Macroeconomics Demystified

319 Pages·2011·6.872 MB·English

by  Madan Sabnavis

ECO-
QUIRKS
An Economist’s Journey into Your World
Also by Madan Sabnavis
ISBN : 978-0-07-025178-6
ECO-
QUIRKS
An Economist’s Journey into Your World
Madan Sabnavis
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Preface
“We all agree that pessimism is a mark of superior intellect.”
J.K. Galbraith
Economists, as a rule, are considered to be cynical, and it is rare
to come across an optimistic one. It is said that if an economist is
optimistic, then he must be working for the government, as it
is within those confines that one takes an optimistic view. Also,
almost all government economists response diametrically opposite
views once they are out of service, especially after retirement,
or when they take up a job with the private sector, or join a non-
government research institute. While the fiscal deficit will always be
under control when you are working with the government, it will
become unrealistic and out of sync with the economic environment
when you are with a private company. When you are advising the
government, you will favour a gradualist approach to economic
reforms, but if you join the World Bank or ADB (Asian Development
Bank), then you will be critical of the pace of reforms. Therefore,
the subject has been called, not without a twist of humour, and quite
appropriately, the dismal science.
The adage that all economists are cynics is quite true, and when such
a person begins a journey into different aspects of economic activity
with a critical (cynical) mind, the observations tend to be cynical, yet
true. While the common man would not pause to critically analyze
what he sees in his life, the economist looks into every aspect deeply,
and imputes a value to everything that can be monetised. Also, there
is a tendency to create a theory from patterns which emerge, or better
still, if it goes against the grain of conventional thinking. That is how
new theories come into being, and Nobel Prizes are won based on
such out-of-the box thinking. While a person would look at the price
of a soft drink on the menu card and take it for what it is, an economist
would pose quite a few questions and initiate a debate. This is not
viii Preface
difficult when one prefixes anything that is obvious with a ‘why’,
‘how’ ‘why not’, ‘if not’, ‘is it possible’, and so on. These questions
have always spurred many a debate in the area of economics, with
the economists haggling over various possibilities. Things get better
if there is something amiss, especially if it is an outcome of human
behaviour. After all economics is called a behavioural science also.
It is with this spirit that a journey has been undertaken to look at
the common, yet unusual aspects of life. To maintain an honourable
balance, the paths taken are across both the dark and the not-so-dark
aspects of life. The brighter though less explored venues are also
included, which are also quite illuminating. The basic idea is to bring
to notice the importance of common events that would otherwise
escape our attention. The title is based on the quirks that we come
across in our lives, which are significant as they highlight our own
fickleness. The subjects discussed are not really new, and the cynic
adversary reading such stories, could end up saying, “So what”? or, a
simple “of course I knew this all along”. At times the reader may feel
that special cases have been generalized, but then this is expected when
subjects are common and where the inferences drawn are subjective.
Further, while we all are probably aware of these issues or events, an
audacious attempt has been made to attribute numbers to them. Here,
a lot of liberty has been taken as there could be differing opinions and
views on the same. While the numbers per se could change over time,
and can be debated, the reader needs to note that there is nothing
sacrosanct in using them, and any change is admissible. As far as
possible, the numbers have been kept at conservative levels to avoid
exaggeration. But, if this makes the reader still question the numbers,
the outcome will be good. In fact such debates and changes would be
appreciated as it would really mean that the reader has started thinking
deeply on the issue, and has the makings of, to use an oxymoron, a
“critical economist”. That in itself would be an achievement.
Most of the subjects that have been covered are based on pure
observation, with the starting point being the quirkiness of the
issue. The points of view, though tilting to the darker side are more
Preface ix
a reflection of human behaviour which has been gauged based on
discussions with the man-on-the-street or on personal experiences
generalized at times. Extensions have been made to the corporate
world where a different set of quirks pervade quite significantly. Here,
though it is individuals who dominate corporate action, the way things
have evolved, corporate action per se appears quirky to the point of
being amusing.
The analysis also goes into the realm of government policy where
anomaly and idiosyncrasy dominate, leaving one quite baffled over its
actions. For one who swears by the two TV epics, “Yes Minister” and
“Yes Prime Minister”, made immortal by Jonathan Lynn and Anthony
Jay, the working of the bureaucracy is quite quirky. More importantly,
the name of the country does not matter; the same holds true for all
Westminster-type governments, though the example here is of the
Indian government. You could just as well change the name of the
country and still see the same image in the mirror.
Further, societal behaviour is also quite fascinating as it adds a new
dimension to the way in which economies develop and evolve over
time. Societal behaviour and customs, which have evolved over time,
throw a gentle light over the economics which motivates all such
activity. Our own behaviour too is important as there are always games
being played with our counterparts, which could be an individual or
an institution. Everyone is trying to score over the other and given
that the subject is about human behaviour, the responses are crafted
based on psychology. So, very often, it is a case of you knowing that I
know that you know, and so on.
While a lot of our actions are apparently impulsive, someone
somewhere knows it and creates conditions for such an impulse.
Someone had called it an invisible hand a few centuries ago, but there
could be someone else actually moving it. Very often we are made to
do things exactly like what the others want us to do, albeit voluntarily.
This is the challenge in free societies where every player wants the
other to behave in a certain manner without compulsion. The trick
is to use psychology as the tool. And what is more important is that it
x Preface
works most of the time. That is how organizations prosper, profits are
made, employees are rewarded.
Profits were an outcome of exploitative behaviour in the olden
days. But, today, profits are earned in a very respectable way and
we as consumers contribute to it. We are willing to pay for every
positive economic gain of the other, whether it is the government
or the policeman on the road. This is the ultimate triumph of
capitalism working in earnest in an imperfect market based on perfect
mechanisms.
The chapters in this book have often made references to certain
organisations or persons. Therefore, at the outset it must be emphasized
that they could be any other entity, and the names taken are those
that are familiar to the readers. There is no attempt to either indicate
that the entity or person is above the rest, or in any way question the
competence or relevance of the same. It is felt that a name attached
to a theory makes reading more interesting than just blank references
to no one in particular. A name means a face which the reader can
identify with.
It is hoped that the reader continues reading this book with a smile
as there is a humorous side to all the quirks that have been discussed
here. At times it is serious—especially where the scene presented is a
reflection of the dark reality in which we reside. You can see yourself
somewhere in every chapter, and will probably exclaim at the similairty.
The fact is that no one is above it, and we are really no different from
one another. In fact this holds, irrespective of which side we are on—
the receiving, or the delivering party. Our backgrounds may differ, and
so may our lifestyles, but the commonality is that we are all human
beings and susceptible almost equally to the quirkiness of nature.
M S
adan abnaviS