The lamppost theory of economic policy holds that politicians use economics the same way a drunk uses a lamppost for support rather than illumination. However, the time of lamppost has gone and tricky economic principles are also transforming.
So, our wiser politicians working in their political sphere are supposedly going to change simply because we want them to. But they do not appear to use economics to improve policy outcomes. It would be wiser to focus on what the economists get wrong and could and should do better.
Do economists overlook their economic sense? Yes, if we concede with Railway Minister Ashwini Vaishnav who said that when good economists become leaders, they forget their economic sense. Now they should come out candidly, contest elections, conduct elections and participate in political activities.
Vaishnav was asked a question on Rajan’s statement about mobile phones not being made in India under the Production Linked Incentive (PLI) scheme, they are just being assembled. Vaishnav maintained that Rajan was shadowboxing on behalf of someone else.
This is not a good thing. In this kind of shadowboxing, punches are thrown in the air. There is no opponent to fight in it. When Rajan wants to do politics, he should come out to the forefront. Rajan had shared Rahul Gandhi’s Bharat Jodo Yatra in January this year.
An old joke runs about two economists walking together down the sidewalk. One of them stops the other and says, “Look! There’s a $100 bill lying there on the ground!” As he stoops to reach for it, the other economist shakes her head and says, “Don’t bother. If there were a $100 bill there, someone would have picked it up already.”
It is a widely acceptable theory in the subject of economics that there are no $100 bills lying around—no obvious opportunities that the market, society, or other sources of collective wisdom have simply ignored. But when it comes to economic policy, I don’t believe that’s true.
A slew of misguided interactions between economists and politicians are plagued by a “clash of civilizations” that results in many missed opportunities for both sides. And as an economist who has witnessed this clash close-up, I think there are some things my fellow economists can do to have more success influencing policy.