The root cause of our hopelessly defective economic theories is a fundamentally misguided model of human behavior. Modern economic theory assesses the impact of policies by replacing all human beings with homo economicus, which is a brain connected to a mouth and stomach. Because the heart and soul of human beings is removed from the picture before the economist begins his calculations, economists are routinely baffled by behavioral economics, based on actual behavior instead of hypothesis. Topping this deep ignorance is an amazing arrogance about “microeconomic foundations” — that even if macro is wrong, at least our micro theories rest on solid foundations! Such assertions leave me speechless; what can you say to someone who confidently claims to be Napoleon Bonaparte ?

Because of complete failure to understand human beings, economists subscribe to a ridiculous theory of human welfare — it is monotonic in consumption. All of us act as if our sole purpose in life is to maximize the utility obtained from consumption. Economists have never heard of the Buddha who taught that the root of suffering is attachment to material pleasures obtained from consumption. Yet the illusion that increasing consumption leads to increasing welfare has been clearly exposed by Easterlin. Economists continue to struggle to counter and explain away the Easterlin Paradox, since it contradicts their firm belief in the “Coca-Cola theory of happiness”. This is briefly described below, in an excerpt from my previous post on “The Search for Knowledge” :

The second idea that we must unlearn is the “Coca-Cola theory of happiness”, which is at the heart of modern economics. If a cool and refreshing drink makes a hot and thirsty man very happy, he should not deduce that he has stumbled upon the formula for a lifetime of happiness. It would be very foolish of him to build a hot sauna next to a refrigerator stocked with cases of cola, and market it as the ultimate pleasure machine. The economists’ idea that the purpose of our lives is maximization of the utility of lifetime consumption is equally foolish. Consumption and acquisition of material goods provide short run happiness but have zero correlation with long-term happiness. Long run happiness depends not on consumption, but rather on cultivation of character traits like gratitude, contentment, and compassion, as well as cultivation of social relationships – loving, and being loved.

Heterodox economists are attempting to find a technical fix to the problems of modern economic theory. In my view, we cannot launch a revolution by changing the equations we use. The changes required are much deeper — we need to change the way we understand human beings. We need to understand that “Revealed Preference” is a disastrous mistake — by avoiding thinking about the unobservable preferences in our hearts, and replacing them by observable behaviors, we prefer a shallow understanding to a deep understanding. The choice may be guided by feelings/emotions which are inherently unobservable, but we can learn about them by looking into our own hearts, since we are human beings. By ruling out introspection, and asking human beings why they do what they do, we rule out the possibility of understanding human behavior. Economists are religiously committed methodologically to “rational” behavior. They will not consider models of human behavior which allow humans to be whimsical or emotional. Even the alternative models, like Prospect Theory, which are being constructed, endow human beings with computational and informational capacities they do not possess. This blocks the possibility of knowledge. Unless we re-introduce the heart and soul into human beings, we will continue to fail to understand human behavior in any of the realms of economics, politics and society.



The Islamic conception of “knowledge” differs radically from the western concept. Thus, necessarily, methods for seeking knowledge — research methodology — must also differ. This lecture explains some of the major differences in Eastern and Western approaches to knowledge.

An Islamic WorldView

Published in The Nation, 12th Mar 2018. This is a summary of a lecture at PPMI conducted for training of new inductees at the MoPD&R. An 85m video of the entire talk: Research Methodology Training Lecture:  shortlink:

The Search for Knowledge (2265 word summary) 

As Muslims, we are asked to “seek knowledge from the cradle to the grave”. As a first step, it is essential to have clarity about our goals: “what is the knowledge we seek?”. Surprisingly, the definition of knowledge is a matter of ongoing debate and controversy.  To understand this better, it is useful to consider two categories – knowledge of the external world around us, and knowledge of our internal world. The two categories complement each other, and both are necessary for our personal and collective affairs. It should be obvious that the methods required to pursue these two types of knowledge…

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Elinor Ostrom was born in the year of 1933 in California, United States. Almost tem years after getting her doctorate in Political Science (University of California), she became professor at the Indiana University Department of Political Science in 1974. Over her long academic career, her activities included extensive field experiences in underdeveloped countries and active participation in many professional associations, such as the American Political Science Association. She was awarded 12 honorary doctorates from universities around the world and three years before her death Elinor Ostrom and Oliver E. Williamson won the 2009 Nobel Prize in Economic Sciences. She was the only woman ever to win the Nobel  Prize in Economics.

Her approach to social and ecological systems highlights the complexity of natural and human systems. In her famous book, Governing the Commons: The Evolution of Institutions for Collective Action (1990), Elinor Ostrom focused on the capacity of people around the globe to create long-run resilient arrangements for protecting environmental resources. In particular, she studied how groups of people manage and preserve common-pool resources such as forests and water supplies. However, collective actions have not inevitably emerged in all groups of people. Ostrom defined common or common-pool resources as public goods with finite benefits. Therefore, common-pool resources can be potentially used beyond the limits of sustainability because of the lack of exclusion of users. This creates an incentive for increasing the rate of use of this resource above its physical or biological renewal. Besides, her research pointed out that common property is a kind of institutional arrangement that regulates ownership and responsibility.

Considering this framework, Ostrom developed a theoretical approach to the management of common-pool resources at local and global levels where polycentric systems of governance refer to build collective-actions. In this respect, she considered there is not one ideal governance regime, but a variety of regimes of governance that might include: rules of appropriation of  resources, rules of maintenance of resources, rules of monitoring and enforcement of the appropriation and obligation activities, rules for of conflict resolution,  besides the evaluation of the performance of the resource system and the strategies of participants to change previous rules. Indeed, the users of common-pool resource can work together to enhance the  sustainable governance of  their commons by collective action. Indeed, under her view, successful commons’ self-governance institutional arrangements depend on: the coherence between the resource environment and its self-government structure, the enforcement of rules through effective monitoring and sanctions, and the adoption of low-cost conflict resolution mechanisms.

According to Ostrom, adaptive governance is related to changing rules and enforcement mechanisms over time since institutional arrangements are able to cope with human and natural complex systems. As a result, citizens, governments, businessmen, and resource users  might deal with collective-action problems in diferente ways at diverse scales. When considering the relations between urban public policies and the commons, her latest works highlighted the challenges to collective-action in metropolitan areas where  citizens can less effectively articulate preferences, define problems and choice packages of urban public goods and services. Under her understading, the competition for contracts in urban goods and services might foster technological innovations and social co-production to find out new ways to face the social and environmental needs.

Indeed, Elinor Ostrom´s contribution adds to our understanding how collective actions and polycentric arrangements of governance  can influence economic outcomes, human behaviours  and institutions towards growing resilience and sustainability. In this attempt, she crossed traditional boundaries between political science and economics.



Madi, M. A. ( 2017) Puralist Readings in Economics: key-concepts and policy tools for the 21st century. Bentham Publishers.

In Memoriam David Freedman (March 5, 1938–Oct 17, 2008) — March 5, 2018 would have been his 80th birthday.  I reproduce below an edited version of some memorial remarks I wrote, from

Editor’s Intro to International Econometric Review 

We would like to dedicate this issue to the memory of David Freedman, an outstanding
statistician whose legacy is closely related to the goals we would like to pursue in this journal.  One element of this legacy is the importance of undergraduate teaching; attempts to do explain the relevance and importance of statistics to undergraduates transformed the thinking and research of David. Increasing fragmentation of knowledge has led to a situation where specialists have no idea of how their patch of expertise relates to other portions of econometrics, how the whole body of econometrics ties into  economics, and how this body of knowledge relates to achieving broader human goals such as eliminating oppression, injustice, poverty and misery, and bringing happiness, joy, wonder and enlightenment into our lives. Teaching undergraduates is a useful antidote to this fragmentation. When we ask them to invest time and effort in learning difficult materials, we must justify this claim by showing them why it is useful in the context of real world examples. When we attempt to do this we will discover that, contrary to the impression created by our specialized education, no one has been there before us. That is, everyone in the knowledge field is a specialist and no one has a broad overview ranging from details of the theory to how these theories are applied in the context of serious real world applications which make a difference to the lives of people.
In his path-breaking undergraduate text Statistics, David documented the disastrous
consequences of this disconnect via many real world examples. A little exploration reveals how often bad theory with faulty assumptions using wrong types of data is used to guide policy. As a consequence, people who acquire the all round knowledge required to bridge the gap between theoretical knowledge and real world applications can make a big difference in changing the world for the better. David’s involvement in consulting and litigation testifies to his deep concern with using his knowledge to improve the lives of people. His more recent textbook Statistical Models explores how models work in the context of real world applications. Richard Berk, one of the commentators on David Freedman’s article in this issue, has provided a similar examination of regression models in his text: Regression Analysis: A Constructive Critique.
We would like to close with some advice to readers and contributors. John Hey summed up his experience of ten years of editorship of the Economic Journal as follows: “Many of the submissions do not appear to be written in order to further economic knowledge. … few economists ask themselves what are the crucial economic problems facing society. If they did so, they might well produce more relevant material.” Our brief moments on this earth are too precious to waste on pursuit of meaningless publications to add to our vitas. It will add meaning to our lives, depth to our knowledge, and create innovative and path-breaking research, if we make a serious attempt to serve humanity by solving the numerous real economic problems facing us globally.

In Memoriam: David Freedman

Our first issue of IER is dedicated to the memory of David Freedman. “Limits of
Econometrics” may be his last professional article – he had written it at my request for this  first issue. Unfortunately, he did not get a chance to revise it in response to the many
comments received. As a first draft, it may fall short of the standards of excellence set by
David in his numerous works – see his Berkeley website for references – but, under the circumstances, it seems  best to print it as is, in tribute to his memory. We are also publishing comments on this article by Arnold Zellner and Richard Berk.
In 2003, David Freedman was awarded the prestigious John J. Carty Award for the Advancement of Science by the National Academy of Sciences, “for his profound contributions to the theory and practice of statistics, including rigorous foundations for
Bayesian inference and trenchant analysis of census adjustment.” More details about these contributions are available from the Wikipedia entry
The obituaries cited below provide a broader perspective on his career and personality:
It is impossible to summarize his contributions, but I will focus on two issues which are
relevant both to the attached article, and to our underlying philosophy for this journal.
Close attention to real world applications, generated by demands of undergraduate teaching
and by consulting and litigation, changed the focus of David Freedman’s research from the
theoretical and abstract, to how these theories work in practice. His landmark text Statistics
(co-authored with Robert Pisani and Roger Purves) is based on serious examples from
economics, epidemiology, medicine, and social science. In his applied work, Freedman
emphasized exposing and checking the assumptions that underlie standard methods, as well as
understanding how those methods behave when the assumptions are false. Zellner’s comment
provides an econometricians perspective on the fundamental methodological issues which
govern the use of models in real life situations.
A central concern of Freedman was the disconnect between the requirements of real world
data analysis and the conditions under which models can produce reasonable answers. The
widespread use of models which make entirely inappropriate assumptions, together with
obliviousness to consequences of these errors was anathema to Freedman. His book on
Statistical Models discusses many professional highly cited articles which draw conclusions
not justified by the data, due to erroneous background assumptions. Because of these
critiques, many commentators remarked that if we take Freedman seriously, we will all be out of work. Richard Berk’s comment on Freedman’s article addresses this issue: how to proceed
if we take Freedman seriously.
It seems appropriate to close with the following quote from his colleague, Phillip Stark: “He
was just an extraordinary person and an extraordinary scientist. He was a truly exceptional
scholar-brilliant, meticulous and committed to truth.” His loss will be deeply felt in the
community of statisticians and econometricians.

The WEA Online Conferences, designed by Edward Fullbrook and Grazia Ietto-Gillies, makes full use of the digital technologies in the pursuit of the commitments included in the World Economics Association Manifesto: plurality, reality and relevance, diversity, openness and ethical conduct.

The current WEA Conference Monetary Policy after the Global Crisis marks the tenth anniversary of the greatest recession after 1929-33. The aims of this conference include discussing key theoretical insights in order:

  • To provide a framework for improving monetary policy practices.
  • To review and advance knowledge on the recent financial crisis regarding the main challenges and prospects of central banking.
  • To particularly survey and discuss the use of Divisia monetary aggregates and their potential role to address central bank challenges economic vulnerabilities.

Therefore, our main goal is to establish a global forum for confronting of the opposite views about

  • the causes and consequences of the Great Crisis.
  • the current challenges to central banking.
  • the role of proper money aggregation in preventing of the future economic slowdowns.

In sum, the conference aims to survey and discuss the recent theoretical advances in monetary tools, goals and policies, along with the latest empirical research findings.  Indeed, this Conference will be one of the first which, in an extensive manner, tackles the problem of monetary aggregation after the Great crisis.

The WEA Online Conferences seek to also engage readers and commentators all around the world considering: (a) the variety of theoretical perspectives; (b) the range of human activities and issues which fall within the broad domain of economics; and (c) the study of the world’s diverse economies; (d) the increasing relevance of the adoption and use of online discussion forums.

Students, academics and professionals who are interested in  policy challenges can read the Key-note papers of Daniel L. Thornton, Rakesh Bissoondeeal and Jane Binner in addition to other interesting contributions organized in the following Conference Sessions:

  • Divisia Monetary Aggregates and Contemporary Monetary Challenges
  • Divisia Monetary Aggregates: Prospects and Future Research Potential
  • Finance and Growth: Changes and Transformation

To visit the Discussion Forum works, click 

Please first  register  to this OPEN ACCESS Conference in order to get your e-certificate!

 The Discussion Forum closes on  March 15th. During the following weeks, we cordially invite you to visit the conference’s website, where you can read and download the conference papers, leave comments, and engage in discussion.


Lecture for Teachers by Dr. Asad Zaman on 24th Jan 2017 at PIDE, Islamabad. This lecture is for teachers; See “The Ways of the Eagles” for a lecture directly addressed to students, to motivate and inspire them, A detailed 3300 word summary of the lecture in English is given below. See also: link to one hour video-taped lecture in URDU.

Lecture for TEACHERS on how to inspire and motivate students

Mesmerized by the spell of Western expertise, we are trapped by the illusion that they are the experts in every field, and the best we can do is to be second-rate followers. In fact, the educational methods in use in the West are extremely bad, and it is possible for us to make dramatic improvements in substance and style of teaching. By increasing the efficiency of our educational methods, we can change the world. Imagine producing world class experts of Nobel Laureate calibre at PIDE!

Can it be done? Can we create world-class experts, despite meagre resources and students with weak background and preparation, in Pakistan?  YES: It can be done.

What is needed is INSPIRATIONAL TEACHING. Every student is precious, and has within him/her all the genius of Al-Ghazali, Ibn-ul-Haytham, Ibne Sina, al Farabi, Ibn-e-Khaldun and others. If we can light the fire of the thirst for knowledge in their hearts, they can do the rest – we only need to create motivation and inspiration. So the question of primary importance is: How can we become inspiring teachers?

Since I am addressing teachers here, my first task is to explain what they (the teachers) will gain by improving their teaching? Some of the answers to this very important question are:

  • I will acquire mastery, expertise and depth of knowledge! I will be able to transmit this knowledge to students.
  • This knowledge has the potential to change my life, and to change the life of my students. Nothing is more precious than the opportunity given to me in form of time of students eager to learn. Nothing is more deeply satisfying than utilizing this opportunity to transmit the treasure of knowledge, the most valuable gift in the collective heritage of mankind.

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An Islamic WorldView

This article was written ten years ago — if I was writing it now I would update it substantially. The main point it makes is that the European Enlightenment – the idea that reason and facts can be used to provide better solutions to human problems — has failed disastrously. The reason for this failure, still not realized by European intellectuals, is that the heart and soul of human beings has been taken out of the picture. Using only reason, the argument that efficiently exterminating the Jews by burning them in ovens cannot be refuted; see Modernity and the Holocaust by Zygmunt Bauman. It is the heart and soul which strenuously rejects this, without the need to examine reasoning. How Spirituality matters for development has been covered in an earlier post – Spirituality and Development. Instead of updating the article, I am adding a few notes and links…

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