Differing perceptions

Differing perceptions

Then there is the reality that economists, like other citizens, subscribe to many different political and philosophical beliefs.

Economists are notorious for their ability to disagree. Winston Churchill, who often had a fight with the famous British economist John Maynard Keynes over economic policy, famously quipped that if there are seven economists, there will be eight opinions, two of them being Mr Keynes’.

Economists in self defence may argue that even medical science suffers from the same problem. Two doctors may come up with different diagnosis and prescribe different medicines for the same patient. Moreover, unlike economists, the errors of doctors can kill people. Of course, doctors may counter that economists, with their wrong policy prescriptions, can hurt many more people by destroying their jobs and livelihood.

One basic problem is that in economics, controlled experiment is almost impossible to conduct at the macro-economy level. For instance, an economist cannot ask the finance minister to change only one tax in the budget, holding everything else constant, in order to study the effects of the tax (alone) on the economy for the next one year. Even if the FM obliges, in the real world, so many other things will change (beyond the control of the FM) like drought or excessive rains affecting agricultural production, prices and incomes, OPEC oil prices or a sudden flare-up in Middle East shooting up petroleum prices and inflation and so on. Thus, the effects of the change in the tax rate will get mixed up with the effects of various other unintended changes. How to separate these effects?
One way is to build a theoretical model of an economy where only the tax rate is changed, holding everything else constant and see how the values of the different economic variables will change in the model as a result of the tax change alone. It is not possible, however, to capture all aspects of a complex economy in a model even if it contains hundreds of equations. So, difference of opinion arises over which variables should be included, what should be the exact (mathematical) form of the equations, what should be the values of the parameters in the equations (to capture the exact reactions of economic agents to different types of changes) and so on.

Looking at past data and behaviour to determine the values of the parameters may be misleading as economic agents may behave differently in future as their expectations about the future state of the economy may change. Thus, different economists would come up with different models and would have different predictions about the effects of any change in policy. In other words, all diagnoses and policy prescriptions are based on some crucial assumptions. Economists, specially in popular discussions, do not explicitly state their implicit assumptions or their underlying models and only focus on the difference in the conclusions. That further confuses the public.

Less productively

Then there is the reality that economists, like other citizens, subscribe to many different political and philosophical beliefs. For example, some have the conviction that the government uses resources less productively than the private sector while some others hold the opposite view. Hence they may selectively look for data and evidence to support their pet hypothesis and would discard evidence to the contrary. Sometimes even the same evidence would be interpreted differently to support their pre-conceived notions.
For instance, in the debate on poverty in India, some anti-liberalisation economists refer to the reduction in per capita grain consumption over time as evidence of rising poverty under the liberalised economic regime. Some others (pro-liberalisers) argue that the falling per capita grain consumption is the effect of people’s rising income which is enabling them to buy a more diversified food  basket (with less grains and more vegetables, eggs, milk etc). As for the statistical estimate of the percentage of population below poverty, there exist several alternative estimates (prepared by different committees at different times for different purposes), using different standards for the ‘poverty line’. 

Some estimates, using a low cut-off in terms of income or consumption expenditure, has come up with a 26 per cent figure while some others estimate, using a higher poverty line, has  put up a number as high as 70 per cent of population below poverty. Even if economists are aware of the underlying differences in assumptions, the politicians and popular media focus only on that estimate which suits their purpose.
Finally, some economists work as paid employees of government departments, industry organisations, financial institutions and so on. Whatever may be their private opinions, they would have to argue in support of the stand of  the employer organisation in any policy debate. It is amusing to see how a former secretary general of  a premier Indian industry chamber has taken up diametrically opposite positions (on issues like FDI in retail) after he has become the finance minister of a state government.

The so-called independent experts working in academic institutions or ‘think-tanks’, when temporarily hired as consultants by the government or private industry,  are expected to write reports which would support the position taken up by the organisation hiring them. In fact, the organisation would hire only those economists as ‘independent’ experts whose views are already known to be sympathetic to their positions. It is common knowledge that the a report prepared by, say, Parthasarathi Shome or Kirit Parikh on any policy issue would be vastly different from one prepared by, say, Prabhat Patnaik or Jayati Ghose of JNU.

(The writer is a former professor of economics at IIM, Calcutta)

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