The tragedy of economics — and economists

A recent book by George F DeMartino, The Tragic Science: How Economists Cause Harm, starts with a quote:

“The economics profession…is the priesthood of a powerful secular religion…Beneath the surface of their formal economic theorizing, economists are engaged in an act of delivering religious messages. Correctly understood, these messages are seen to be promises of the true path to a salvation in this world -- to a new heaven on earth”

Robert Nelson (2001)

Nelson’s observation is correct.

Virtuous economists, including those in the policy-area, often project their work to be ‘god’s work — aiming for social, economic betterment of all’.

The ‘harm’ caused because of their practice — the economists’ vocation in applied policy, or through a given advice to elected governments — remains less emphasised and understood.

DeMartino’s book is not an indictment of economics, but of economists who seek to practice its ideas, principles, theories -- and the harm they cause to the very society they intend to do good for.

In recent instances of economic policymaking in India, numerous illustrations come to mind of how different experiments with policy innovation and intervention resulted in harm to millions, all in the warp of ‘good intention’.

Demonetisation, an ad-hoc implementation of a new tax (GST), export bans (on wheat), poor economic policy design on tackling rising inflation, fiscal choices made in budget after budget aiming to enhance capital expenditure at the cost of social welfare expenditure, etc., are all some examples of such policy-making.

Economists who have either advised or justify government actions often do so from the point of view of resolving the ‘any harm done’ moral dilemma by adopting an approach that De Martino calls economic “moral geometry.”

Moral geometry represses “the complexity of harm and insulates the profession morally from the harms people suffer because of the policies it advocates”.

More often, economists use new classical methods like cost-benefit analysis to attempt to resolve deep moral questions -- such as, what kinds of ‘harm’ are appropriate to impose on some members of society for the well-being of others -- by way of simple math problems.

The use of sophisticated models with abstract assumptions helps provide ‘causal evidence’ for justifying a given policy decision (say, increasing tariffs to incentivise domestic production for a given good/service or to protect domestic manufacturers), even though the result over the longer term may be to cause more damage than good (see how India’s over-protected textile industry suffered at the hands of deep protectionism for decades post-independence).

Weaponized economic ‘debate’

One set of economists (Arvind Panagariya, Surjit Bhalla, et al.,) have argued one set of facts to establish that poverty rose only “modestly” and has rather declined “persistently” over the last decade. Another group (Jean Dreze, Amit Basole, Santosh Mehrotra, et al.,) have contradicted that claim by saying the “methodology” used in saying poverty has reduced is “questionable”. Given the poor quality of government data, such arguments may yield less clarity and instead cause more confusion.

The irreparable harm caused by such weaponised, polarised policy discourse (say, in debates on poverty estimation or the perceived negative impact of higher wages on un/under-employment), where economists on one side fight another -- not with the intention of knowing, but rather proving ‘who is right’ -- does little good for the ‘pluralist’ core of a discipline like economics, and its practice. Consequently, this further creates distrust in the ability of the readers/audience to ‘trust’ economists and intellectuals in what they say.

On the ‘great India poverty debate’, the experienced reality shows a different tale for anyone observing how increasing rural and urban poor populations still
face acute difficulties in being able to access basic amenities, food, nutrition,
and to make ends meet even now. As Wittgenstein would say, the only ‘fact’ that matters is of ‘lived experience’, not of a ‘mathematical axiom’.

Economist-induced harm

Conscious action, or inaction, made in defence of a policy or economic argument also finds mention in De Martino’s explanation of what he calls ‘economist-induced harm’.

Relate this in context to Raghuram Rajan’s recent critique of the PLI (Performance-Linked Incentive) Scheme in India, aimed at boosting domestic manufacturing, investment and jobs in India.

Rajan argued that the boom in India’s mobile phone exports might be a sign of concern as the growth that is being projected as a win is that of “assembly”, not genuine manufacturing within the country.

“One key deficiency of the scheme is that the subsidy is paid only for finishing the phone in India, not on how much value is added by manufacturing in India. This matters! It turns out that very little apart from assembly is done in India, though manufacturers claim they intend to do more in future. So, India still imports much of what goes into the mobile phone, and when we correct for that, it is very hard to maintain that net exports have gone up,” argues Rajan.

What this would indicate is the fact that much of the PLI policy, which occupies a major chunk of the government’s fiscal spending plan (via subsidies) while reducing social welfare expenditure, all with the intention to push ‘Make in India’, is in fact yielding more imports, adding to the nation’s current account deficit, while failing to cause any significant domestic value-addition in India’s manufacturing growth/production or jobs.

It is pertinent to realise how an ignorance-based economics builds upon the understanding that there is so much we cannot know in economics and so little we can control. It nevertheless seeks to apply economic expertise responsibly, in concert with those whom economists seek to serve.

Recognising irreparable ignorance with clear eyes, according to De Martino, will open the door to promising new thinking about policy formation that can achieve just what economists hope to achieve -- the promotion of social betterment. Else, we are in a free fall, anyway!

(The writer is Director, Centre for New Economic Studies, O P Jindal Global University)