Arvind Kejriwal and economic illiteracy in public life4 min read . Updated: 19 Nov 2012, 06:47 PM IST
Kejriwal’s recent ‘exposé’ on the causes of inflation makes for painful viewing
Arvind Kejriwal’s 31 October “exposé" on the causes of inflation made for painful viewing, and not just because of his general air of gormlessness or its interminable length. Here was a former income-tax officer and someone who has taken it upon himself to rid the country of corruption, making one statement after another that betrayed a shocking ignorance of even the basics of how an economy functions.
His rambling diatribe included non-sequiturs about India having high inflation despite being endowed with a wealth of natural resources, such as mountains. Evidently Kejriwal is a believer in geography as (economic) destiny. It is worth pointing out that intuition suggests that hilly places probably have higher price levels than comparable flatter ones because of transport costs, but that there is no reason to assume their prices rise at a higher or lower rate than elsewhere. But one suspects that the distinction between levels and rates of changes might be enough to make one’s friendly neighbourhood anti-corruption crusader’s head explode.
But Kejriwal went further. He said that he failed to see any connection between the money supply or the RBI’s policy instruments and the rate of inflation. “Money supply kam kar di, zyaada kar di, kuchh samajh mein nahin aata." Even in the storied annals of the economic illiteracy of public figures, little can compete with the sheer pride with which Kejriwal marked himself out as someone who would have failed the first macro course in most colleges, if not CBSE Std XII economics.
Of course, Kejriwal is far from alone. In fact, his complete lack of understanding of basic economics, and his complete lack of embarrassment about it, is probably the best evidence yet that he would fit right into the “political class" he claims to abhor. I seem to recall—though in all honesty I cannot find evidence for this recollection—former deputy PM Devi Lal promising to turn the printing presses on if voted to power, so that everyone would have more money in their pockets, discounting what this harebrained scheme would do to the value of that money. “Money supply … samajh mein nahin aata" would probably sum his sentiments up too, though one suspects that he might have chosen a far more colourful way to express himself than Kejriwal, who sins doubly by being both wrongheaded and excruciatingly boring.
Debates on inflation in Parliament almost always seem to begin with the assumption that any “rise in prices" is a bad thing, ignoring all evidence that the optimal rate of inflation in any growing economy is not zero. Last year, the leader of the opposition in the Lok Sabha went to far as to berate the finance minister for the number of times he used percentages and figures in his response during a debate on the inflation rate. (She did not specify how else he ought to have expressed the rate at which prices rise if not as a percentage). “The aam aadmi does not understand the language of percentages", she said. That may well be true, but surely one expects somewhat better of one’s economic policymakers.
Or perhaps not. If we were to take the posturing that passes for debate among several opponents of FDI or of economic reforms more generally at face value, then it would appear that many of our politicians do not understand the basic principle of mutually beneficial exchange: the idea that transactions entered into freely make both parties that participate in them better off. If (most of) our politicians are to be believed, then the fact that someone profits by selling me a product must mean that buying that product harms me. So we have people ranting about how foreign retailers who enter India doing so in order to make profits—and how this is proof that their entry must make Indians worse off.
Of course, Indian public figures are hardly the only ones notable for these sins. The recent presidential elections in the US gave us several priceless examples of the sheer statistical illiteracy of even those in public life whose jobs would appear to require them to deal in numbers, probabilities and the like. The fact that New York Times statistics blogger Nate Silver crunched the numbers to come up with a 75% chance that Barack Obama would get enough electoral college votes to retain the Presidency was pooh-poohed by many commentators because they did not understand that the predicted vote-share in an election is not the same thing as the predicted probability of winning. Saying Obama had a 75% chance of getting more than 50% of the electoral vote is expressly not the same thing as saying he would win 75% of the electoral vote.
But that distinction was lost on most of the breathless commentariat that makes a living of reporting elections as being poised on “a razor’s edge" even when they are not. Or perhaps not: it is quite likely that at least a few of those commentators understand the difference between these things quite clearly, but think the public will find them easier to identify with if they pretend they do not. Quite possibly this is as true of them as it is of Arvind Kejriwal, who has surely taken an economics course or two.