Understanding economics

Published : Nov 16, 2012 00:00 IST

PRANAB MUKHERJEE, when he was Union Finance Minister, interacting with students at the West Bengal National University of Juridical Sciences in Kolkata after delivering the K.C. Basu Endowment Lecture on "India's Development, Economic Policy and the Law" in 2011. At left is West Bengal Finance Minister Amit Mitra.-ARUNANGSU ROY CHOWDHURY

PRANAB MUKHERJEE, when he was Union Finance Minister, interacting with students at the West Bengal National University of Juridical Sciences in Kolkata after delivering the K.C. Basu Endowment Lecture on "India's Development, Economic Policy and the Law" in 2011. At left is West Bengal Finance Minister Amit Mitra.-ARUNANGSU ROY CHOWDHURY

Lack of economic literacy is why people are not in a position to interrogate economic policies that are often presented as inevitable.

THERE is no shortage of problems that plague public policy and social life in India today. But one of them is not talked about very much, though it has important even crucialramifications for peoples lives: the lack of basic economic literacy. This is a widespread problem, not just among ordinary citizens but even among the media, legislators and elected representatives, decision-makers in public and private organisations, and others.

This has very adverse consequences because it means there is usually an inadequate understanding of the processes that are set into play by particular policy choices, or of other possibilities. So the public at large is not in a position to interrogate economic policies that are only too often presented as necessary or inevitable according to some opaque but supposedly technocratic determination.

One reason for this is, of course, the disagreement among economists themselves about the nature and workings of economic processes. After all, in this discipline (not just in India but across the world) there are continuing and unresolved debates on almost everything. The underlyingbut rarely explicitpolitical and ideological predilections of different economic analysts determine not only the choice of assumptions made in theoretical models but even the analyses of empirical outcomes. Even well-established ideas tend to be clouded over either by a miasma of obfuscating jargon or by so many signs of two-handedness (on the one hand, on the other hand) that people are just left confused.

But another reason for the lack of more widespread economic literacy is the glaring absence of books that can provide clarity to cut through the debates and provide a basic understanding of economic processes. Although I have been teaching and researching in economics for more than three decades, I am still hard put to think of any title when people ask me for an easy, approachable introduction to the subject that can be understood by intelligent laypersons as well as those who have a direct interest in understanding economic mechanisms. And this is even more the case for books that provide a perspective relevant for developing countries like India.

This is why a new book by G. Omkarnath ( Economics: A Primer for India, Orient Blackswan, 2012) comes as a welcome addition. It is usually an act of great courage to write an introductory book on anything, and it is probably even more courageous to do so for a subject like economics. This book is nothing if not ambitious: it attempts to bridge the gulf between the real world and introductory economics by introducing the subject through the medium of the Indian economy.

Given the grand nature of this task, the author has done a surprisingly good job, presenting the basic ideas of the economic structure of society and of change through time in a logical, clear and consistent manner. Omkarnath concisely discusses issues of production, distribution and growth; of market functioning and how it can be socially embedded; of the significance of macroeconomic variables such as savings and investment and how they are measured; of government policies and their effects on economies, including both state intervention and liberalisation; of the challenges of economic diversification and industrialisation in affecting both productive structures and employment; of the significance of petty production as well as the persistence of informality; and other issues directly relevant to the Indian economy.

Part of Omkarnaths success in presenting and clarifying basic concepts is that he eschews the method employed by most standard textbooks of focussing on the logic of individual choice in an abstract system of competitive markets. Because this abstraction is so far removed from reality, it does not allow those who have grasped its internal principles to move easily into a consideration of the world around them and contemporary economic processes.

So a yawning gap is created between the closed world of so-called theory and the more complex and dynamic economic realitya gap that has led students in Europe, for example, to protest against the autistic nature of the economics discipline that they were exposed to and generated a movement for post-autistic economics that has now culminated in the study of real world economics.

Instead of conforming to the autistic pattern, this book unfolds within the observed reality of the Indian economy. There is no explicit obsession with theory as in the courses on economic principles that still form the staples of undergraduate and graduate pedagogy. But that does not mean that theory is absent; rather, theories are described and elaborated upon in relation to the observed reality, which serves as an effective way of promoting their comprehension.

As noted in the preface to the book: The specific apparatus deployed is a mix of intuition, simple concepts and measures, accounting relations and bits of history. The user will have learnt to follow reports on the economy and to appreciate the role of economic policy. This may seem like a relatively modest achievement, but in fact if it is successful this will be a huge advance because so many peopleincluding those whose professions actually require them to have these skillsare typically not able to interpret the economic reality around them.

Several elementary mistakes that are frequently made in the financial press are gently clarified. For example, consider the number of times there have been headlines screaming that prices are coming down! when what is actually meant is that the rate of inflation is coming downso prices are still rising but at a slower rate. A box on measuring rates of inflation describes various methods in a clear way, and also notes how for annual inflation, the point-to-point method (which is the one most frequently presented in the media) may not capture reality as well as the average of all 52 weeks of the year.

Another significant feature of the book is its recognition of distributive issues of how different economic processes and policies have different distributive outcomes, and that nothing is neutral in that sense. This enables a better understanding of the political dynamics that are closely associated with economics, within national economies and in international economic relations.

Obviously, in a book that attempts to deal with so many important concepts and to cover such a large ground in a relatively short space, there can be quibbles about the weight given to different ideas or about the degree of explanation provided for particular concepts or processes. But these are really no more than quibbles because the overall result is an impressive one.

This book should be required reading not just for the average person who wants to know more about how the economy and economic policies affects his/her own life, but also for mediapersons, government officials and legislators who determine economic policy, and even those regularly engaged in pursuing the profession in different ways.

This may be a sad commentary on the state of public knowledge about economics. But the unfortunate truth of that statement shows how important it is for books like this one to have very wide readership and dissemination.

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