The Hindu Business Line : `Economics has been hijacked by the rich and powerful'

Politics and economics can get pretty silly sometimes. In American politics, if the economy improves, the President will take credit for it, much like the rooster who thinks his crowing made the sun rise.

MR JARED BERNSTEIN, US-BASED ECONOMIST AND AUTHOR

Conventionally, authors labour on their books out of everybody's sight, and readers get to see their work only as finished products on bookshelves. Turning this norm on its head, Mr Jared Bernstein wants to first hear out the readers before writing his next book. "Dear Reader, My name is Jared and I am a practising economist," begins his letter, as put out by his publishers Berrett-Koehler.

"Economics has been hijacked by the rich and powerful, and it's being used against the rest of us... so I'm writing a book for real, everyday people, to help answer their economic questions. And I need your help," continues the request.

"Send your everyday economic mysteries to AskJared@DCemail.com, and I'll do my best to solve them in my forthcoming book. (Please let me know if it's ok to use your name, too)," invites the author. "With sincere thanks from your `everyday economist,' Jared Bernstein,author of All Together Now: Common Sense for a Fair Economy, concludes. Business Line sent a few questions to Mr Bernstein, and he was prompt in his response...

Why is knowledge of economics necessary/important for the common man?

Actually, I think most people do understand basic economics. If the supply of a desired good is scarce, we generally expect its price to rise. We tend to appreciate the fact that more highly educated persons are paid more than those with less education, because we implicitly expect the former to be more productive — to add more value to the firm's output — than the latter.

But what I have stressed in my work is that the common man, and common woman too, should understand more than these basic fundamentals.

They should understand what might be called political economics. At its core, economics is about making the best choices given scarce resources. But who defines what's "best"? Without a basic understanding of the potential tradeoffs, we are at the mercy of economic elites and policy officials to make these choices for us.

For example, societies are constantly making economic choices about how to spend or investtax revenue.

Too often, these choices are cast as "etched in stone," with some economist invariably saying, "we can't afford X, but we can afford Y." Citizens need to appreciate the costs and benefits of these choices, and make sure they have a voice in which choices are made.

To get there, we need to ask such questions as:

What are the distributional consequences of this choice: who wins and who loses?

What are the implications for public budgets: if the initiative being paid for is in a way that is fair and efficient?

Is this the right time for such an expenditure?

Are the benefits of our growing economy being fairly and broadly shared with those who are generating those gains? Are the bakers getting their fair slice of the pie — or should I say the naan — they themselves are baking?

If citizen-economists insist on clear answers to such questions, economic outcomes will be much improved upon.

Are inflation figures computed correctly? And what sense does the inflation rate make to me?

I don't know about India, but in the US, we devote considerable resources to computing how much the price of goods and services change each month, and though there are always concerns about how price changes are measured, we do a reasonably good job. The biggest challenge here is adjusting for quality. Suppose a TV costs $500 today and $600 a year from now. If it is exactly the same TV, then no problem: TV prices are up 20 per cent. But what if this $600 TV has some new, valuable features? Then the price increase is really less than 20 per cent, because we're now buying an improved product.

As far as your personal experience with inflation, I think the way that tends to play out is when your pay-cheque doesn't go as far this week as it did last week.

In America, for example, the prices of food and petrol have been rising quite quickly in recent months, and even though people's wages are rising too, inflation has often outpaced them. That's when you feel the pinch.

How can politicians be taught not to blame economics for our woes? Similarly, how can we make economists talk in a more understandable manner? Do economists and politicians need to be at loggerheads?

If the economy worsens, that's because the former President made terrible mistakes, and the current administration is trying hard to repair the damage (though the opposition party is surely thwarting their good efforts)!

Of course, presidents and Congress do have a great deal of impact on the course of the economy, through fiscal (tax and spending) policy, regulations, and social spending. That said, I've gotten used to politicians "connecting the dots" between their policies and economic outcomes in ways that are pretty suspicious.

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`Economics has been hijacked by the rich and powerful'