The Hindu Business Line : Science of choices to tame numbers and noises

Answer: Financial system. If you sum a country's inflation and unemployment rates, what do you get? Misery index; "the higher the score, the greater is the economic misery".

You may be feeling miserable if you couldn't answer the questions, so try something easy: What do you call "things that have earning power or some other value to their owner"? Assets.

These and more are from The Economist's Essential Economics, by Matthew Bishop, distributed by Viva Books P Ltd (viva@vivagroupindia.net).

This is not the same economics that daunted you in college, but something "that touches and shapes everyday life". There is `the joy of economics' right after the intro, to shatter the myth that the subject is a boring, `dismal science'. Remember, George Bernard Shaw had said: "If all economists were laid end to end, they would not reach a conclusion." What is economics, asks the book, and defines it as the "science of choices", because it helps people make the right choices.

For instance, take the opportunity cost concept — the question `what are you giving up to do this' is key to right choices. How? "Humans are optimistic creatures at heart and generally concentrate on the upside and underplay the downside." The economist can make you take "a hard look at the downside of any choice, to ensure before going ahead, that the upside really is as desirable as it seems." If you don't like economists, you may settle for cost accountants instead for such a sobering role.

CAs operate in the arena of financial statements, while economists have a vaster canvas before them. A value-added accountant would be one who can see the economic underpinnings of numbers, rather than mechanically tally the left to the right. There is a case, therefore, to let the science of choices tame the numbers and noises. However, to make non-economists see the virtues of economics, "economists need to sell their ideas more effectively."

What may be the biggest intellectual challenge to economists is to give a `human face' to their theories.

There is enough entertainment in the A-Z section of the book. `Animal spirits' is "the colourful name that Keynes gave to one of the essential ingredients of economic prosperity: confidence." Also known as, `naïve optimism', as in the case of apparently healthy people putting aside any thought of death.

"Eating people is wrong," instructs the book, under the entry `cannibalise'. Yet, "eating your own business may not be." Puzzled? Here's the explanation: When a superior new product destroys the market for existing products, "the best course of action for successful firms that want to avoid losing their market to a rival with an innovation may be to carry out the creative destruction themselves."

The entry for `taxation' begins thus: "Prostitution may be the oldest profession, but tax collection was surely not far behind." Ancient Greeks and Romans had a form of taxation that got discharged by serving as soldiers, and they had to bring in their own weapons!

Income-tax, the bread and butter practice of many CAs, is "a comparatively recent invention" and the book notes that the notion of annual income is itself a modern concept.

Lagging indicators are `old news'. If accountants were to alert businessmen after economists had rushed in with their advice, the CA profession would be labelled only as a laggard. Is that old news too?

BooksOfAccount@TheHindu.co.in

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