Public Policy for economists

RBI’s ex-Governor Dr Reddy’s humor is well known (see this and this for just a few amongst the many). I came across this speech which provides loads of food on thought for economists  involved in public policy. (It also tells me to try and read his previous speeches on various subjects). He details the challenges an economist faces in public policy with his trademark humor.

He begins like this:

The question is : Is there life without the economist? ….Since everyone has a view on economic matters, the subject looks deceptively simple in most eyes and is thus prone to much contention. Add to this the fact that in a subject which concerns everyone so intimately and which is almost always in the headlines, the temptation for the economist to play to the gallery and to seek the limelight by simplification, exaggeration and even glamorisation is not easy to resist. But with all that, it is difficult to imagine life without the economist.

But then, life with the economist is not very simple either. Economics is perhaps the only field in which two people can share a Nobel Prize for having divergent viewpoints – to cite Myrdal and Hayek. Often, people hold that economics is as definitive a science as astrology is, and the more charitable of them place an economist between a physicist and a sociologist. For example, in the Preface to his book Peddling prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations (1944), Paul Krugman says that an Indian born economist once explained his personal theory of reincarnation to his graduate economics class. If you are a good economist, a virtuous economist, he said, you are reborn as a physicist. But if you are an evil, wicked economist, you are reborn as a sociologist .

🙂 I think that Paul Krugman joke was mentioned by Avinash Dixit, I read it somewhere not sure

Actually the speech is not as well organised as I would have liked it to be. It has many ideas so am just leaving a few quotes from the text.  Actually the entire speech is worth quoting. It is amazing how he mixes humor on a relatively serious topic.

One should also make a distinction between economic ideas and economists ideas….

There is often, an observable lag between economic analysis and social or institutional change. I recall, President Ronald Reagan saying, if something succeeds in practice, economists start wondering whether it will work in theory.

Sometimes, policy makers express frustration (in utilising services of professional economists) at the fact that the approach of many professional economists is technique-oriented rather than problem-oriented.

Any presentation on the role of economists in public policy will be incomplete without a reference to recent economic reforms in the developing world, and the role of Technopols. The term technocrats has been used to describe the economic technocrats who assume positions of political responsibility (and Professor Manmohan Singh is cited as an example). A technopol is, in many ways, an instrument of translating economics into public policy. John Williamson, the editor of the book The Political Economy of Policy Reform (1994), describes the skills needed for the success of technopols.

Many of my economist friends are frustrated that eminently sensible economic solutions do not find acceptance in public policy. Economists should keep trying to influence public policy, but economists should recognise that economic policy is only one element of public policy, and in fact, they should be prepared to be influenced to some extent by public policy.

Like any other profession, free and frank professional advice from economists would be ideal. It is said, of course in jest, that whatever conclusion you want, economists can supply on demand. In the same vein, it is said that an acceptable level of unemployment means that the Government economist to whom it is acceptable still has a job. 🙂

An economist in Government has no option but to deal with a large number of non-economists. It is, therefore, useful to make some general observations on economists interactions with political executive or legislators and administrators……First, in formulating any public policy, the economist should count not only economic opportunity cost but also political opportunity cost.

As I see it, in real life, an economist in Government has to be less than an economist and also more than an economist; less than an economist since he has to improvise and respond to practical questions with approximate solutions based on inadequate, incomplete and outdated data; and more than an economist because he has to comprehend, interact and influence a host of non-economic factors, be it value-judgments or mundane reconciliation of conflicting interests.

 A good or a brilliant economist does not ensure good economic policy. Prof. B. S. Minhas as a Member of National Planning Commission semi-jocularly mentioned that in one State we have outstanding planners and slow growth, while in another there are poor planners and high growth.

Often, an economist in Government ends up defending in public the actions that he pleaded against in discussions within the Government.

His comments on quality of economists and use of case studies in India is worth thinking:

There is another interesting factor in employment of economists and statisticians that we experience in the Reserve Bank. We are not bad pay masters by Indian standards. We in the Reserve Bank find that although a large number of candidates appear for the entrance examinations, the required number are not able to meet the minimum standards prescribed by us….I had mentioned about our problem in getting young economists of the standards that we need. If it is accepted that we do not have within our country, enough identifiable world class institutions, we can attempt to locate or upgrade select centres as Indian Institute of Economics (IIE) on a pattern similar to the Indian Institutes of Management and Indian Institutes of Technology.

We need to develop the concept of case analysis in order to learn from economic policy decisions. We had some critical and controversial decisions in the economic arena. While the controversy is on, there may be problems in explaining all the factors or nuances that went into a decision. But, after a lapse of time, it should be possible to analyse and explain. We have to develop – in coordination between Government and academics – some case studies of policy decisions taken in the past.

Excellent right from the word go.

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