The Discontents of a Nobel Prize

https://thewire.in/economy/the-discontents-of-a-nobel-prize To understand the atypical response to Banerjee's win, a rare non-cricketing triumph on the global stage, one must first unpack the Indian attitude to development. Engaging the poor to understand their plight and choices might not be that Bohemian anymore. Three development economists – Abhijit Banerjee, Esther Duflo and Michael Kramer – have won the Nobel Prize for Economics in 2019 for doing precisely that. Their body of work, spread across three decades, has brought the economic life of the poor to the centre stage. How has the world reacted to the success of this relatively young trio of economists? It has been a mixed bag. Even in India, where Banerjee hails from, some critics have not allowed ignorance to get in the way of a good tirade. To understand the emotions they have evoked, it is helpful to understand their iconoclastic sins both as economists and as researchers on the Indian economy. The novel idea of talking to the poor One could cynically say that hitherto Nobel Prizes in Economics, unlike in other fields, have largely rewarded theoretical work. Banerjee et al. have tried to replace conjecture with evidence through bold experiments designed to understand how deprived communities respond to incentives and policies. They have asked scores of unassuming questions to understand the behaviour of the poor in Asia, Africa and the Americas. To get answers, they popularised the use of Randomised Controlled Trials (RCTs) in economics. Hitherto prevalent in medical research, RCTs seek to establish the response of a selected group of people to an incentive against that of another group which is left alone. The findings of Banerjee et al. and their fellow randomistas range from the obvious to the extraordinary. For instance, they found that intestinal worms rather than the lack of free textbooks or teachers kept children away from school in parts of rural Kenya – spending a mere $3.50 on deworming could buy school attendance. Young men who received cognitive behavioural therapy in low-income neighbourhoods of Chicago (US) and Monrovia (Liberia) were less likely to slip back into crime and more likely to graduate from school. Distributing bed-nets for free rather than selling them is more likely to encourage the poor to use it and buy nets subsequently. Or providing access to vocational skills and information about job opportunities were likely to delay pregnancy amongst adolescent girls. Importantly, they have brought new rigour to the evaluation of development programmes where billions of dollars are spent, usually with questionable results. However, this audacity to ask meek questions and trust answers to emerge from the huddled masses has not been universally condoned by the Pharisees of the economics sect. For this is a cult where economists ask the big questions of themselves, furnish the answers and stew in unconcealed fury whilst policymakers and the masses fail to act on their command. To their credit, the three pioneers of RCTs have never sought to present them as magic bullets or scalable to wider macroeconomic challenges, but it has not calmed the noise. It could also be said that development economics languishes in the lower echelons of status in Western-centric economics, and three prizes to such a cause might be perceived as generous. Left foot here, right foot there… So what explains the lack of unadulterated euphoria in India? No doubt, there has been more than a smidgen of pride in Abhijit Banerjee snaring the coveted prize. After all, in these times of ache din what could be better than a successful Indian? A successful Non-Resident Indian (NRI), of course. He follows in the footsteps of Amartya Sen, who in 1998, became the first Indian economist to win the Nobel Prize. Whilst Sen’s sun has been setting rapidly over the last few years, the jubilation when he won the prize was unclouded. Banerjee has not been that effective in distending the patriotic chest beyond the nationally significant 56-inch mark and there have even been a few vocal critics amongst observers across the ideological spectrum. To unpack this atypical response to such a rare non-cricketing triumph on the global stage, one must first understand the prevailing Indian attitude to development, and secondly, the ideological dilemmas playing out across the Indian political spectrum. The Indian approach to policy-making follows a similar caste structure to that of the established economics regime. The field of study – poverty – is basic and not something that terribly excites the Indian middle class living on a diet of dreams about global economic dominance. It is an inconvenient false labour just before India births a five-trillion economy. They also grew up on textbooks that promoted the virtues of ‘trickle-down effect’ – when they get their next job with an American company, move up the greasy pole of babudom or buy their next car, they will rain jobs for ayahs, gardeners and drivers that will allow the poor to lift themselves up by their chappal straps. Moreover, those in ‘command and control’ positions – in government or at the helm of development projects – know what is best for the poor. Why ask the very people who are to blame for being poor? If interventions do not work, there is a whole slew of factors – culture, traditions, lack of skills or corruption – to blame. Banerjee’s involvement in drafting a minimum income support scheme for a losing party’s 2019 election manifesto has sullied him as partisan in the minds of many. Welfare is not an idea that has found fertile ground in the minds of the Ayn Rand-esque middle-class opinion-formers. Secondly, the Indian political class is wading through muddled waters to uncertain shores. Whilst the centre of Indian politics vacillates or holidays, both the left and the right are trying to figure out what side to be on when they grow up. The Indian left has been the custodians of the poor since Independence. They have always asked and answered the big questions about poverty, marginalisation and class struggles. Their comrades have controlled universities, research institutions and editorial pages, and ensured that politicians, regardless of their political hues, are closet socialists. However, researchers who go around asking questions to the poor are stepping on their pastures without consent. So, when Duflo and other randomistas rocked up to administer RCTs in Kerala, the state health officials reacted as if it were a suppository. They were openly squeamish about RCTs, lectured her on Kerala’s admirable health indicators, refused to engage on the state health department’s objectives, and were amongst the first critics off the block when she won the Nobel Prize. If only she had attended a Party study camp or two. At the other end, the Indian right is buoyant on the back of a long season of back-slapping electoral victories and growing fanbase. While the left lives in the recent past, the right resides in the ancient past and the near future, both of which are glorious. Like the middle class, they do not appreciate stories of hunger, malnourishment, stunting and disease when they know that our ancestors flew supersonic planes and carried out complex surgeries, and we are on the verge of returning to the moon and Mars. Harping on about the misery of the poor detracts from the focus required to restore greatness; it might even endanger national security and play into the hands of our enemies. The right also believes in magic – jugaad that delivers maximum results for minimal effort, or cunning ideas that never occurred to the educated elites. Like traditional medicines, remedies for greatness might involve short-term pain, desi ghee and lead poisoning, but in time all will be fine. Alas, in the land of ‘mindfulness’ and owning the present, mindlessness abounds. Our thin-skinned reactions to the likes of Banerjee and Sen encapsulate the nascent and often brittle sense of national identity when confronted with our imperfections as a society, economy or state. We are quick to embrace celebrities with tattoos in Sanskrit or cricketers who can sledge in English, but our Podsnappery makes us prickly about comics, writers or academics who show a mirror to our darker selves. All segments of the Indian political spectrum appreciate intellectuals who are obsequious to their leaderships; NRI intellectuals who are beyond the reach of lawsuits, rent-a-mobs and enforcement agencies will be blanked or ridiculed. As Banerjee and Duflo explain in their 2011 book Poor Economics ideology, ignorance and inertia need to be fought to alter the trajectory of poor nations. In India, that battle must be fought within our political and middle classes. For now, linguistic pride supplies claimants for this success – online Bengalis and Marathas vie to add Banerjee as one or half of their own, even if his work itself might be unfashionable. Robin Koshy is an economist. Views are personal.

Uber, knickers and other interpreters of maladies

https://thewire.in/economy/indias-slowdown-uber-knickers-and-other-interpreters-of-maladies Recently, Union finance minister Nirmala Sitharaman – riled by incessant criticism of the state of the economy under her stewardship – sought to identify culprits responsible for the malaise. The multiple organ failure of the economy needed culprits more proximate than Nehru who has hitherto ably absorbed blame for failings past, present and future. So the millennials – those born between 1981 and 1996 – had to take one for the nation. The immediate irritant was the plight of the automotive sector, an anomaly in India’s otherwise low-tech manufacturing sector, that has been tanking for the last ten months with no recovery in sight. A sector that contributes 7% to the GDP and directly and indirectly employs over 34 million workers has seen its worst slump in two decades. The minister sagely pronounced that we should look no further than the millennials who selfishly choose ride aggregators such as Ola and Uber over the pleasure of car ownership. Her diagnosis was neither endorsed by the captains of the car industry nor substantiated by the prevailing poor performance of ride-hailing companies. Even as her homespun wisdom reverberated through the echo chambers of Twitter, the otherwise pliant media unhelpfully released figures of falling sales of men’s underwear. This further evidence of a free downward swing of the economy, while a bonanza for meme producers, has not hung well with the minister’s argument. How was she to know that in an age dominated by men who sermonise muscularly and goosestep in vintage khaki shorts, there might be shortcomings beneath? Alan Greenspan, the former chair of the US Federal Reserve had famously identified the fall in men’s underwear sales as a sure predictor and proof of economic recession. When men, who view their underwear as a necessity rather than a luxury, are willing to wear them threadbare, you know the economy is taking a kick below the belt. People skimp on necessities – basic food or essential clothes – only in periods of serious economic recession. What are the other rough and ready indicators of an economy going limp? Along with knickers, Greenspan identified dry-cleaning as another area where customers skimp during downturns. Haircuts too reportedly become infrequent, whilst cheaper fast-food replaces the cost and luxury of eating healthier or dining in upmarket restaurants. Conversely, in the world of women, where fashionable lingerie is a relatively affordable luxury, the freefall of the economy lifts their sales. A plausible theory is that people will spend money on things that allow them to feel good inexpensively when going out is unaffordable; lingerie might also complement the joy of staying at home. The Hemline Index, first developed by George Taylor in the 1920s, is another index that draws conclusions from the jarring response of women to a good economic crisis. Taylor, an economist from a family of textile mill-owners, observed that hemlines rose with economic growth and fell towards the ankles during the recession. In the booming 1920s, it was possibly because women could afford silk stockings that they could show off with shorter skirts. This index has survived obdurately as compiling data has evidently been delightful labour for the ‘dismal scientists’. It has also proven to be accurate. A study conducted by academics at the Erasmus School of Economics using monthly data on the hemline and chronology of the economic cycle from 1921-2009 found that this urban legend holds, although hemlines lag the economy by three years. Alas, the Hemline Index might not be of much relevance to India where hemlines have remained stubbornly close to the ground, and any upward movement is policed closely, mostly by men in khaki shorts. The lipstick index too, which predicts an increase in the sale of greasepaint during an economic downturn is not an entirely dependent indicator for the Indian economy’s arcane ways. What might be good indicators for India? Do the length of queues in front of chole-kulche roadside stalls in Delhi indicate a similar trend as the demand for fast-food in the West? Do astrologers fare better in periods of uncertainty? Do Indians speak less on their cheap mobile phone lines? More morbidly, are farmer suicides an indicator of a failing rural sector? Or are onions sales India’s most reliable indicators? As R.K. Laxman’s Common Man wryly observed after Vajpayee lost state elections despite testing nuclear weapons in 1998 – to Indians, the onion is more important than the (nuclear) mushroom. Do the sprinklings of chopped onions on pav-bhajis and uttapams thin when the going gets tough? What jugaad indicators might aid Ms Sitharaman in reading the state of the economy? The answer should be – none. Jugaad and earthy wisdom are no substitutes for the complex expertise required for the serious business of running an economy such as India’s. Right-wing populist leaders from India’s Narendra Modi, US’s Donald Trump, UK’s Boris Johnson to Turkey’s Recep Erdogan, and their cheerleaders posture that the common man has had enough of experts. The real cost of this exile of experts from public discourse and policymaking bereft of rigorous data analysis is not just the occasional loss of face for populist politicians, but the mission failure of the state and its key institutions. Be it in running the Reserve Bank or implementing tax reforms in India, managing trade relations for the US or negotiating Brexit for the UK, economists, lawyers and statisticians have essential and irreplaceable roles. Macho politics of this generation needs to choose between making peace with geeky experts who can offer advice, and continuing to get their knickers in a twist while trying to feign proficiency. Robin Koshy is a London-based economist. Views expressed here are personal.