Economics is not ‘rocket science’

Here, everybody is an economist! Everyone carries their shopping list of what needs to be done. I often get long lectures from opinionated people who obviously use the same ideas at dinner parties and official meetings (why are they called to official meetings and allowed to hold forth?). In loud voices and with full conviction they argue, “It is not rocket science! All we need is to get the basics right.” As if these are arguments. But no matter the audience (especially arrogant officialdom), everyone buys their line. My question regarding what exactly these basics are is often drowned out. We all know what the basics are without actually talking about them. This is how economics is done in Pakistan.

After much effort, I find out what the basics are in the minds of these philosophers. I learn that what they call basics are mere wishes for an increase in revenues, exports and growth. Makes it easy, does it not? We wish for all sorts of good things and call it economics.

For 60 years, plan after plan was made wishing for these good things: increase production, increase growth, increase exports. It is just so sad that the economy will not listen to these ‘economists’ and deliver all good things like production, growth and exports. And not to forget that all this must happen with low inflation. Of course, we must keep asking for more revenues and every discussion must note well-worn examples of the rich not paying taxes. Okay, so let us have a new tax and collection must improve. There you go. Now see, it is not rocket science! What is it about rocket science that these guys like? Every three minutes, someone mutters, ‘it is not rocket science!’ and all nod in agreement. Discussion killed! Time for the next anecdote! This is how we do our thinking. Is it worth telling these guys that economics is more complicated than rocket science? Rockets are inert and do as they are told. Charting their course is easy. They listen to signals and then follow them. Self-willed humans, on the other hand, do as they like. They resist and react to one another and to government policy. If policy is made without taking into account how self-willed individuals in their millions act, the results will be very different from those that were anticipated. So next time someone tells you economics is easier than rocket science and their pocket list of wishes is all we need, remind them that rocket science is easy, economics is much more difficult.

One important way of looking at the economy is that it is an aggregation of all transactions in the economy. Transactions are basically the exchange of goods and services or contracts to exchange goods and services at points in time. Value is created at the point of exchange. Production happens for the purposes of exchange. Successful economies have configured themselves to maximise the number of transactions in the economy. Most of us who have transacted in Pakistan know how difficult it is to transact in most markets. Buying land outside DHA can be a nightmare; contracts can easily be dishonoured; holding shares in a company is no guarantee of receiving a dividend; consumer goods come without warranty or assurance of quality and so on. Basically, we have an economy where transactions are difficult and often insecure.

Looking at it from a transaction viewpoint, I can come up with another list of ‘getting the basics right’ list, which would begin with improving law and order, securing property rights, strengthening contracting, redesigning and reframing markets for efficiency, removing incentives for rent-seeking and putting in place incentives for entrepreneurship. This is what governments are supposed to do and this is what forms the basics of governance. Hard work and thinking are required to make these things happen. And yes, all this is more complicated than rocket science.

If our friends would be more inquiring, they would find that the development experience of the last 60 years has shown the primacy of these basics over their usual wish lists. Without better governance, all the good things that our ‘rocket scientists turned economists’ want, cannot happen. Perhaps, saying ‘it is not rocket science’ stops these people from thinking. All of us need to come out of our comfort zones and encourage discussion and debate on real reform, i.e., better governments for better markets.

Published in The Express Tribune, January 20^th, 2015.

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