Monday, January 17, 2011

The age of foolishness or slaves of defunct economists

  • To go back to Dickens, it was also the worst of times. It was the age of foolishness. It was the epoch of incredulity. It was the winter of despair. “In economics, there is no accountability for the consequences of your advice. And that is particularly so in an ascriptive society like India.” Jagdish Bhagwati said this and this is relevant because today’s policy-making environment is increasingly harking back to the late 1960s to mid-1970s, policies that led India to losing two development decades. It is fashionable to blame policy-makers for what went wrong then. But one tends to forget that those policy-makers were, to quote Keynes, slaves of defunct economists. We had the Hazari Committee report in 1967, Dutt Committee report in 1969 and the Wanchoo Committee report in 1971. We also had the Dagli Committee report in 1978. There were several such committee reports.
  • It was economists who were important in policy-making who drew the wrong conclusions from Hazari/Dutt/Wanchoo and ignored Dagli. Without naming them, they have never quite been held to task. On the contrary, they have been rewarded with awards. In simple terms, what did those policies do? They restricted supply and made India a shortage economy.
  • Post-1991 policies removed supply bottlenecks, where reforms were introduced. We now have a situation where policy-makers don’t know what is driving either growth or inflation. On inflation, we were earlier told it would slow down, hopes riding on the base effect. The base effect is wearing thin, and food price inflation shows no signs of easing, because agri-products are still supply-constrained. The finance minister, the deputy chairman of the Planning Commission and the Chief Economic Adviser have now told us inflation is a good thing, because it is reflective of higher growth and greater demand in rural areas.
  • How about including policy-making economists within the ambit of the proposed Public Services Delivery Act, making them liable for the opportunity costs of lost economic growth? 
From Bibek’s Wonky policy wonks.

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