T C A Srinivasa-Raghavan: Meaning and Explanation

LINE & LENGTH

For every explanation, there is a meaning. Economists need to understand the difference.

For 364 days of the year the readers of this newspaper are full of deeply thoughtful thoughts. The exception is January 1. On that day they rest.

But today I am going to take a chance and try something. This is because apart from being clever, our readers are also sensitive.

So it is unlikely that any of them paid more than a courtesy call to Bachchus last night. Their receptivity to profundity is therefore unlikely to be impaired.

And as they reflect on the variegated cruelties of nature, they might also usefully reflect on a distinction on which the British Marxist historian, Eric Hobsbawm, who was here in mid-December, dwelt at some length.

Like those who analyse Chinese bronzes of the 9th century, Hobsbawm said it was important to distinguish between meaning and explanation in history. Explanation was one thing, he said, and meaning quite another. If you confused one with the other, you ran the risk of looking foolish. Worse, you could end up doing stupid things. He went on to give some interesting examples.

Why not make this distinction in economics also, I thought. What was so special about history? As far as I could make out, the distinction was this: meaning takes contexts into account, while explanations don't.

The latter is called science. The former is equivalent of the Indian rope trick. It lies in the eyes of the beholder but is not any the less important for that.

Or as one Idris Shah story goes, when someone asked Bahaudin Naqshband why he narrated stories without telling listeners how to understand them, Naqshband replied, "How would you like it if the man who sold you fruits ate them in front of your eyes, leaving only the skin?"

I also learnt that meaning does not enjoy any intrinsic advantage over explanation, and vice versa. The two occupy separate and mutually exclusive spaces. Policymakers must look at both before deciding on the course of action.

Given below, therefore, is an illustrative list for the consideration of Indian economists, especially the ones in the academia. Many of them are often unable to look at things in the proper context and, in consequence, manage to muddy up the waters when they proffer policy advice.

Start with interest rates. To economists, the interest rate is the price of money. Variations in it can be explained by the usual interaction of demand and supply. Thus, global interests are low because the ceiling on how many dollars""which is now a substitute for gold""that the US can produce has been removed.

But these variations mean different things to different people and groups. When policy is made, a democratic government, if it is sensitive, can't ignore this aspect. That is what the Left is trying to say about the EPF, I guess.

To mediate between themselves and the people, governments have invented market regulators for all sorts of things. The explanation is the need for preventing market failure but the meaning is that the regulator takes the blame for such insensitivity as might become necessary from time to time. The regulators, as all of them will testify, are the can-carriers.

Or take foreign exchange reserves. The explanation for why they are climbing is well-known: the RBI is buying up dollars as fast as they are arriving, which is very fast indeed. Some economists frequently get their knickers in a twist over this.

The meaning, however, is multi-dimensional and mainly political. Huge foreign exchange reserves in today's context have but one meaning: they reduce a country's vulnerability to blackmail by the US. If India, having been a victim of this before, has rightly decided not to be in that situation again, why complain and make a fool of yourself?

Then there is that thing called fiscal deficit. The explanation is simple and as old as the hills. When governments spend more than they receive, they run deficits.

But what about the meaning? In an open, globally exposed economy it means that foreign capital runs the risk of losing its value if the deficit forces devaluation on a country, which is the modern equivalent of the currency debasement that was practised in the old days.

It is no coincidence that the IMF, charged with the task of protecting western (American, mainly) banking capital, began focusing on fiscal deficit after the Latin American debt crisis of the 1980s because US banks had been falling over themselves to lend to the Latin Americans.

Also, in theory, a country with a high fiscal deficit should drive away foreign capital, which runs the risk of sudden loss of value. But this is where the Indian rope trick kicks in.

The combined fiscal deficit of the Centre and states is over 10 per cent and yet foreign capital continues to flow in and the rupee is appreciating instead of depreciating. How does anyone explain this vote of confidence in the face of such a huge fiscal deficit? Surely it should be the other way round?

Then there is that whole India-China comparison. As Suman Bery, the director-general of NCAER gently murmurs from time to time, although Chinese GDP grows at 9 per cent and Indian GDP grows at 6.5 per cent, China's savings rate is 40 per cent and ours is 23 per cent. So who is more efficient, eh? Where does explanation end and where does meaning begin?

Along with Hobsbawm, Amartya Sen was also here last month and he said that the explanation for India catching up with China in longevity was that China had privatised health care so that the price of vaccines for babies had shot up and they were dying off in huge numbers.

In a separate article in the New York Review of Books he said (not in so many words) the meaning of this was that the Chinese government didn't give a fig about its people and that, in this respect at least, it could learn a thing or two from India.

It is possible to go on in this vein but let me end with a show-stopper. Many brahmins in Kanjeevaram believe that the explanation for the tsunami is the earthquake in Sumatra but the meaning is deeper.

You guessed it: it is all those goings-on in the temple.