Economics versus the real world

Authored by Ashok Sanjay Guha

Economics Without Tears: A New Approach to an Old Discipline

Ashok Sanjay Guha

Penguin

242 pages 

Rs 299

For too long, economics has been thought of as the preserve of a tiny minority, one that can make sense of its bewilderingly complex possibilities. The subject starts off simply enough, with most everyone who goes to school aware of the delectably graspable demand-supply curve; but the more the real world intrudes, the more adherents the subject loses. 

Economics also suffers from that unique conundrum: In which bucket should the discipline be placed? Does it belong to the “science” pile, given how neatly some of its basic assumptions can be summarised? Or is it better company with the humanities, since all of the subject’s elegance cannot stand scrutiny in the face of its principal opponent: Human behaviour?

Professor Ashok Guha teaches economics at the School of International Studies at JNU. In the preface to this book, he explains why this presented to him two distinct challenges: One, how to make the subject interesting to his students most of whom read history, political science and sociology; and two, how to rid the teaching of economics from the dense mathematics that underpins most of its theories.

Economics Without Tears is the outcome of his efforts, an introduction to the dismal science that is narrated simply. In bite-sized chapters, Prof Guha tackles both microeconomics — consumption as the heart of all economic activity —  and macroeconomics —  national income and international trade. The book is an interesting intermesh of Econ 101 (Giffen goods, lemons and so on) and more advanced topics (the Keynesian model).

Yet, there is little to show for Prof Guha’s exalted promise to make the subject riveting to a diverse set of students. Graphs and equations fill a book that is not light on jargon. Prof Guha envisages the book to be consumed in the classroom since the most interesting applications of the subject are left for discussion in the questions that end every chapter. Professor Know All and Ms Smarty, his creations, indulge in fun discussions that the reader is never made privy to beyond the slimmest of premises. Due to this, the book does not rise beyond academic dryness.

That, however, may not be the most relevant criticism of Economics Without Tears. Most economics textbooks — and Prof Guha’s is as good conventionally as the next one — focus on the neoclassical model in which profit/utility maximisation is taken as a given before suitable models are constructed to accommodate it. In reality, things are far messier, and the subject, to be sure, is increasingly amenable to accommodating this messiness. The work of Daniel Kahneman, say, is nearly entirely focused on delineating how top-down models are sorely insufficient in capturing the incentives that drive individual action.

Recent political events have only reiterated the inadequacy of the neoclassical model to account for real-world problems. From Brexit to the election of Donald Trump, economic scholars have been at pains to explain why the western world is turning against free trade. On the other hand, the financial crisis of 2008 and rising income inequality have put paid to the idea of a free and fair market. Some Democrats now wonder if perhaps Bernie Sanders, with his take-Wall-Street-to-the-cleaners rhetoric, was a better candidate to defeat Mr Trump.

The principles of Adam Smith and David Ricardo are, thus, being sorely challenged. Economic distress has also strengthened protectionist calls. This has entailed not just visa regulations but broader anti-immigrant sentiment. Together with the threat of Islamic terror, these forces are roiling Europe and America to an unprecedented degree. The left versus right divide has never been starker but when both camps speak darkly of upending the order, economists are expected to rise to the challenge and offer solutions.

One would imagine that Prof Guha’s students, who are unlikely to be reading the subject as a pit stop to becoming investment bankers, will be all the more interested in exploring the pitfalls of classical economic theory. That the book only cursorily acknowledges the storm buffeting the discipline may be its most serious shortcoming.

In the bookshop, Economics Without Tears was displayed in the same section as Malcolm Gladwell and Steven Leavitt, writers who have, if anything, plumbed the other extreme in relating economics via popular psychology. One hopes Prof Guha’s next will be as pertinent, a book that truly fulfils the exciting remit of this one.