The human face of economics

The past few weeks have seen exhaustive, even exhausting, analysis of the economic situation here at home. But most of it is from the supply side, i.e. not from the side that talks of what is happening at the actual household level.

While it is good sound economic analysis, in a country as diverse as ours in terms of occupation and income profiles, and saving and spending patterns, we need to specially take the trouble to find out what the thinking and the behaviour at the household level is, in order to (a) devise a many-pronged, targeted policy that works for the people (and perhaps wins elections), (b) predict more realistically the immediate future for different types of businesses to plan for, and (c) communicate appropriately and relevantly to different sections of society and at least moderate that part of unfavourable behaviour that stems from sentiment.

Pure economic theory per se, divorced from the human face, doesn’t help people or win elections, especially if we as a country have many economies rolled into one. The panic of the upper class who gambled on floating interest rates and/or the stock market and now are screaming with pain may not warrant classic interventionist policies, as does the pain of the lower income groups for whom day to day expenses have risen far more than the salary can cover.

We can’t ignore the possibility that policies that appease the first and do not speedily act on the second are not totally fair even if they are good economics as prescribed in the book. So what if we have a 5 or 6% growth, bruise our egos, attract less FII money, and make the middle and upper class feel a bit deprived in terms of discretionary consumption?

And before everyone dismisses it as foolish thinking, tell me why it doesn’t make sense for this year? This column is not advocating this. It is suggesting that a deeper and more segmented look at the household level may show that those screaming the loudest aren’t in that much pain, and in need of such urgent policy relief.

Economies are made of people, as are electorates. Will we or won’t we hit the GDP growth rate number that people seem to feel is so important? The answer again lies in what the average household will do. The consumption growth part of the GDP growth number is not about invisible and interconnected macro forces of demand, production, idle capacity, foreign investment flows, interest rates, inflation rates, etc, etc.

It is about the behaviour of real people. How many people decide to take their kids to the multiplex theatres and buy them oversized and overpriced pop corn; or how many people will decide to work harder in these difficult times, to earn more, and hence go ahead and buy the motorcycle or cell phone that will help them to earn more; or eat chicken just once a week instead of twice; or still take a loan and buy a house since rents are very high in any case? Some folks who are in the upper income groups may decide that they would rather put money into real estate than into the volatile stock market, and hence go ahead and do so, without any borrowing.

http://economictimes.indiatimes.com/Opinion/Editorials/The_human_face_of_economics/

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The human face of economics