Why don’t our economic experts/CEOs/analysts/media speak their minds on Indian economy?

After a long time, one gets to read a speech which talks about one of the most fundamental problems facing Indian economy: lack of healthy criticism (not negative) of government/RBI policy. It is unbelievable to see these days how often the view of all so called independent minds is similar to the government. Pick the newspaper post any budget or monetary policy and you see so called independent minds praising the policy. Thankfully I am not the only one saying this.

Most do not even mention that their view  before policy was very different from what happened in the policy and just shamelessly switch sides. Those few that admit the divergences call the policy prudent and cleverly shift to other side. There are just very very few who are willing to question the move. But then some of them remain silent fearing trolling. All in all, there are just a handful who are willing to speak their minds and they are not liked.

So it is interesting that the Chief Economic Adviser has raised issues about this behavior in a recent much talked about speech. The speech is provocatively titled as: Competence, Truth and Power: Macro-economic Commentary in India. He says:

What is my criticism? My claim is that experts often hold back their objective assessment. Instead, they censor themselves, and in public fora are insufficiently critical and independent of officialdom—whether the officials are in Mumbai or Delhi. To the extent they offer criticism, it is watered down to the point of being unidentifiable as criticism.

Let me immediately add two important caveats. First, what I am asserting is not unique to India; these “misdemeanors” are widely prevalent across the world. Also, I am painting with a broad brush; there are some notable Indians who are consistent exceptions to my thesis/critique. Still, what strikes me is how few these exceptions are, how infrequently the experts are willing to engage in public debate about the macro-economy.

Why do the experts do this? Why do they refuse to speak truth to power? If you ask them, they would say that they are just trying to be “constructive”. But I feel something else is at work. For a variety of reasons, experts feel the need to stay on the right side of power—whether the RBI or government. So, before policy decisions are taken the experts tend to express the views they think officials are likely to take.  After policy actions, they try hard to endorse the decisions already taken. As a result, we in the government do not really benefit from their wisdom. This is a serious problem, because high-quality policymaking demands high quality inputs and high quality debates.

The paradox is that in other spheres—such as trade policy or development policy— one sees a more vibrant, healthy, and unself-censored debate. Why is there such little debate about macro policy? I would venture three explanations.

First, a major source of macro-economic commentary is from stakeholders, such as bankers and other financial sector participants, whose relationship to officialdom is not arms-length. Bankers are careful not to get on the wrong side of the government or the RBI, because they worry about losing access and because they are regulated by them. Here the famous Upton Sinclair quote comes to mind, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”

Second, when it comes to the more disinterested commentators—notably academics— there may be a certain intellectual diffidence. Macro-economics is profoundly general equilibrium in nature, so the inter-relationships are inherently complicated. Because of these complexities, it is much more difficult to be sure of the optimal policy stance— Keynesian prescriptions are very different from neo-classical ones. All this might well discourage even independent commentators from standing out, from being contrarian to conventional or official wisdom.

That said, I think something deeper is at work. On micro and development issues, India and Indians, are on the global academic frontier.  This is less true of macroeconomics. For example, while there are many Indian economists working abroad, there is very little research on Indian macroeconomics even in the US. Part of the explanation is that there isn’t enough high frequency data to make such work interesting. But surely this is only part of the explanation. This is a matter of sociological interest that needs greater investigation.

One of the examples is monetary policy (others are Credit rating agencies (why do we care so much for them?) and fiscal policy):

Perhaps the epitome of this dynamic can be found in the assessments of monetary policy. Consider how expert assessments have evolved, just over the past few months. After de-monetisation, a consensus had built up amongst the investor community and the economic analysts that the RBI would cut interest rates. This consensus was based on (a) a declining trend in inflation from Q2 FY17 and (b) the projected short-term adverse impact of demonetization on growth.

It turned out that the MPC did not cut. Instead in December, it signaled a more hawkish stance (going from accommodative to neutral), and since then has maintained that stance.

Yet instead of criticizing the official decisions, as consistency would demand, analysts found ex-post logic to attribute merit to these decisions. That is, far from criticizing the central bank for holding rates constant over the past three announcements, analysts praised the policy stance as prudent and helpful in boosting the credibility of the inflation-targeting framework. While the RBI’s decision may well be commendable, it is odd that before December experts saw no inconsistency between a rate cut and the credibility of the central bank.

To be fair, some change in position could be warranted either if the official assessment revealed something about the economy that analysts did not previously know or if they learned something new about the RBI’s preferences or reaction function. Since December, there was perhaps one new aspect of preferences that markets did reveal: after some ambiguity in September, the MPC has only subsequently (in February 2017) made clear that its target is 4 percent not say 5 percent. Even allowing for this, the analysis and commentary has remarkably toed the official line post facto.

Actually, I think the problem is not just with analysts. Even the MPC members were just so coy and spoke in unison as if nothing had happened. And some distinguished economic elite projected the status quo decision as continued independence of RBI. Given how the central bank has been functioning recently with respect to criticism, it is too much to expect mere analysts to dissent. After all they too want to be in the glam world and be invited to central bank interactions and so on.

Why just stop at MPC members? The speaker of this very speech himself is guilty of not speaking his mind. He openly sidelined from speaking about an issue fearing he will lose his job. True, beef ban is not his area to comment but he could have just said anything else.  There is more here about him not walking the talk. Even the analysis on demonetisation in Economic Survey was just so diplomatic. It did not even cite the work of Prof Arun Kumar who is a foremost critic of the move.

The problem is far deeper and starts right at the top. It is bizarre to see so many economists willing to give their arms to get government roles in India. Most of them in their work talk about liberalism and markets but do anything to get these government roles. They end up being part of the same policy tamasha they have written against. But then they also react to the same incentives as analysts which is to be part of the glam game. The government tag automatically gives you an audience one never had and you suddenly become a star economist/policymaker and so on. One suddenly becomes a darling of the media and one gets huge power seeing any and every comment driving financial markets.

So first the big guys bend towards the government followed by analysts bending towards the former. And the game goes on..

One Response to “Why don’t our economic experts/CEOs/analysts/media speak their minds on Indian economy?”

  1. Linkfest - Kairos Capital Says:

    […] Mostly Economics – Why don’t economic experts speak their minds? […]

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