The Hindu Business Line : Saving capitalism from economists

Capitalism has delivered more by way of growth than our socialist policies ever did. To allow it all to be ruined by a bunch of cowboys who either behave like spoilt brats or, as seems to be more likely, are being used by large forces, simply is not worth it, says T. C. A. SRINIVASA-RAGHAVAN.

Given how often policy economists go wrong, why is there a premium on them? Are they a sort of Giffen good?

The Economist had a very smart cartoon a few weeks ago. It showed brisk sales of T-shirts bearing the legend “Capitalism Is Dead.” The message was clear: As long as people can spot an opportunity to make something they can sell, capitalism cannot “die”.

However, those who don’t like capitalism need not despair. Policy economists, left to themselves, could well succeed where others have failed, for a reason that is as old as the hills: Disagreement, for the sake of it; excessive argumentation, also for the sake of it; and worst of all, misguiding those who have to run the shop, like governments.

Or let’s put it another way: Given how often the policy economists go wrong, why is there a premium on them? Are they a sort of Giffen goods, which defy the law of demand because people consume more of them as their price increases? Why does society not place a similar premium on academic economists? After all, it is from their work, ultimately, that policy economists draw sustenance?

Wrong incentive structure

Were I policy economist — and seeing how easy it is to be one, I am astonished at my own moderation — I would say the incentive structure is all wrong. This leads to the perverse outcome mentioned above. But that much is obvious enough. The main question, however, still remains: Why is the incentive structure wrong? Someone surely needs to find out.

Put all this in the context of the financial crisis that has overwhelmed the world. The blame, as always, has fallen on everyone, from George W. Bush, the US Fed, regulatory agencies, investment banks, commercial banks, financial wizards, credit rating agencies to greed, ignorance and plain old-fashioned fraud. But do you see a single policy economist being blamed?

‘Game it’

I asked this question at a recent food-fest — a.k.a academic seminar — featuring around 20 policy economists. But I did not see even a glimmer of comprehension. They were foxed, and simply not aware of their role in creating the intellectual climate where permissiveness came to be seen as liberalism, hands-off policies as “appropriate incentives” and greed as strategy. The technical term for slipperiness is ‘game it’.

Have you noticed that where policy economists are concerned, because they are able to use high-sounding jargon, no one asks the one question that everyone else is asked: What is your agenda? Who are you batting for? What do you gain from advocating a set of policies over another?

Most people shrug these questions off, putting it all down to ideology. Well, to be sure, ideology does play a role but how is it that so many of the policy economists wear other hats as well?

Should not someone be saying, here, just a minute, would you like to declare your commercial interests? It is necessary here to make a distinction between policy economists who work full-time for organisations such as, say, the Planning Commission, the RBI or the finance ministry, or private sector banks or FIIs or political parties, and so on.

By virtue of their employment or affiliation they are subject to the institutional rules, and are different from the apparently free-lance cowboys.

Issue of regulatory capture

The former may influence the nitty-gritty of policy but it is the latter who create the intellectual climate that shapes overall policy. This they achieve by shrill, focused attacks on institutions, of the sort we saw on the RBI. The same RBI now smells of roses.

In the past, there have been similar attacks on SEBI and TRAI. But no one has seriously discussed the issue of regulatory capture. But the fact is that regulators can be ‘captured’, not just by business lobbies. They can also be enslaved by their parent ministries, which use free-lance economists as battering rams.

Policy economists, it must be said in mitigation, can’t thrive without official patronage. So that leads to another can of worms: Who are their patrons in the establishment and what is their agenda?

Without a hidden agenda

Last month, for example, when the IIP numbers came out, the finance minister said “an independent economist” had told him that the index was unreliable.

Many people silently asked two questions: Why did he not say so when the index was going up, and who was this “independent economist”?

These are questions India needs to begin asking now because, in our country, we tend to accept intellectuals as being automatically respectable even though — as the Marxist intellectuals have demonstrated — that is often not the case. Respectable, I should add, in this context means (to me at least) a person without a hidden agenda.

The issue is also important because we are only now beginning to shed our apprehensions about capitalism which has delivered more by way of growth than our socialist policies ever did.

To allow it all to be ruined by a bunch of cowboys who either behave like spoilt brats or, as seems to be more likely, are being used by very large forces, simply isn’t worth it.

More Stories on : Economy | Financial Markets | T.C.A. Srinivasa-Raghavan

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