Atanu Dey On India's Development

P. Sainath on the Evils of Neo-classical Economics

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The first of the Four Noble Truths expounded by the great Gautam Buddha — the Enlightened One, the One Who Went Thus or Tathagata — is the truth about the existence of dukkha. It is an empirically verifiable claim that all sentient beings are subject to suffering of some type or another. In other words, bad stuff happens and good stuff does not happen all the time.

We need solutions since the reality of problems is unavoidable. Given the demand, the supply of solutions and people supplying solutions is understandable. In fact, you may say that the supply exceeds demand. Snake-oil salesmen make a pretty good living because people are not able to distinguish between real and fake solutions. Not just that, many snake-oil salesmen take it one step further and invent fake diseases to increase the demand for snake-oil. If they can convince you that you have a problem, they can easily convince you that they have the solution. Organized religion, particularly Christianity, is a case in point. First step is convincing people that they are sinners ab initio and therefore they will end up in hell. If you buy that bit, they will sell you the solution — which only they happen to have.

But not all problems are fake and these need remedies. Some of our real problems have yielded to diligence, dedication, intelligence, knowledge, perseverance and sometimes to just plain old good luck. We have grown so accustomed to some of the more amazing solutions that they appear to be commonsensical and not worthy of much remark. If we had not been exposed to them right from birth, we would have been astonished out of our wits on our first encounters with them. We take all our electronic gizmos for granted but to someone from a century ago, it would knock them senseless. Somewhat similarly, we take for granted so many innovations and institutions that have been invented to address our problems that we are not even aware of them or the problems they solve.

Markets, for instance. When I realized that markets are a human invention and how they order society without orders, I was literally awestruck. The Two Fundamental Theorems of Welfare Economics appeared to me to be masterpieces of intellectual brilliance. The idea of prices and how they encapsulate information that no one has — however intelligent or powerful — left me speechless. Closely connected with markets, the idea of money struck me as outstandingly brilliant. Money, I understood soon enough, is not a “real” but a “nominal” thing, and yet it has real implications for human welfare. Without money, trade will be much harder. And trade! Wow, what an idea.

Trade makes the world go round. When I first understood the role of exchange in human affairs, the staggering importance of trade had me . . . what’s the word I am looking for . . . staggering. All the bits and pieces started falling in place for me and I began getting the big picture: markets, trade, exchange, money, order without orders, etc., etc. These were simple ideas and yet when one understands these basic building blocks, one can create robust structures that explain how the world works.

Economics explains the modern world in a way that is not available to other disciplines. I think that there is a reason for the unreasonable effectiveness of economics in this regard. The modern world is the product of ideas, and economics studies those ideas that go into the production of everything that we humans produce.

(My current reading list includes a book by Deirdre McCloskey, “Bourgeois Dignity” which has the rather provocative subtitle, “Why Economics Can’t Explain the Modern World.” She’s just being deliberately contrary, I guess. She writes in the preface to the book that ideas enriched us and have been “alleviating poverty worldwide, and enlarging the spiritual scope of human life. The outcome has falsified the old prediction from the left that markets and innovation would make the working class miserable . . .”)

Fortunately for us, the basic ideas of economics are very easily accessible to anyone with average intelligence and the ability to read with an inquiring mind. It does not require years of dedicated study although it does require a bit of time to observe what’s going on critically and carefully. Superficial appearances can be deceptive and naive uninformed intuition can be a treacherous guide. Like learning how to read or to do arithmetic, reasoning economically is not part of our genetic endowment. We have to learn some simple rules and understand some basics about the nature of reality. There is no way around that little barrier.

Sainath is an example of a person who does not understand the basics. Not knowing the basics is not a handicap for most people. Most of my friends (and they are almost all of them in the IT business) know fancy little of economics and yet navigate through life quite well. However, if one is in the business of pontificating on matters economic, being ignorant of the fundamentals of economics is not just a petty personal affliction but can be positively harmful to others.

As I mentioned in my previous post, the video of Sainath’s talk is instructive. I have half a mind to use it in one of my economics courses. I would first play it at the start of the course. The hour and 15 minutes video is uncomfortably long but for the sake of learning, one can devote the time. Then in the rest of the course, I would go through every ill-conceived idea in it and point out the basic errors and explain why they are wrong. Finally, at the end of the course, I would have them watch the video again — not to torture the kids but to make them appreciate how much they have learned in the course. They would be rolling on the floor. ROTFL time would be had by all. They would be like this:

Alright, enough of a preamble. Time to get down to the dirty business of examining P. Sainath’s talk. Let’s put on the gloves. I first mentioned the talk in the post titled, “Sorry but it’s not my fault” and posted the video in the next post, “Manufacturing Discontent.” In the post previous to this, “We Don’t See Rants on Fire on YouTube,” I noted that there are many rants on neo-classical economics. I am reposting P. Sainath’s video for ease of reference.

Sainath starts off his talk by remarking that the unrest in Africa (I suppose he meant various Arab states in the Middle East) was partly due to food price inflation — which he claims was not reported by the media at large. His attitude is that of someone who has caught the media with its pants down. The media, he claims, never revealed that food prices and civil unrest are causally connected but he has made the astonishing connection and there it is. This is more than a little surprising to me since it the connection was quite evident and widely reported in the media, not that it takes a genius to see the relationship.

Basic Econ101 lesson: prices matter to people, and they respond appropriately. When prices of essential goods — like food — rise drastically, they respond by violently agitating against whatever they perceive to be the cause(s).

The media has much to answer for. Accusations that they serve the rich and the politically powerful are warranted in many instances. But why would they wish to conceal the rather evident fact that people are agitating against food price inflation? Rising food prices are not deep dark state secrets — everyone knows it.

Anyhow, he makes a big production of “revealing” the connection. Later on in the talk he contradicts himself and takes the IMF to task. It seems that the IMF did a study to quantify the relationship between the risk of political unrest and food price inflation. This, Sainath claims, was needless (since everyone knows that anyway) and as pointless as closing the barn doors after the horses have fled. When he dresses up an evident truth as a grand revelation, it’s fine; when the IMF does a rigorous study to quantify the relationship, it’s a waste of money. Here’s what he says around the 36-37 minute mark of his talk: “There’s a serious link between food prices and political unrest. And only the IMF could tell us that. They needed a study.” I suppose the irony of pointing out IMF’s silliness while indulging in the same pointlessness is entirely lost on him.

He glibly rattles off truckloads of data without pausing to ponder what the implications are. What’s worse, he does not even provide the relevant contextual details. Without context, data are meaningless. Suppose I make the claim that someone weighs 120 lbs, and expect you to be astonished by it. Should you be astonished? You can’t say unless I provide the context by also stating the age and gender of the person. There’s nothing the least bit surprising if the person is a 25-year old 5-foot tall Asian woman. But if it were a boy aged 4, or a 40 year-old 6 foot 4 inches tall man, that would be abnormal.

Sainath has spent a lot of time living among the rural poor in India and has gathered a lot of data. What he has missed in all this looking at the trees is the forest. Problem is that he has a limited capacity to comprehend the information he gathers. Unfortunately, most of his audience is even more limited in their comprehension and are unable to critically evaluate his interpretations (or rather the misinterpretation) of the data that is being cited.

For instance, food price inflation is a real concern for the poor — in Egypt, in Yemen, and even in the US, as he notes with rising alarm. He does not pause to ask why. If he had, he could have seen the connection between supply and demand.

Supply shocks lead to food price rise in general. What’s the obvious solution? Increase in the supply by bringing more land under cultivation. But no, he decries that. He reports that India is buying thousands of acres of land in Ethiopia and Kenya for cultivation. That, he says, is the wrong thing to do. Why it’s wrong he leaves it as an exercise for his audience.

What are we buying this land for? To grow food in India (sic). Having destroyed India’s food production capabilities with 20 years of neo-liberalism, . . . we have invested $4.3 billion in Ethiopia . . . don’t you think they have enough problems of their own without us landing up there? . . . India is buying vast tracks of land in Brazil, Keyna and Ethiopia. . . China has also bought land in 20 different countries in an absolute race to the bottom. It’s very curious that India should say that we would buy farmland in Ethiopia to grow food in India (sic) when — and this is part of the economics of our time — we’ve shifted millions of farmers in the last 20 years from the cultivation of food crops to the cultivation of cash crops. Millions of subsistence farmers growing food crops like paddy and wheat to growing vanilla. . . We shifted millions. . . [Link to this part of the video of the talk.]

“We shifted millions. . .” Who are the we? Are farmers stupid and passive? Do they have any choice in what they do? This automatic categorization of them as victims is what I call the manufacturing discontent industry. I will come back to this matter later on.

I believe that Sainath does not understand how prices work. Egypt, he reports, removed food price controls, and that caused food prices to rise, which then led to political unrest. If putting price ceilings could ever solve any problems of affordability, it would be a much simpler world: we could just legislate that all food should be sold at one penny a pound. Problem of food security solved!

But in the same breath that he talks about food prices, he also talks about the poor farmers. I don’t suppose he understands that buying and selling are two sides of the same coin. If food prices are kept low by decree, it is the same as decreeing that farmers starve. By putting an artificial lid on food prices, it discourages food producers from producing food. That restricts supply, and that increases the price of food.

His pet hobby horse is farmer suicides. He rattles off numbers–so many farmers killed in so many years. Again the context is missing. Yes, we understand that 250,000 farmers killing themselves is serious business. But why are they killing themselves? Because food prices are too high or too low?

Basic Econ101 lesson: Prices in undistorted markets reflect the supply and demand of goods. They convey essential information to producers and consumers. If prices rise, it could be due to demand increases or supply shocks, or both. Producers increase production when prices rise; consumers reduce consumption. Suppressing price information leads to foreseeable but unintended adverse outcomes.

This post is getting awfully long. I am not done by a long shot, however. I will have to continue it the next time. The talk is a treasure trove of fascinating misconceptions delivered with supreme confidence. If I had the time and the inclination, I could write a book-length analysis. But I am sure that you don’t have the patience for that and besides, I am too lazy. So out of laziness, I am going to do a cut-and-paste job from one of my previous posts that talks about farmer suicides. The post was on Siddhartha Deb’s article in the Boston Review with the subtitle “India Is Growing, But Indians Are Still Starving.”

. . . Take for instance, ” . . . part of the growing national trend of farmer suicides, with nearly 200,000 farmers killing themselves from 1997 to 2008, in the very years that the Indian economy was expanding.”

Did you catch that implied hint of causation in the reported correlation? Anyway, just how high is that raw 200,000 number? We just don’t know because the context is missing. India’s raw suicide rate in 1998 was 12.2 for males and 9.1 for females per 100,000 population, or approximately 10.6 people 100,000, per year. With a population of 1 billion, India can expect 106,000 suicides per year. Now we have to ask, “Is the number 18,000 farmer suicides a year unnaturally high if the total number of suicides a year is 106,000?”

The answer to that question depends on what the population of farmers in the Indian population is. If the population of farmers in the population is, say, 25 percent, then the number of suicides among farmers is actually below the population average.

The point is that for us to make sense of the suicide numbers, we need to know not the raw numbers but normalized numbers — “farmer suicide rate is 15 per 100,000, as compared to overall rate of 12.2 per 100,000,” for example. Not just that, we need to know the trend. “Farmer suicide has gone up to 15 per 100,000 in 2008, from 12 in 1997.” (These figures are made up and not to be taken literally.)

The piece by Deb is unfortunately typical of such reporting. Perhaps word limits don’t permit a fuller treatment of the subject by the reporter. But even then, surely one can glean from just looking around that India’s starving hundreds of millions is a symptom of a deeper malaise, and mention that however briefly in the article. Instead the overall impression one gets from the article is that somehow evil multinational corporations are behind all the unimaginable misery and it is a compassionate government which is trying its best to fix the problem.

It is not my case that MNCs are really benevolent charitable organizations. They are in the business for profit, and can be as ruthless as they are often reported to be. You cannot wish them away, although you could legislatively force them to keep off your property. But that comes at a cost — there are benefits to having MNCs around. The challenge is to control them such that the benefits exceed the costs. Which brings us to the one agency which lies at the crux of the matter — the government. [Source: The Starving 800 Million in India. June 2011.]

There’s more but as Napoleon said, “Not tonight, Josephine.”

  • Loknath

    Hi Atanu,

    This link below substantiates your viewpoints.

    What Makes Countries Rich or Poor? Book review by Jared Diamond.

    Why Nations Fail: The Origins of Power, Prosperity, and Poverty
    by Daron Acemoglu and James A. Robinson

    http://www.nybooks.com/articles/archives/2012/jun/07/what-makes-countries-rich-or-poor/?pagination=false

  • Loknath

    Two major factors contribute to the poverty of tropical countries compared to temperate countries: diseases and agricultural productivity. The tropics are notoriously unhealthy. Tropical diseases differ on average from temperate diseases, in several respects. First, there are far more parasitic diseases (such as elephantiasis and schistosomiasis) in tropical areas, because cold temperate winters kill parasite stages outside our bodies, but tropical parasites can thrive outside our bodies all year long. Second, disease vectors, such as mosquitoes and ticks, are far more diverse in tropical than in temperate areas

    This obseravtion (from the link above) seems to be hasty but not without reasons.

  • DJ

    I wouldn’t be excessively harsh on P.Sainath. He is a journalist by profession, not an economist. He describes himself as a reporter. I would be harsh on the people that expect more than reporting from him, who expect him to be more than a journalist. He would be an easy target for economists. I think you have pointed this out yourself in your previous post.

    Instead, I wish you would see him as one example of a common malaise which I call the Thomas Friedman syndrome. Especially in this age of 24 hour news channels and internet, experts are made out of journalists just because they have access to some data, or have been reporting on something for years. While I respect their reporting and diligence, one should not expect that they would also follow with good over-arching opinions. It is very common for them to miss the forest for the trees. There are countless such examples everywhere. For example; many, many reporters on the financial crisis fall into this category, thereby misleading the entire populace. Thomas Friedman is probably the best example of this, at the moment.

    A good manager/economist should utilize the talents and data of the Thomas Friedmans of the world to draw their own conclusions.

    P.Sainath also had the misfortune of studying at JNU, so perhaps, that has something to do with it as well. A common problem among all DU/JNU graduates seems to be their uncanny ability of missing the forest for the trees. The BS graphic applies by default to every DU graduate I have seen in the media. I suggest that DU/JNU be added to the list of terrorist organizations, for the harm they cause to society with their sub-standard education.

  • Prakash

    I couldnt bear to watch the video in full. In the segment that I did watch, the worst was his moral equivalence of buying land/shares in japan post-earthquake to buying minors for prostitution from debt-ridden farmers. Its appalling that the factor of under-age humans being forced into prostitution (or anything) is not noticed by Sainath. Its like one of those movies which make you cringe by pricking your eyes instead of being genuinely creative. Sainath chooses the cringing image of prostitution of minors to paint a business transaction between consenting adults (with no minors involved) as morally evil. Not just incorrect, its shameful!

  • http://www.akshar.co.in Akshar

    ———“We shifted millions. . .” Who are the we? Are farmers stupid and passive? Do they have any choice in what they do? This automatic categorization of them as victims is what I call the manufacturing discontent industry. I will come back to this matter later on.——–

    This automatic categorization boils my blood too. We have vast amount of land and we have stopped farming for multiple reasons. Labor is very expensive thanks to NREGS and other doles. Since the land if far from home we cant really protect our crops from thieves. This is in Goa where the state is small population is large and just selling the land and keeping the money in Fixed deposit will yield much higher return per square meter than trying to cultivate it.

    As farmers we are absolutely not interested in farming and I have managed to get myself enough education where I can migrate to some better place and earn lot more than my parents did.

    However each time there is attempt to get a good and large project in my village all the toms and jacks oppose it saying it is a conspiracy to move out the farmers and poor working class.

  • http://www.akshar.co.in Akshar

    As far as issue for Farmer suicide is concerned I am wondering if it really is a great problem.

    In India suicide ratio is around 12 per 1 Lakh of people. Give than majority of our population is in agriculture it is very natural that we will see very large number of these suicides among farmers. Well, this does not mean we should stop doing whatever we can to stop them.

  • Shankar

    Would looking at the share of farmer suicides among total suicides in Maharashtra rather than whole of India give a different picture?

  • Pramod

    Do you think he is innocent? or can’t understand? Or Ignorant? None of that..He is blinded by Ideology. It’s not that he can’t see the truth , he doesn’t want to. Ideology blinds,creates hatred & fails to see or recognize the truth… he is talking the language what his comrades talk that’s all. Farmer’s suicide, India’s poverty are not one dimensional, they have various facets & angles which these folks intentionally hide & cover. It’s interesting to note that these folks never opened/open their mouths about the way communist Russia behaved with farmers (& their plight) in it’s country and others over which it had absolute control or about what Maoist China did during the Great Leap forward or about poverty & plight of poor people in countries which followed/following his favorite “ism” but always lecture against capitalism/globalization/multinationals & capitalistic countries.That say’s it all about this man’s intentions and hypocrisy.

    It’s unfortunate that these people get opportunities to speak against those countries in their land, that’s the price free society has to pay. Eagerly waiting for the next parts..these articles reminded me of famous Kannada writer Dr S L Bhyrappa’s articles in Kannada Prabha on Nehru & Indira’s Socialist India (it’s not just about that phase and India, but about Socialism, Marxism, leftist thought process & hypocrisies in general). His observations and analysis of leftist nations and their policies,economies, people were profound and thought provoking.

  • A

    DJ said: ‘P.Sainath also had the misfortune of studying at JNU, so perhaps, that has something to do with it as well. A common problem among all DU/JNU graduates seems to be their uncanny ability of missing the forest for the trees. The BS graphic applies by default to every DU graduate I have seen in the media. I suggest that DU/JNU be added to the list of terrorist organizations, for the harm they cause to society with their sub-standard education.’

    Co-sign.

  • A

    Co-sign.

  • Manivannan

    Atanu,

    Excellent piece! But, as DJ says, lets not be very harsh on Sainath.

    Its a much more larger malaise, which needs to be countered and shown its place properly, least it will afflict us like a disease!

    i work as a civil servant and i do not agree with Sainath.

  • Abhay

    Hi, I recently came across this blog challenging P Sainath, and what I’ve attempted to offer here is a brief defence of Sainath.

    You raise a question about ”who is forcing farmers to shift to cash crop farming” – this is something of a blind spot in his work. I’ve written to him about this actually, and his response was that

    ”People can be made to shift by a) making foodgrain production extremely unremunerative b) farmer desperation to make some money c) using credit as an instrument of coercion d) incentives in various forms to take the much higher risks involved in cash crops.” – This I admit is not an entirely satisfying response, hopefully in the future he will elaborate on this a little more in of his articles or talks.

    In the meantime however, I think you’ve misunderstood some of the arguments he makes (please note that I’m not going only by this one talk alone, but I’m referring to his work collectively).

    Firstly the 250,000 farmers killing themselves is not because of food prices at all. The majority of the farmer suicides occur with cash crop farmers, not food crop farmers. They commit suicide because demand for cash crops is linked to volatile international markets, Because input costs for cash crops are very high. Because credit is very difficult for these cash crop farmers to come by, leaving them in spiralling debt, and also because the value addition in cash crops comes from the processing that occurs, for which the farmer usually receives nothing. (There is a contradiction here of course, if credit is difficult to come by then WHY are farmers shifting to cash crops? Like I said this is a blind spot, maybe he will address it in the future). In the meantime it is worth noting that Indian policy has been geared towards convincing farmers to make the shift, based on reccomendations on World bank – IMF prescriptions.

    As to the broader point about whether 250,000 is actually that big a figure relative to the country’s enormous population, maybe not. But does that mean the problem is any less exigent for the farmers facing this crisis?

    Secondly, you accuse Sainath of not understanding the ”basics”, butI think the problem is you are taking a far too ”basic” approach to the problem. From what I understand (and again I’m not completely confident about specific details), but broadly The supply shortages, are largely artificial (being brought about by things like commodities trading etc), with an intent to push prices up. These artificial prices do not in anyway benefit the farmer, but as farmers are also the greatest purchasers of food in fact places greater strain on them (as it does on other poor and vulnerable sections of society). The ”basic” demand and supply laws that you chastise Sainath for not being familiar with, apply to a hypothetical world, that is far more perfect than the world we currently live in.

    Finally, why does he criticize India buying land in Ethiopia? I think that has more to do with pointing out the ridiculous nature of the situation, where India, inspite of having vast tracts of cultivable land, in its zeal for cash crop farming is now being forced to acquire land for food crop farming elsewhere, than actually saying India should not buy that land.

    I hope this makes some sense.

  • KR

    Again the context is missing. Yes, we understand that 250,000 farmers killing themselves is serious business. But why are they killing themselves? Because food prices are too high or too low?

    Neither. All the farmers who killed themselves are those who grew CASH crops for EXPORT. The prices of their crops came crashing down in the international market. The input costs of farming had gone up which prompted them to borrow sums from money lenders and when the couldnt get appropriate prices to sell, they killed themselves in despair.

    Having a different point of view is fine. But did you even read his articles before being so arrogantly condescending?

  • Suryam

    It’s always amusing to read the apologetics of neoliberalism. They are very logical and extremely rational and always have Econ101 lessons their fingertips. The finesse of their language makes them sound like true economists. The confidence with which they “debunk” (or so they call it) arguments against neoliberalism is astonishing.

    Only thing they miss and they would not bother about that is Ground Reality. And it’s people like P.Sainath who miss the woods for trees! One who cannot comprehend his speeches would do well to read his works and also re-watch his videos and get a comprehensive idea of what he is saying. He has the broader picture in mind for he not only knows what’s happening in the buildings of IMF but also in the huts of the poor farmers that are affected by the diktats of the IMF.

    Remember, in every stage of civilization there were always apologetic and those rationale-providers for oppression. Some times it’s religion and some times it’s the interest of the Business and now it’s the defense of the market. History judges them!

  • Arjun Moudgil

    Was browsing for some info on Sainath and got hold of this blog. I think the author’s analysis is greatly biased, in thought and even more so in language. Some points here:

    1. The point on food prices and revolts is really being blown out of proportion. He’s right when he says that an agency like IMF doesn’t necessarily have to spend big dollars to know something they already do from experience. Not everyone has that kind of experience I might add and thus, an iteration from Sainath is of no harm.

    2. Prices are determined by Supply and Demand. Text book knowledge would lead one to this conclusion but the practical world is not ideal and works in an environment of subsidies, PDS’ etc and thus, even if prices are lowered, a farmer may make a profit.

    3. The mention of the word causation is incorrect. The instance reflects comparison and does not in any way refer or imply causation.

    4. The sentence on farmer suicides mentions the phrase “increasing trend..”. This has been ignored by the author. Although I do agree that more data could’ve been provided by Sainath to substantiate his point. I feel the phrase ‘increasing trend’ convey his points to an extent and at the same time avoids muddling an aam aadmi with too many datapoints.

  • http://twitter.com/dilawariitb Dilawar Singh

    Write some more diatribes against Sainath and Motek Singh might give you a place in planning commission!

  • http://twitter.com/dilawariitb Dilawar Singh

    Besides even if 10 farmers, or from any 10 people from any profession, have committed suicide, shouldn’t one care to figure out why? Or as long as it is aroung average, it is OK. I wonder if people will say similar things about rapes in India : it is ok as long as it is at par with Delhi.

    As someone said in a different context that ‘you have to be an economist or an idiot to believe it’.

  • rak

    Since I am assuming you are an economist, I would add this to your Basic Econ101 lesson: when subsidies are added into the mix, your basic assumption that the market determines the prices of the product does not hold any more.

    Regarding how the cotton market is controlled by the US subsidies look at these stats: http://www.organicconsumers.org/clothes/224subsidies.cfm