict human actions at all?" Another way of asking it is, "Is the study of economics self-evaluative?" Are we, as humans, trying to understand ourselves? The study of human civilization can be likened to self-evaluation just as much as the study of the universe can be likened to, say, geography.
The sciences explore the truth of the universe despite us. Our existence has no considerable effect on the truth. But the social sciences are much more dynamic. The premise is that human action can be predicted for a sizable fraction of the population because people respond to incentives. These responses or changes when aggregated over a large period of time can visibly change the landscape of a country. It means that the judicial use of resources over a period of 100-150 years can create a better quality of life for the population in roughly three generations.
The real per capita gross domestic product (which demonstrates the total output of a country) of the United States grew by a factor of 10 from $3340 in 1870 to $33,370 in 2000. The increase in output can be attributed to an average growth rate of 1.8% over a period of 130 years. The number seems small, but over a long period of time, it became the reason for the United States to be called a developed nation. As a science student, this creation of wealth of the nations, so to speak, is very mesmerizing. It seemed like this wealth came out of thin air. Japan's per capita GDP in 1990 was 20 times that of its GDP in 1890 (Average growth rate was 2.75%). So where did this wealth come from?
One answer to that question would be the rise of technology. Technology was a driving factor that created access to products through processes which used the resources available in nature. It also became a boon to the service industry which could now expand its market to the globe while, for example, operating from a stuffy single-room office in the suburbs. This access was also provided by flexible financial instruments like loans, interests, banking, etc that opened up a credit-line that gave a boost to economies. A country's political structure, location, etc, all form tertiary reasons which we shall neglect for the time being.
However, a steady growth rate, no matter how small, is hard to bring about. After a steady growth rate and a booming economy between 1990- 2000, the recession hit the Bush government hard during 2000. This turbulence in the economy is expected due to the sheer size of the system in consideration. Every year the tax payers fund a phenomenal amount that is collected without creating any value during the transfer from the tax payee's pocket to the government treasury. To put it quite simply, nothing hangs in the balance. The government uses this money for schemes and measures that set out to regulate this uncertainty in a market that tends to fail almost abruptly whenever a single financial giant goes bankrupt.
Clearly, the era of technology and banking alone does not boost an equitable model that can sustain a consistent growth rate. Policy decisions create the insulation for this turbulence. And here, the human factor comes in. One can argue that the example provided is strictly limited to economics. Psychology, Demography, Political sciences, all come under the broad umbrella of the social sciences. But the marriage of economics and policy is where a promising integration of the physical sciences and the social sciences is seen as the tools used are very mathematical, though based on assumptions that are based on our understanding of human behaviour.
The human factor is the trump card that can make or break an economy.
This sums up my two cents on why technology and banking can't sustain a growth rate that can lift an economy up and why policy decisions infact fare better at the task of improving a country's economy.
1. Understanding Value Creation
2. Methods and Concepts of Neo-Classical Economics
3. History of Thought - Economics & Philosophy