A Teacher Writes to Students Series (12): Macroeconomic Kiss by KISS

Prof Annavajhula J C Bose of SRCC resumes his series in the new year.

Macroeconomic Kiss by KISS

 By Annavajhula J C Bose, PhD

Department of Economics, SRCC, DU

Suppose you ask neuroanthropology and psychology freaks, what is the right way of kissing, they will tell you that “if you lean in for a kiss on the left you may be in the minority”.  And if you ask Buddhist freaks, what is the ideal way of walking, they will say to you, “Walk as if you are kissing the Earth with your feet.” Likewise, if you enquire with an unexplainable idiotic freak like me, what is a best beginner’s guide to macroeconomics, I can only invoke the KISS Goddess, so to say.

Keep It Simple, Stupid (KISS), according to her, is a “design principle which states that designs and/or systems should be as simple as possible. Wherever possible, complexity should be avoided in a system—as simplicity guarantees the greatest levels of user acceptance and interaction.”

On that basis, I can answer you thus: KISS like Natrass and Varma (2014). Or, even better, KISS like Thomas (2022). Both these give you the intellectual thrill that a beginner needs to take off in the most fascinating and yet difficult subject of Macroeconomics, which is undervalued in relation to the overvaluation of Microeconomics in mainstream economics classrooms.

In University of Delhi, you do introductory macroeconomics with assorted chapter readings from famous mainstream textbook writers such as Abel, Bernanke and Croushore; Mankiw; Blanchard; Dornbusch, Fischer and Startz; and Froyen. And you invariably wonder what exactly is the cocktail-story that can emerge out of the peripatetic sojourn with these disjointed readings, especially over a shortened semester of three to four months.

In that state of pathetic confusion, Natrass and Varma are a big relief. They process the subject matter and produce the outcome impossible to get from the above assorted readings.

Natrass and Varma (2014) demonstrate how Macro is an exciting and fiercely contested subject through a simple discussion of the market-clearing (neoclassical) model on the one hand and the Keynesian model, on the other. The former is based on the assumption that the free operation of market forces will result in the macroeconomy adjusting quickly and efficiently to full-employment equilibrium. The latter is based on a different premise, that markets function imperfectly, and that individual maximising behaviour in the presence of uncertainty can lead to socially irrational outcomes like extended recessions. These competing theories are presented using simple algebra and graphs of IS-LM and AS-AD frameworks for closed as also open economies rather than complicated mathematics. The intellectual origins of key concepts and their ideological persuasions are made clear along with ample provisioning of Indian examples where appropriate. The proclivity of capitalism to financial crisis is discussed by the insights offered by Hyman Minsky and Joseph Schumpeter so that as a policy maker you can manage the capitalist economy to deliver more benefits, and fewer costs, for ordinary people.  All this equips you with the tools for understanding and criticising the economic policies which may be thrust upon you by ‘madmen in authority’.

Thomas (2022) introduces you to an appropriate approach to Macro in the Classical tradition of economics of Smith, Ricardo, Marx, Keynes and Sraffa. Thereby, he also introduces you to good economics in general with historical, pluralistic, political and social-structural underpinnings. All this leads to better understanding of the Indian economy, and of economic policies and their outcomes in India. The takeaways are as follows.

The all-pervasive belief among most economists and policymakers that a competitive monetary-production economic system is good for all arises from a marginalist/neoclassical standpoint, which is flawed.

Since theory matters for measurement, context understanding and policy formulation, many theories are surveyed: exogeneous and endogenous money; marginalist and Keynesian output and employment theories; supply-side and demand-led theories of economic growth; marginalist and classical theories of income distribution; quantity theory of money and classical/Sraffian theory of prices.

Structural interdependence in production; financial architecture; the nature of economic growth in relation to the inequality of land ownership and the state of our natural environment; agriculture and the informal sector; and the nature of unemployment and inflation are discussed in the Indian macroeconomic context. This leads to the understanding of the extent of casualisation and contractualization of the Indian workforce; wage inequality between self-employed, salaried, contract and casual workers; the divergence between managerial compensation and wages; the over-representation of workers from Scheduled Castes and Scheduled Tribes in poorly paid occupations; and the high proportion of women workers in agriculture vis-à-vis services.

Price changes in one sector affect prices in other sectors, depending on how structurally dependent they are. Agriculture plays the crucial role in India’s inflation. India’s dependence on petroleum imports is another source of inflation.

The role of caste and gender is explained using excerpts from Indian books of fiction. This highlights the point that learning economics and formulation of economic policies cannot be independent of the underlying social structures. It is important to keep in mind the collective wishes of people.

The Thomas KISS concludes thus: “while the conceptual framework influences our selection of contexts, a contextual understanding enriches our conceptual understanding and also points out the limits of economic theory. And to do good economics, it is necessary to equip ourselves with both concept and context by continuously reading—the classic books (and articles) in economics, the history of economic thought, studies based on extensive fieldwork in India, government and RBI reports, books of fiction and newspapers”.

I prefer the lucid and novel Thomas KISS because it is amenable to non-economics students.  Most economics students too will not be intimidated by the technicalities of the IS-LM stylisation. Finally, there is controversy over the persistence and usefulness of the IS-LM framework in mainstream macroeconomics classrooms. Macro can be done much better without it in order to appreciate austerity and activist economic policies. Which is not the case with  all mainstream economics textbooks which are essentially the same in their core content  and presentation based on the dominant marginalist framework. To reiterate, “The dominance of an idea, concept, theory or framework does not necessarily mean that it is the best available idea, concept, theory or framework in a scientific sense.”

So much on macroeconomic kiss by KISS.

Unfortunately, the textbook of Thomas or Natrass and Varma is not a popular choice for undergrad study in the Indian context.

 

References

Alex M. Thomas. 2022. Macroeconomics: An Introduction. Cambridge University Press.

https://www.bath.ac.uk/case-studies/humans-hardwired-to-lean-to-the-right-while-kissing-the-world-over/

https://www.goodreads.com/quotes/299262-walk-as-if-you-are-kissing-the-earth-with-your

https://www.interaction-design.org/literature/topics/keep-it-simple-stupid#:~:text=content%20and%20literature-,What%20is%20Keep%20It%20Simple%2C%20Stupid%20(KISS)%3F,of%20user%20acceptance%20and%20interaction.

https://community.middlebury.edu/~colander/articles/Strange%20Persistence%20of%20the%20ISLM%20Model.pdf

Nicoli Nattrass and G. Visakh Varma. 2014. Macroeconomics Simplified. Sage.