A few months ago, I stumbled across this gem in the BBC radio archives. Originally broadcast back in the 1985, David Henderson gave six lectures on what he termed do-it yourself economics. In them, he revealed how direction and policy shaping the lives of millions were not determined either by sound economics or ideology but a muddle of concepts, convictions and ideas held by the people in power.
Let me explain why I found this important. The conventional narrative in India runs thus, freed from the shackles of colonialism, India’s first Prime Minister Nehru found inspiration in the rapid progress of the Soviet Union. Dreaming of an industrialized India built on a socialist model, he gave sway to economists who believed in the Socialist and Centralized planning ideology popular at the time. The result was the license-raj where the Indian economy stuck in a jungle of red tape lagged behind the rest of the world. Corruption, cronyism and mediocrity thrived in an opaque environment of bureaucratic ineptitude which would make Yes Minister’s Humphrey Appleby look like a dynamic entrepreneur.
Pandit Jawaharlal Nehru
China under the visionary leadership of Deng Xiaoping reformed in the 1980s. India on the other hand suffered under the dead hand of obsolete economic ideology until the early 1990s when facing bankruptcy, the Narsimha Rao government agreed to IMF market reforms under finance minister Manmohan Singh. The result of this was a breath of fresh air and a revitalized industry which freed from its Socialist shackles bounded to undreamed of heights.
The problem is that to the best of my knowledge, no serious economist ever supported government intervention to the level we saw in India. Left leaning economists like Nobel laureate Amartya Sen instead bemoaned the state’s under-investment in basic education and infrastructure citing China as a counter-example. The very factors that are limiting our growth today.
In fact, it really didn’t matter what the orthodox economists, Keynsian, Socialist or free market oriented thought, what mattered was what those in power felt they ought to have thought. In fact, the disagreement economists of different schools wan never really as large as is usually portrayed. Both sides agreed on the need for efficiency, for relatively free trade and nobody except politicians like Lenin actually believed the state should try to run everything. Differences were often of degrees (sometimes considerable degree) but rarely on the core concepts.
Economics wasn’t the only field to suffer in this way. General JFR Jacob in his memoirs described how a left leaning defense minister prevented India from becoming one of the first nations to get the M16 rifle (standard for many years in the US army), instead opting for far inferior local products or products made in Socialist countries.
The drive for swadeshi or a self-sufficient economy, is a powerful mantra in India. It evokes memories of our much mythologized freedom struggle, of our equally mythologized ancient prosperity and of our fear of the ‘foreign hand’. It also goes against almost all schools of economic development which tend to focus more on efficiency.
While DIY economics never really went away, today these ideas are coming into the foreground. In India, we have our demonetization whose short term distress is visible but long term benefits remain speculative. In Europe and the US, we see a variety of protectionist policies. Meanwhile in Zimbabwe and North Korea, things are, well the same as ever.
For some reason, Economics is a subject almost everyone feels qualified to speak on. You won’t find such discussions commonly on say theoretical physics. Go to the book store near you and see how many copies they have of Adam Smith’s The Wealth of Nations. Then ask how many copies they have of Einstein’s Relativity, the Special and General Theory (Einstein’s attempt to make his theory understandable to everyone).
Physics is considered esoteric and tough, but Economics is considered accessible even though the amount of mathematics used is sometimes comparable. The key difference I feel is in qualitative vs. quantitative understanding. Everyone agrees that just memorizing an encyclopedia or any jumble of facts and ideas won’t make you a physicist. It doesn’t matter how many Neil deGrasse Tyson videos you have watched, you still can’t compute the orbit of Jupiter, and a summer course is clearly insufficient to give you any idea of the depth of current research.
Mathematics in physics and economics
It is generally accepted that to be really good at physics, you have to spend years (usually at a university) studying the necessary mathematics. It is not enough to say that every body is attracted to every other body, you need to be able to compute the curvature of space time to predict the event horizon of a black hole.
Economics on the other hand is full of ideas like this. For example, when money supply increases, interest rates come down. By how much and why? What are the inherent assumptions? Under what circumstances does this principle break down? You will find 1 person who can answer these question for every 10 who quote the mantra.
The world is a complicated place and even people who have spent their whole life studying it often fail catastrophically. Ben Bernanke certainly never imagined the financial carnage he would unleash when he let Lehman Bros. die. But we like to live in the illusion that we know what we are talking about.