Myths of our making
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Too many of our economic prescriptions are based on dogma, empirical half-truths
It has become fashionable to say, following the conclusions of Michael Spence's Growth Commission, that there is no single recipe for growth, only some common ingredients. Such a claim brings a due degree of modesty to what we do or do not know about growth. And at the very least, such a claim has the virtue of jolting us out of fatalism: there are no iron laws explaining success or failure. Lots of causal variables that we intuitively think matter, like education, political stability, good institutions or infrastructure, often turn out to be as much effects as the cause of growth. Lots of conjunctural variables like geo-strategic rents or global circumstances matter. And the one thing we have learnt over the last few years is that the causal correlation between any two variables is highly contingent; it depends on the circumstances. How much do interest rates affect growth? How much does decline in growth rates affect inflation? What is the relationship between agriculture wages and productivity? Many of the challenges of growth are about figuring our way through these kinds of relationships. Nothing can kill an economy better than a dogma or empirical half-truths masquerading as certainty.
Much of the public discussion about the economy is in a bit of an intellectual limbo. Some of this discussion is an artefact of noise: many bad arguments drive out good ones. Some a product of inevitable ideological differences: in the face of uncertainty, retreat to your simple convictions. Even in academic circles in India, there is more debate than dialogue. The former is oriented to cutting down arguments; the latter to figuring things out. There is a lot of extraordinarily good work in economics. Several were heroically warning against dangers that lie ahead. Nevertheless, with hindsight it has to be said that our political complacency about growth was legitimised by intellectual complacency. The stories we told, or failed to tell, have been as responsible for inducing complacency as political paralysis. It is often the economy, stupid. But behind the economy is a myth.