In defence of academic economics

By S. Ambirajan

There is always the need for someone to examine the welfare of the whole as opposed to the exclusive interests of the constituent parts.

`ACADEMIC ECONOMIST' has of late become a fashionable term of abuse. If you feel his analysis of facts to be inconvenient, this term comes in handy to dismiss him as an irrelevant busybody. Recently a businessman hurled the Brahmastra: ``Ask an academic economist writing learned essays to run a business profitably in these difficult times''. Again Mr. Ashok Mitra whose many avatars include being an economist, politician, adviser, bureaucrat and Finance Minister wrote in the Economic and Political Weekly last month: the ``academic economist ... while tendering advice does not have to take into account ground realities governing the polity''. There can be no doubt that the politician and the businessman have immediate problems to confront. The capitalist is concerned about the health of his firm's current balancesheet and has to face his shareholders in the AGM or ruminate about the fate of his company's shares in the stock exchange. As for the politician, Mr. Mitra could not be any more explicit: there is the ``need to continue breathing in a democratic climate and win elections at regular intervals''. Other groups such as large farmers, Government servants, trade unions, employers associations, college and university teachers and so on with their day-to-day worries too find the `academic economist' bearing bad tidings or suggesting bitter medicines to be an ignoramus not understanding the real world.

This impatience is understandable but not the caricature made of the academic economist. Mr. Mitra said: ``The economist we have in mind ... proceeded to the United States to get a Ph.D. in liberal economics ... offered an assignment in the World Bank, the International Monetary Fund or the WTO ... (and remains) an emigre since then''. On the contrary, there are numerous economists educated in India, teaching Indian students, working in India on Indian problems without the remotest relationship to world bodies such as the World Bank, the IMF and the WTO, and continuously gathering knowledge about the ground realities carrying no preconceived notions and with deep involvement and concern for the long term well-being of every segment of the country. They believe that the health of the economy and welfare of the masses are far more important than the unhealthy desires of the different sectional interests or the power hungry politician's anxiety to win elections at any cost.

There is always a need for someone to examine the welfare of the whole as opposed to the exclusive interests of the constituent parts. The science of economics emerged to do this task systematically using both empirical information and rigorous logic. This does not mean that economists can be totally objective like a soulless weighing machine as they too are human, capable of harbouring bias, subject to ignorance and prone to misjudgment. While not being infallible, their location in the social matrix puts them in a unique position. As Prof. Jagdish Bhagwati once said: ``Politicians must play to their constituencies. Bureaucrats cannot forget the politicians. Think- tanks must seek funds to survive. All must mind their manners, trim their sails, and bend to the wind. Only professors have tenure, protecting them from the retribution that the indulgence of independence may bring. Indeed, that alone makes it an obligation, not just a luxury, for the academic scholars to break ranks, to cut through the fog of obfuscations that attends the politics of policy- making ... to propose policies and advance agendas that reflection and analysis lead one to believe to be good and beneficial, even when they appear outlandish now and will bring one neglect, at best, and opprobrium, at worst''. If they take advantage of the freedom and training, their advice can provide valuable insights to the policy-maker. Different economists may see different things in the same phenomena but that is no reason to discount the economists' approach to view things holistically. In any case there are some aspects of economic thinking that are absolutely correct and no amount of verbal or numerical legerdemain can counter their inexorable logic.

Economics is all about scarcity, efficiency and welfare which it demonstrates by relating causes to consequences. It yields conditional propositions of the type: ``If A, then B''. This is embedded in certain ruthless truths of economics. Let us see three of them. First, there is no such thing as a free lunch. The cost is borne either by yourself or by someone else. Second, there is no escaping from trade-offs. You have to choose between different desired alternatives. And third, no amount of rearrangement of your resources can increase welfare or growth without increasing the efficiency of their utilisation. No politician, however powerful he is, can get over these fundamental truths.

Policies have repercussions on the way the resources of society are distributed among people and regions. Policies can also determine whether benefits, or otherwise, accrue in the present time or at a future date. Given this, the politician tends to favour those with the loudest voice and the strongest clout besides being unconcerned about the future although his actions may be inimical to the welfare of everyone in a long run perspective. When the economist points out this uncomfortable fact, he becomes unpopular both with the special interests and the politicians all primed with their short term agendas. The economists' arguments against protection, subsidies or wasteful unproductive expenditure on the one hand, and advocacy of compulsory primary education, provision of basic health care or investments in infrastructure on the other are all based on the type of economic truths mentioned earlier. A high degree of protection for local manufacturers or liberal subsidies for this and that involve a cost borne by the consumers and tax payers respectively without necessarily increasing the welfare of the population in general. Similarly while expenditure on education, health care and infrastructure involve costs being borne by all taxpayers, their impact on the well-being of everyone and efficiency of the economy justifies the policy.

Ultimately, the economist asks whether the broad objectives of the society could not be achieved by other less costly or more efficient means. The contention of economists is that while it is legitimate for sectional interests to clamour for protection, subsidies and grants because it suits them, if the Government behaves in a way assuming the non- existence of these fundamental propositions of economics, it is a sure recipe for eventual economic disaster. Even the seemingly invincible East Asian Tigers bit the dust because their policy-makers did not pay sufficient heed to undisputable economic truths as the MIT economist, Paul Krugman, has demonstrated.

If all this is so patent, why do politicians and their apologists persist in following shortsighted policies? The reasons are not far to seek. To be fair to the political leaders, they may have initiated policies that seemed genuinely beneficial to the economic well-being of society and worth pursuing. But once begun they become difficult to give up especially when powerful vested interests emerge to corner all the advantages. Another reason is that the impact of fundamental economic laws usually manifest themselves only incrementally. The existing institutional structure often masks the consequences, and this homeostatic process lulls the victims into thinking that no harm will come their way until disaster strikes with all its malignance. Again, in the short run, such policies - though violative of economic logic - may bring all round substantial benefit. Once hooked, it becomes impossible to give up as the system becomes dependent on such policies even though they have outlived their utility.

In the final analysis, economics is about zeroing in on the consequences of certain policies, conditions and choices. It is not for the professional economist to say what is desirable or preferable though he has a right to hold opinions as a concerned citizen. If a politician or an interested party claims that a certain objective can only be achieved through a certain policy, and if economic analysis demonstrates its absurdity, it is the duty of the academic economist to expose it whether he is praised or reviled.

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