Saving Economics from Politics

An editorial appeared in The Hindu on November 30th which is reproduced here.

                                                                   Number Theory

"The larger lessons from the GDP back series must not be clouded by a political slugfest"

"Backcasting, or reworking past national accounts statistics based on the latest base year, is a regular exercise that governments carry out. Mainly done to enable precise comparison and analysis, it is a difficult exercise prone to contestation as it involves the inclusion of newer data sources, exclusion of outdated ones and making some subjective assumptions in the process. Throw in the political element, and GDP backcasting can become a controversial exercise, as it has now become in the case of the release of back series data from 2005-06 to 2011-12, the new base year. The data computed by the Central Statistics Office (CSO) and released by the Niti Aayog show that India never really grew in double-digits in 2010-11, nor was it the high-growth economy in the five years preceding this as earlier thought to be. It so happens that this period covers the two terms of the Congress-led United Progressive Alliance government, and the new data have predictably set off a political storm. The Congress may feel aggrieved as its biggest achievement, of taking India on the high GDP growth path, has come under question. During earlier instances of backcasting of GDP data, the political environment was not as deeply polarised as it is now, and so the exercise remained more academic.

The danger in the political slugfest now is that the many valuable insights that can be gleaned from the data will be lost sight of. The biggest of these is that India never really decoupled from the global economy during the years of the financial crisis (2008-10), unlike what was earlier believed. The new back series data show a much lower growth rate. This is an important learning for policymakers, going forward. Any criticism of the data has to take into account the fact that it has been generated by a thoroughly professional organisation, the CSO, and the methods have been scrutinised by experts, including past chief statisticians, and the Advisory Committee on National Accounts Statistics. Certainly, the release of the back series by the Niti Aayog goes against convention and is bad in optics. But this should not be reason to contest its integrity. The method of computation reflects the latest United Nations System of National Accounts; it also captures changes in the economy since 2004-05. Data sources have also been updated. Experts had testified to the robustness of the method when it was introduced in 2015, even while underlining that the availability of reliable data was crucial to arrive at the correct overall picture. There is little doubt that India needs to invest more in data collection and integration and do informal sector surveys more frequently. Robust, updated data are, in fact, insurance against politicians hijacking what is essentially an economic exercise."

    Comment on this editorial by the Readers' Editor of The Hindu on December 3rd is reproduced below:

"There were problems with the fundamental assumptions of a recent editorial on the new GDP back series

I generally refrain from commenting on editorials and opinion pieces. I recognise that there are points of convergence as much as there are points of divergence between the newspaper and its myriad readers, and even within the newspaper itself. These conversations lend plurality to the newspaper and they should not be viewed from any narrow ideological prism. However, I have to break from this norm to discuss the editorial “Number theory” (Nov. 30), which generated some sharp and divergent reactions.

Independence of the editorial

The arguments against the editorial were varied. Some took an ideological standpoint, while others interpreted the events that led to the release of the GDP back series. I would like to reiterate that my role as the Readers’ Editor is not that of a pre-publication censor, but of a post-publication evaluator. I do get complaints about The Hindu’s editorial policy, which is defined by the editor and his editorial team. I can explain the policy but I cannot interfere with it. It is vital to support the independence of the editorial. The acid test for the Readers’ Editor is how he conducts himself when his own opinion is at variance with that of the paper. Can he be an effective advocate for free speech, tolerance and plurality if he lacks these democratic traits? Hence, the issue I am discussing is not about the ideological thrust of the editorial but its fundamental assumptions.

The assertion of the editorial that “robust, updated data are, in fact, insurance against politicians hijacking what is essentially an economic exercise” seems like a statement yearning for an ideal reality rather than one that is based on reality. The sequence of events since the creation of Niti Aayog seems to point at a complete politicisation of numbers. Some facts lend credence to the criticism of the numbers put out by Niti Aayog. One, the government had failed to appoint a Chief Statistician for nearly eight months after the retirement of T.C.A. Anant in January. Two, it has had a tense relationship with the Reserve Bank of India. Three, a set of data presented by the committee set up by the National Statistical Commission was withdrawn. Four, the Agriculture Ministry backtracked on a report showing the adverse effects of demonetisation on farmers. Five, there’s the timing of the new data, which many see as a desperate ploy to distract people’s attention from the trenchant criticism of demonetisation by the former Chief Economic Adviser. The line between the Central Statistics Office and Niti Aayog is blurred, thereby lending a political colour to an essential economic exercise.

The practice of data torture

If the editorial is read along with the explainer “What’s with the back series GDP data?” (December 1), it is clear that the editorial jumped the gun to grant the benefit of doubt to the latest exercise and suspended essential journalistic curiosity. The explainer deals with the problem of finding matching data for the older series to the present MCA-21, which is available only since 2011-2012. As a journalist, my entry points for understanding a range of subjects have been science and literature. About pure qualitative methods and number crunching, one of the finest historians of science, Thomas Kuhn, observed that “nature undoubtedly responds to the theoretical predispositions with which she is approached by the measuring scientist.” The Anglo-American economist, Ronald Coase, gave an interesting economic reading of this statement: “If you torture the data long enough, it will confess to anything.” It is true that governments and institutions do indulge in data torture, a practice of repeatedly interpreting source data until it reveals a desired result.

The editorial seems to be oblivious to this caution from the Nobel laureate. Its statement that “during earlier instances of backcasting of GDP data, the political environment was not as deeply polarised as it is now, and so the exercise remained more academic” fails to capture the full picture. In all the earlier changes, the methodology was not only robust but also transparent, and incomparable parameters were hardly used to deduct a number to understand macroeconomic reality. This was an editorial of forking paths, for how do we reconcile the assertion that “the release of the back series by the Niti Aayog goes against convention and is bad in optics” with the conclusion that “this should not be reason to contest the integrity of the new numbers”?

readerseditor@thehindu.co.in"

           My response to the comment of the Readers' Editor

Dear Sir,

I refer to your column in The Hindu today.

Though you are hesitant to comment on editorials, I think you have every right and perhaps even duty to make objective observations on anything that concerns readers. Readers do read, nay even study, the editorials in a newspaper like ours.

As a former banker, I have very often observed that a manager averse to lending ultimately selects a wrong borrower to lend.  In a similar way, though you are averse to comment on an editorial, you have finally chosen a wrong editorial to criticise.

You have noted the assertion that "robust, updated data are , in fact, insurance against politicians hijacking what is essentially an economic exercise" is a statement yearning for an ideal reality (sic) rather than one that is based on reality. In the process, you have ignored the presence among readers of those who look forward to The Hindu to play an effective role in shaping the tone and tenor of economic discussions. Freeing economic discussions from political prejudices is not only desirable but also essential to promote economic development. That The Hindu has done this in the editorial under reference despite the newspaper's proclivity to be harsh on the present powers-that-be is welcome. Please don't dissuade the editors from objective analyses.

The editorial has rightly drawn distinctions between who prepared the data and who communicated them to the wider populace. We should not stigmatise the data because the communicator (Niti Aayog) is allegedly political. The leader has correctly referred to the "fact that it has been generated by a thoroughly professional organisation , the CSO, and the methods have been scrutinised by experts ------". What else do you desire?

I salute The Hindu for its brave attempt to elevate economic discussion from the cesspool of dirty and partisan politics. I hope that the newspaper will continue this crusade despite the dominant presence of carping critics with a hidden political agenda.

Regards,

K.R.Srivarahan,

Economics Nobel

‘Inequality’ is now the flavor of the season among economists. First, Thomas Piketty’s chef-d’oeuvre ‘Capitalism in the twenty-first century’ took the economic world by storm. The major theme in this book was the finding that return on capital exceeds the overall economic growth rate and therefore, unless remedial measures are taken, inequality between the owners of capital and others will keep escalating. Then came another best-seller unassumingly titled ‘Inequality’ by Sir Anthony Barnes Atkinson who has developed a highly rated but complex index of inequality which goes by the name ‘Atkinson Inequality Index’. And now, the 2015 Nobel prize in Economics has been awarded exclusively to Prof. Angus Deaton (69), a Scottish-born economist with American and English dual citizenship, who is now the Professor of Economics and International Affairs at the Princeton University.

Prof. Deaton is known  for his book ‘The Great Escape: Health, Wealth and the origins of Inequality’. Empirical evidence presented in this book glaringly shows that many groups of people have missed the development bus that ensures better health and wellbeing arising from growth in GDP.

It is interesting to note that the Nobel laureate acknowledges that his recent research “focuses on the determinants of health in rich and poor countries, as well as on the measurement of poverty in India and around the world”.

The Nobel Committee has observed, “To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices. More than anyone else, Angus Deaton has enhanced this understanding.

“By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics, and development economics.”

Thomas Piketty (44) is probably too young to be considered for the Nobel Prize !

Amartya Bhagwati or Jagdish Sen?

Even as the bitter slugfest between the two Economics pundits continues, both are feeling the heat and are desirous of reaching a decent patch-up. That is why Amartya Babu has started saying that he was never against growth and Jagdish Bhagwati claims he is not supporting either Narendra Modi or Rahul Gandhi.

But the damage has been done. The whole world has been witness to how low great minds can stoop to score a point over a deemed adversary. Chandan Mitra has contributed his share to the entertainment seeking cancellation of Bharat Ratna award given to Amartya Sen. Sen could have gracefully ignored Mitra, but chose to observe that he would surrender the award if so asked by Vajpayee. Sen knows only too well that Vajpayee is unfortunately in no condition to apply his mind.

It in interesting but has been generally overlooked that Sen is now distancing himself from the methodology adopted for Food Security. There are obviously limits beyond which he will not stake his academic reputation at the altar of political opportunism.

Political trespass

In best of times, the line dividing economics and politics is imperceptibly thin. During surcharged times as at present, the distinction gets even more blurred and economists charge into political terrain as if it is their own. No wonder therefore that even a sensitive economist like Amartya Sen deems it perfectly in order to comment on prime ministerial fitness of aspirants. Narendra Modi is a no-no because he is not ' secular enough'. So there are degrees of secularism which an economist can measure and advise you. Sen certainly deserves the Nobel!

Rahul Gandhi? Sen cannot comment on him because he is not aware of the latter's political instincts! That Rahul is inexperienced, callow and politically inert is known to everyone including perhaps the famous economist. But apparently these qualities do not in limine disqualify him for prime ministership because he is adequately secular! Sen's sycophantic encomium that Rahul Gandhi was a keen student in England is laughable.

In economics, secular means 'in the long run'. It will be healthy if economists confine themselves to pontificating on secular trends in economic sense rather than religious sense. Equally perplexing is the publicised view of Sankaracharya of Kanchi Mutt that Modi should be our prime minister. Political India will suffer if theoretical economists and religious leaders freely wade into politics. 

Has RBI started blinking?

It appears that many banks are having a free run in facilitating money-laundering. HDFC Bank, ICICI Bank and Axis Bank are the recent ones whose feet of clay have been exposed.

Is RBI really unaware of this pernicious practice or is it turning a Nelson's eye? It is either inefficient or lacking in ethical standards. This is a far cry from the reputation garnered by this regulator in the tumultuous days following the American sub-prime crisis. It may also mean that we gave too much credit for the capacity of RBI whereas events were working out serendipitously in favour of the sheltered Indian economy.

The RBI Governor has recently shifted his stand on interest rate reduction. It seems that the Finance Minister has forced the Governor to discover the salubrious impact of interest rate reduction. Drop in interest rates will no more aggravate inflation! Demand side pressures will be adequately taken care of by supply side enhancement!

It is a revelation to know that economic consequences are thought to be guided by Finance Minister's optimism and RBI Governor's meek submission! We are in for more economic shocks.

Budget 2012-13

Pranab Mukherjee, one of the few seasoned ministers we still have, presented the Central Budget for the year 2012-13 on 16th March. Economic requirements are at present overshadowed by political constraints. Thus the Finance Minister's job was unenviable. 
The imminent need to raise more revenue to meet ever-escalating expenditure is obvious. Mukherjee has chosen to enhance excise and service duties by 2% across the board. He has not dared to face the media-assisted criticism from voluble sections that would have ensued any increase in income tax rates. It is old hat that indirect levies like service tax and excise tax are more regressive and unfavourably impact the real "aam aadhmi". The Finance Minister however is in no mood to bite the bullet. This is simply bad ethics. This move by itself guarantees nearly 2% jump in inflation rate much to the consternation of the economically challenged.

Proposal to retrospectively amend the Income Tax Act to nullify the Supreme Court's decision on the Vodafone case is further evidence that the government cares two hoots for ethics. Public trust in GOI is vanishing fast. Fiscal deficit and ethical deficit are uncomfortably high.

Where is the dollar headed?

The links to an article that appeared in the "Industrial Economist" issue of January 2012 are provided below:

http://www.industrialeconomist.com/curr/8.html

http://www.industrialeconomist.com/curr/9.html

Kingfisher Airlines on the rocks

Vijay Mallya's Kingfisher Airlines is deep in the red. "Kingfisher Red" has become a self-fulfilling name. This aviation company anxiously awaits the emergence of some kind of a saviour. It is anybody's guess whether there will be corporate amputation or a corporate takeover. Mallya has started identifying external excuses for his self-inflicted misery. He has raised issues like "Should a business be forced to carry on despite loss?" (i.e. does not an airline have the right to cancel flights?) and "Does it make sense for the government to insist on catering to ungainly routes?"

He is a firm believer in "privatising profits and socialising losses". Hence the Civil Aviation minister was requested to come to his succour. Vayalar Ravi in turn sought help from the Finance Minister who turned to the Petroleum Minister. Not one to put up with the game of passing the misplaced buck, Mallya turned to the Prime Minister. The latter wants the ministries concerned to look into the matter. What else can a Prime Minister without authority do? Has it not occurred to Mallya that only the UPA Chairperson can ease him out of the quagmire?

Why is Kingfisher in this predicament? Unlike his father, Vijay Mallya keeps chasing glamour. This strategy does not always make business sense. There is a story (apocryphal?) of the Chairman of a bank who decided after travelling once by Kingfisher Airlines that a company that delights its customers so well cannot fail and thereafter started lending to the Airlines. He had overlooked the caution that excellent customer service is only a necessary, but not sufficient, condition for corporate success.

It will be unwise on the part of the government to pressurise the banks or the oil companies to extend a favourable treatment to an ailing company. That will amount to penalising the tax payers. Mallya should actively look for a buyer. Ego should not stand in the way of common sense.

Supreme Court Judge's dangerous plea

Mr. Justice Markandey Katju, a judge of the apex court has in a lecture in Chennai pleaded, "You must create a situation where judges are not put under pressure to become corrupt". He was saying that the judges are not adequately paid for their work. If non-payment of adequate compensation is reason enough to be corrupt, most Indians will be so. Pleading for appropriate salaries is one thing. But to reason that otherwise corruption will become more endemic is sinister. Such an argument is not much different from the Maoists' justification that if the government resorts to violence, so would they. Some idealistic solutions are impractical. Governments would never be totally pacifist. Salaries of judges or for that matter any group of employees would never be high enough to preempt the greed for more.

Superfreakonomics

Economist Steven Levitt of the University of Chicago and journalist Stephen Dubner have 'freaked out' again and their new book 'Superfreakonomics' will be released tomorrow (20th Oct.). Levitt who was mentored by the Nobel laureate Gary Becker is an economist with a difference. He revels in raising "questions that are too embarrassing and degrading for other economists to find interesting". The world will be richer if we have such experts in every field.
Despite the apparent triviality and quirkiness of issues proffered by the authors, their method is rigorous. Levitt says he applies data in an unemotional way to emotional issues. The authors' earlier bestseller 'Freakonomics' is credited with having sold more than 4 million copies.