Archive for September 19th, 2013

What is the core of Economics?

September 19, 2013

Prof Amit Bhaduri of JNU has this nice speech given at National Conference on Economics Education in Schools in 2010. Thanks to EPW’s recent edition for the pointer, which is a good read as well.

In this age of chronic mendacity in public life, where all of us are the victims of a propaganda-managed democracy, surely what students at the plus two level of education need is an economics that demystifies economics. The Indian public needs to know the “bad conscience and evil intent of apologetic” (this from Marx) that the pundits who disseminate free-market economics have committed themselves to. When they reduce “public finance to housekeeping in the name of ‘fiscal discipline’” (Bhaduri again) and thereby clandestinely make a case for “disciplining the poor to help the rich”, all the more we need open-minded, intellectually self-confident citizens to call their bluff. What then is the core of economics that will give “an intelligent and interested citizen the confidence to pose and raise relevant economic questions”, depending, of course, on the particular context? Bhaduri answers this question with reference to three areas – microeconomics, macroeconomics, and the Indian economy.

In the section on macroeconomics, he focuses upon the fallacy of composition, taking pains to explain the proposition that what is true for the individual is not true for society and that the whole is not equal to the sum of its parts, thereby debunking “methodological individualism”. Here he gets to the paradox of thrift and then to the basic difference between Keynesian and non-Keynesian macroeconomics, going on to explain how demand is generated by expenditure and illustrating the notion of the “multiplier”. He then debunks the quantity theory of money and links up money with deficit financing.

On the Indian economy, Bhaduri suggests that students need to know the sectoral structure of the gross domestic product (GDP) and employment, the class and regional distribution of income, and how these have evolved since Independence. Over the last 20 years, why has the rest of the world, whose real GDP has grown much slower than India’s, reduced poverty faster? How is it that India has such a large number of billionaires, second only after the US, and displays extremes of wealth and poverty, luxury and misery, and civilisation and degradation not found anywhere else in the world? In this context, what of the social choices made by a political system wherein to be a serious contender for a parliamentary seat in elections to the Lok Sabha the average amount that is spent is Rs 8 crore? Students then might ponder over “how much content is there to this form of democracy”. With so much unaccounted money flooding the Indian electoral system, does this not make a mockery of political equality at the polling booth?

In Micro, Prof Bhaduri says we need to learn just the following ideas:

The income and substitution effect is one thing and choice using soft information and hard information or exact information and inexact information is the second thing that is all I think which is really valuable in microeconomics.

He also takes a jibe at his fellow students in Cambridge who have forgotten economics (any guesses who??)..

In the end Prof Bhaduri says:

What I have said, I believe, with a little bit of thinking, you all can cut out those parts. (It is another matter what will come in examination. We will come to all that). Also I have outlined
what I think can be brought across to student much more easily than if you try to get all sorts of issues. Take Indian economics, it has all kind of information. You might choose not to
have this or something else, but some basic information which you think is important and why it is important. I said why I think this is important today. There is so much talk of
market, liberalisation and high growth. We should know the other side in that. To be a balanced citizen, you should know the two sides. In everything, you can choose something,
you can have your political bias and if you are intellectually honest, you can say, this is the bias I have. It is true that I am probably much more worried and interested about the poor
than most people who appear on the TV these days. But that is ones’ personal choice. You can certainly say, this is what I think. But certainly stock markets is not the main part of the
Indian economy.

Another attempt to question economics teaching particularly in Indian context..

A short history of FOMC communication..

September 19, 2013

FOMC has set markets on fire. The pain continues to be postponed. One of the several instances showing irrationality of markets. Poor Chuck Prince is always criticised for his infamous quote regarding music and markets. But it mostly sums the mood of markets – dance till the music lasts.

Anyways, Mark A. Wynne of Dallas Fed writes a nice short history of FOMC communication.


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