POOR ECONOMICS

This post's title unabashedly borrows from that of an eponymous book by an MIT economist of Indian origin and his French colleague, also of MIT. Their book was bought by many in India but read by a minuscule proportion of those who bought it. Not that it was dense or esoteric or otherwise incomprehensible; quite the contrary. Indian executives who criss cross the country and beyond in airplanes like to be seen with serious sounding tomes at domestic and international airport lounges and on board flights. There was a time when these gents carried copies of John Grisham's latest as evidence of their erudition. Those times are gone. Now they want to be seen with "serious" books. Once on board, they put away their books and start playing angry birds on their iPads.

I am proud to say that I have read that book. Perhaps because I don't travel much these days, let alone criss cross the world. My travels are limited to thrice-a-week visits to the veggie shop and daily ones to the gym. Somehow I get the feeling that the crowd I encounter in those places are unlikely to appreciate the kind of serious stuff that one needs to carry to impress. I have acquired credibility at the former by expertly picking okra (ladies' fingers, bhindi) and sagely commenting on the relative freshness of veggies. At the gym I don't even try to get some street-cred with the weights or the treadmill; instead, I sit and do sudoku (an easier version that appears in the local daily).

The book is all about the economics of poverty and how to make the poor less poor, although the authors go easy on the prescriptive bit, no doubt having learnt from the venerable Mr Jeffrey Sachs and his millennium development goals. It appears that the millennium communities that Mr Sachs poured much money into, in the glare of a million flash bulbs, have ended up poorer or at best have remained the same. Messrs Banerjee and Duflo may be younger, but are certainly wiser than their media-savvy fellow traveller in the treacherous world of the dismal science. I suspect that their title may be a tongue in cheek comment on the state of the dismal science itself.

A short paragraph about the dismal state of the wanna-be science is in order. It all started with a scottish geezer postulating that supply will rise to meet the demand and prices will drop as supply increased and so on. He invoked an invisible hand to keep all of this working. He did not specify if this invisible was a steadying hand on the till or a hand that dipped into the till now and then. In practice it turned out to be the latter. This theory worked well until the world got bigger, industrial age was born, rapid transportation became the norm, and mass production and paper money were invented. The invisible hand was no more sufficient to explain how things worked - it could barely pass muster in explaining Maradona's goal in a world cup.

Physics and Chemistry in the meantime were making dramatic progress and could explain a lot of things around us and could even predict many new things. No wonder then that Economists got a case of Physics Envy. Like Physicists did they also wanted to explain the real world in terms of elegant equations, integrate, differentiate, and talk about velocity, acceleration, rate of change of inflation and stuff like that. Economists became good at explaining why something happened the way it did after the event; physicists could predict what would happen next and mostly it did. Some economists tried substituting dense prose for equations but the results remained the same. Then economics borrowed a mathematician turned physicist to posit that it was all a game and tried to formulate a whole new discipline called game theory - the kind of stuff the American forces use to clobber the bad guys with in simulations but which in real life doesn't prevent them getting clobbered by goat herds wielding ancient rifles. Some others are trying to explain, with more success than the mathematically minded it must be said, economic activity in terms of human behaviour.

Notwithstanding Prose, Physics, Mathematics, Game theory or Behaviourism, the dismal science remains dismal.

There is a real purpose, apart from an acute case of Economics Envy, why I am posting this. I have a real problem which I want to share and for which I want a solution.

Our maid was deep in debt as most people of her economic stratum are. She earned about Rs.5000 a month out of which she had to pay interest of Rs.3000 to a loan shark. The remainder was insufficient to feed her child and husband - we provided all her meals every day. From time to time she had to look for other sources of cash to pay off her monthly interest due or simply to feed her family. This and her necessity to hide out when the creditor came calling resulted in her absenting herself from work about two days every week.

To curb her absenteeism, I proposed a win-win solution (I have Economics envy, remember?). I would pay off her loan shark and become her creditor. My loan would carry not the gazillion percent per annum interest, but a reasonable ten percent. Even that interest would be paid back to her as a bonus when she repaid the loan fully. As a result, her cash flows would improve by about Rs.2000 every month, even after paying the EMIs on the loan I provided. My maid would be free from an exponentially escalating loan and I would be assured of more regular help at home. I would have thought this was a fantastic deal and patted myself on the back for coming up with it. A beneficial corollary for her was not having to face the creditor who was not above roughing her up now and then. She could also be spared beatings from her husband but that was not certain - I surmised he simply loved beating her and would invent some other reason in the absence of dire financial situation.

Duly money was handed over to the shark and I went round with a huge grin on my face for having shown the way where Sachs et al have failed. Surely, from then on my wife could look forward to regular help at home and I could do sudoku puzzles uninterrupted by the need to help do the dishes. The maid could even look forward to splurging on a movie now and then. Clearly mine was a triumph of logic over the dismal science.

The maid stopped coming to work from the next day.