There is something about policy and governance that has always intrigued me, and central to the nation’s policy design has been economics (or as we will dissect, has been fatal for spiritual civilisations like India). I began as an interested person and was heavily trained in the arts of mathematics since my undergraduate years. Due to the mathiness of economics (as Romer puts it), I was an easy pick for a candidate in a Research Masters program and now that I see the foundations of the subject at its very core, I am disillusioned and honestly, depressed.
To start, the uninitiated will need to have some basic ideas about the subject and modern economic thought (or was it always so?). An economy is based on a set of producers, consumers, workers, households, governments(which includes banks) and other agents which may be external to the setup. The consumer is a perfectly rational. Therein lies the first problem which troubles me (and many others who won’t speak, lest they may be seen as guilty of tarnishing their own profession).
As Mankiw puts it, “Economic theory is populated by a particular species of organism, sometimes called Homo economicus. Members of this species are always rational. As firm owners, they maximise profits. As consumers, they maximise utility”. The problem, humans are not rational agents, neither do they maximise utility, nor do their choices stay stable. Humans are emotional and spiritual beings, not programmed LLMs to follow a set of next token prediction rational framework (oh and BTW, LLMs and AI also hallucinate and is not perfectly rational either, what to say of humans).
Think for a moment, you are offered a set of ten of your most favorite food items and given the choice to eat, which one will you choose? Most will make a random choice, the choice will change based on their mood swings, which is the last thing you would call rational. Maybe you will end up choosing a food item which wasn’t your favorite to begin with, or a new dish you suddenly see in a restaurant and develop a craving for. You may want to buy a shirt one year and a polo, the next. And rationality is the foundation of economic equilibrium (or steady state), where an economic system becomes stable enough to study. Doyne Farmer of INET- Oxford, in his study of games and rationality, also concluded that both these ideas are indeed highly problematic. Reducing every decision you make to merely a mechanical cost-benefit analysis doesnt seem right, does it?
Rational choices further proceed to transitivity and completeness (ideas borrowed from mathematics to develop a mathematical foundation for the subject). If I prefer A to B and B to C, I will prefer A to C. Right? Well, not exactly. As we described earlier, I may end up choosing C to A as well the next day in many cases. Completeness argues the existence of a choice in a set of choices. But do you always make a choice? Can you always decide what to pick from a set? Our average psychological experience may have a different story to tell. We are confused beings and more often than not end up in a generic, “Hmm, I don’t know” mode when given close choices.
The second and most tragic assumption we end up making (and what underlies the capitalist mindset) is mechanical maximisation of profits of the firms and utilities of the consumer. Firms are seen as having one goal, to maximise profits. In simple mathematical formulation, profits equal the difference between the firm’s production function (or technology) and wage rate. It is indeed in the best interests of the firm in this model to depress the wage rates, underpay the workers (to the extent that it doesnt lower their productivity) and to displace as many workers as they can with technology (since for all practical purposes, the rental rate of capital is less than wage rate of workers). I may go to the extent of arguing that firms would opt for slavery if it was a free choice given to them. We’ll come to wages and labour in a while.
But this assumption, although it holds true, is solely because we have accepted a western capitalist mode of production as true and given up all hopes of morality or ethics in business. This is even more tragic for a nation like India, whose civilisational values and famed leaders like Gandhi, saw businesses as social trustees and not selfish agents. And since a firm that runs in profit and maximizes it, given infinite capital will end up burning it all, we are faced with the tragedy of resource depletion, pollution and the impending reality of climate doomsday.
As for the consumer, they may not end up maximising their utility as it appears due to several factors. You may have a whole cake to eat for free, but you may end up eating it someday, and the other, maybe take only a slice. Your friend may not eat the cake because he is a fitness freak and sees it as unhealthy. How can we define some good measure of utility thus? Even more fundamental to the idea of the consumer maximising utility is greed. Emotional and spiritual factors are more often than not, forgotten or relegated to the hindsight. That you may end up doing charity is hard to imagine for the rational economist since an agent is more often than not, a purely selfish being. “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner but from their regard to their own interest” is one of the famous lines from Adam Smith’s works.
The problem is, for a nation like India is that benevolence is what underlies the economic and social thought. The highest ideal to be achieved for a human in Hinduism is not one of selfish greed or hoarding but the one of charity and satisfaction is seen as the ultimate agenda. Ishavasya Upanishad thus speaks, “Do not covet for the wealth of thy neighbour”. This is a polar opposite to the modern capitalist agenda that teaches one to maximise one’s wealth, even though it may mean starving one’s neighbour. The result is unabated inequality and concentration of wealth and power in the hands of few (ironically, the study of this same phenomenon, which is borne out of the modern capitalist thought and what underlies the art of economics is in fashion of being studied by economists today). One who is familiar with Weber, may have heard of ‘The Protestant Ethic and the Spirit of Capitalism‘. Weber argues that capitalism is a result of the protestant ethic of Calvinism that argues wealth is salvation, which will be thoroughly rejected and abhorred by the Hindu ethic of wealth as bondage.
Now that we are done with the basic assumptions of economic theory, let us turn our attention to what economic theory implies in practice and how a subject of philosophy and heated debates became a dry sphere and once free thinkers of economic and social problems ended up ‘separating hyperplanes’ on a piece of paper (if that sounds scary to you, welcome to mathematical economics). Adam Smith started the economic revolution in a small room in Glasgow with his work, the ‘Wealth of Nations’, which is a fantastic philosophical treatise. With that, economics became an entrant in the club of humanities (literally meaning the study of human behavior and society). It was a centre of heated debates, accusations, refutations and men arguing over how people behaved when faced with the problem of scarce resources. Then came Debreu and the Neo-Classical revolution and completely threw every other model to the sidelines. Within a few decades, economists were now gloating over how they had successfully converted the discipline into a scientific and mathematical world and were now superior to the other social sciences (poor folks who were still stuck in their descriptive theories).
As mathiness in economics grew, the question of why and what was stumped by the question of how. The more mathematically heavy you could get, the better. Slowly, mathematics even became a tool to carefully mask any deficiency that might creep in and flawed assumptions were taken as gospel truths in the first courses of grad school, never to be looked at again. Terms from physical sciences were borrowed to make it look even more scientific and formal (I was genuinely surprised when I heard the term ‘Capital Law of Motion’, a very cheap copy from Newton). What was ignored was the fact that because the fundamental assumptions are themselves in tatters, the irrational human can never be described by the laws of economics, unlike the laws of physics. Scientific laws are ‘scientific’ for the very fact that they don’t care about the present state of things and are old as the day God decided to create the universe (for lack of better words). They don’t need constant updation and studies to convince one of their realities. A capitalist and a Marxist may kill each other over the idea of economic laws but will both end up dead if thrown from the fourth floor, thanks to gravity.
Natural sciences have predictive power, which motivates their study for practical purposes. A physical law, once discovered, grants the ability to forecast events and outcomes with ease. This predictive power in natural sciences doesn’t lose its properties in complex systems, and hence, from the discovery of the laws of mechanics and thermodynamics, we have the finest motor vehicles today. From the advances in chemical and electrical engineering, we have the era of EVs. Economic sciences face the problem of being extremely poor in generating predictions. Due to the inherent problem of the micro being almost impossible to model and the macro aggregate having infinitely complex networks and interplays, predictive power of economic research goes to the ground. And to ring the death knell are the events of shocks, which are hard to understand even after they occur. The most scathing criticism of economic sciences comes from the fact that no economist was able to forecast the 2008 financial crisis which lay waste amost 2 Trillion Dollars of global economy. I am still unable to find a single academic of economic or financial sciences who would be willing to bet his money, given the models he so vehemently defends. Interestingly, Robert Merton (Nobel Laureate in Economics, 1997 for study of market derivates) started an asset management firm which had to be bailed out by the government and eventually closed. The defense of this fact comes in a rather vague fashion of economics not being a predictive science or trying to explain economic phenomena.
A philosophical bent of mind could even argue that the entire economic world is based on the study of a global order that came into existence in merely the past few centuries. The ideas and the definitions of the order have been largely based on the western, formerly imperialist and capitalist nations. The global south and India, never had the chance to determine the same for their systems were being brutally crushed to the ground by the colonial empires, while the empires were busy deciding the rules of the game. The inherent disconnect between the orient and the occident was enough to make sure that the orient was completely in dissonance with the emerging systems, which were later shoved down the throats of the now impoverished lands.
Then comes the staunch Marxist critique. Although I am not a big fan of the Marxist thought, many of their ideas do feel relevant. The idea of alienation of the masses from the fruits of their labour is as good a reflection of the fundamental assumption of our study of economics. Labour is merely seen as a way to generate wages and wages become the de facto result of labour. The idea of the ‘joy of work’ becomes extinct as the humans are merely mechanical cogs of production. Wages are determined by domination and as Chomsky argues, the entire structure of job market is controlled by firms. Firms in our models are merely profit maximisers. Combine these two and we get our usual evils of unemployment, income inequality and irrational working hours. Marxists would argue that economic sciences are basically a discipline that aims to make the masses believe in the oppressive capitalist system and somehow mask it under the facade of being scientific or inevitable or as someone puts it, “Economics is the worship of capitalism masquerading as a science”.
The utilitarian argument that the social value of employment is more or less imputed by its monetary market value is key to most economic theories. Social impact of work is overshadowed by its impact on productivity (of capital and wealth). We end up in a situation where our teachers, healthcare and social workers are forced to live hand to mouth while the average financial consultant or trader (whose social output is nearly zero compared to the former set), dines in a fancy restaurant every day. This has led to an acute crisis in nations like India, which are hurting its human development goals with each passing day.
And now we come to the final impact of this fiasco, one that is particularly painful to me. In our pursuit of economic knowledge, we have reduced humans to mere machines, the complex and joyous world to mere equations and all our concerns and actions to mere economic statements. A professor once jokingly said to me, “You see, cigarettes should be promoted by the government. They increase the GDP, improve taxation earnings and reduce life expectancy which is a great thing as old people are a huge economic burden”. This joke shakes me up to the core even today. We, including the general non-economist populace, have developed a vision of seeing all that is in evident in the world through the lens of profitability. Economists have stripped morality from economics, leaving an arid science. Every government policy is to be seen in terms of quantifiable profitability indicators. Welfare is to be seen merely as a way to increase productive efficiency. If in a parallel world, miserable workers were more efficient, our systems would be promoting misery.
Yes, humans are greedy but so are animals. Yes, humans sometimes run after the basest of pleasures but so do animals. Yes, humans may slog off on a job that they hate, to fill their stomachs, but so do animals. We need to turn our focus away from what makes humans like animals, to what separates them from them. Empathy, satisfaction, joy of relations, search of meaning in life, the peace of doing what excites one are what makes us human. Sadly, none of them can be factored in our present version of economic sciences (and I doubt if we can ever factor them in any alternate system).
Emergent ideas that challenge the academic paradigm are vehemently abused by the status quoist lobbies. Sensible ideas like complexity economics or qualitative studies are seen as vagabonds. Toxicity is intensely cultivated in academic circles. My interactions in the most popular anonymous academic forum of XJMR have been nothing but most rudely toxic and it was indeed a surprise to see that most young economists are extremely authoritarian, abusive and constantly attempt to ridicule even their peers. Graduate studies have become an avenue of stress and competition than the pursuit of knowlege and truth. Studies by AEA, found that these moderate to severe symptoms of depression and anxiety were about two to three times more prevalent among PhD students in these eight top-ranked economics PhD programs than in the general population. Suicidality was also about two times what you’d see in the general population.
I would conclude by a snippet from Prof. Chang (who is currently in SOAS) on the present state of economic sciences,
“Economics has become a bit like Catholic theology in medieval Europe. It has become the language of rulers. So if you don’t speak economics, you cannot participate in any debate. . . .But of course they are not going to let you speak it — in the exact same way that the Vatican banned the translation of the Bible into local languages in the medieval times. . . . Once you create this body of knowledge, which is not accessible to other people, you can basically bully other people into accepting your argument because other people cannot understand you”.
Whenever I attempt to reason with others on these lines, I am confronted with the same ideas that Prof. Chang entertains and often ridiculed for not having enough ‘knowledge’ or not being a mere conformist. Sadly, I am not one who can digest like a machine for hours, all that I see as false to be gospel truths and work my way through this endless maze, only to become a member of the club and propagate the dismal science further on the track that it is heading.
As for what India needs is a radically new economic thought. One that is rooted in the Hindu consciousness. One that places emphasis on the soul than utility. One that places trusteeship above profits. One that places the conservation of nature and our spiritual heritage at par with economic growth. We need to break from the dichotomy of Capitalism and Socialism and move towards economics, rooted in the ideas of Artha and Ramrajya and not in the words of Smith or Keynes. Therein alone lies our and the humanity’s salvation.
(The views of this article are purely personal to the author)
