An economist for all seasons

Last Saturday, during a TV show, the official spokesperson for the Congress party put forth an interesting proposition.

“This is a democracy”, she said. People are entitled to their views, she pointed out. “You are in public life”, she reminded Justice Santosh Hegde. So you must have a thick skin, she concluded.

In other words, according to her, people in public life in a democracy must have thick skins. This is just the sort of thing that Dr Kaushik Basu, the multi-dimensional Chief Economic Advisor, likes to analyse for leaps of logic.

After the ill-informed criticism he has received last week for an idea he put forth recently, he may well ask: are thick skins a necessary condition to be in public life.

If yes, does it mean relieve citizens of their responsibility to ensure fair comment?

Ill-informed criticism

The criticism came in two articles by a couple of Leftists. They objected to Dr Basu's suggestion that bribe givers from whom money is being extorted for getting something they are entitled to, should not be punished.

Dr Basu's proposition is pretty sensible, but the Leftists who have probably not read the original paper tore into him. Their indignation was matched only by their sanctimony.

But the distinction between bribing and paying extortion is a valid one. I have seen poor people in cremation grounds paying back-handers for dry wood. Would you punish such ‘bribe' givers?

One of the Leftists also implied that practically all the research done by Dr Basu in the last 37 years was worthless.

That is a matter of opinion but research and publications there have been — in copious amounts.

Prodigious publisher

In the last three years, Oxford University Press (OUP) has brought out a 4-volume set of Collected Works. Permanent Black has brought another collection meant for laypersons. Princeton University has published another book on how economics needs to change.

And most recently, OUP has published another collection of miscellany that includes, of all things, a play! ( Beyond the Invisible hand , Princeton University Press , 2010 (published in India by Penguin); An Economist's Miscellany , Oxford University Press , 2011; Collected Papers in Theoretical Economics (4 Vols), OUP , 2009; The Retreat of Democracy , Permanent Black , 2007)

There are other contributions as well, not to mention a ‘game' in game theory about a traveller's dilemma and an extended version of Sudoku called Duidoku. And, in each of the two Economic Surveys that Dr Basu has contributed to and edited, he has come up with a new idea.

This has never been done before, not even when one of the Leftists mentioned above was in charge of the Survey when it first began in the early 1970s.

Puzzles and posers

More than anything else, the above-mentioned books and others by him, show Dr Basu's ability to use economics to solve difficult problems involving choice. For example, he asks: If financial products are worth producing, should their consumption be regulated or not?

He says financial products should be treated like prescription drugs because there will always be some people who need some drugs/financial products but also need advice on how to consume them.

Simple solution: just as with doctors who give you advice on medicines, create a body of finance professionals to do the prescribing for financial products. Or, there is his idea that a little altruism can improve outcomes for everyone. This is contained in the ‘game' he has invented about two travellers who claim compensation from an airline for something.

The airline says it will pay them what they want provided both ask for the same amount without colluding and that, in case, they ask for different amounts, it will pay them the lower amount + Rs 2 for the man asking for the lower amount and – Rs 2 for the man asking for the higher amount. He shows how this latter condition can lead to both asking for the lowest amount possible which is more than Rs 1.

Then there is irrational behaviour. If you lose a ticket worth Rs 250 for, say, a cricket match just before the game starts, will you buy another ticket or just go home?

Experiments show that most people would go home. But if the same people lose Rs 250, they end up buying a ticket in the belief that the cost of watching the match is only Rs 250.

Not infallible

He is not infallible, however. Like most economists, on India's labour laws he hasn't thought through the logic and the practice.

For once, Dr Basu misses a trick. The problem he identifies — of our labour laws slowing down the growth of the formal sector — does not lie with the Industrial Disputes Act; it is a consequence of our Constitution which makes the right to association a fundamental right.

This right makes the formation of trade unions a fundamental right. But where there are unions, there will be disputes. If there are disputes, we need a law to sort them out. If there is a law, it must be fair, which the ID Act indubitably is. Dr Basu's solution is to permit time-bound contracts between employers and employees. But a law for that already exists.

India's formal sector, especially the manufacturing sector, is expanding slowly not because its labour laws are bad, but because its Government is venal.

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