S Gurumurthy and his opinions on economics are widely shared by BJP supporters and are increasingly gaining wide acceptance among general public. Experts in economics think his opinions are not worthy of response. I do not share this view myself, and I think its job of an economist to make basic knowledge of economics accessible to general public and rebutt with all seriousness fallacies relating to economics which have caused much trouble over and over again. As Dr. Atanu Dey had remarked, elementary economics should become a part of everyone’s basic cognitive toolkit. It will help avoid much misery.
Before I begin, I must mention that it’s characteristic of the followers of S Gurumurthy, Subramanian Swamy and Rajiv Malhotra(These three individuals come in the form of what is called in economics as complimentary goods) that they think these three are doing national work of great importance and those not believing them are not merely in error but in sin. Almost all of their followers are their literal bhakts who think that these men are great intellectual giants to whom everyone must pay attention. Nothing can be far from truth.
Coming to criticism of Gurumurthy’s ideas. Having been a fan of Gurumurthy myself in the past, I had watched his entire lecture series at IIT Bombay.
Gurumurthy’s first complain is about theories of macroeconomics, especially that of Keynes(Though it doesn’t occur to him that his complain is against Keynes, whom he greatly admires), particularly his prescription of spending more. When he criticizes this, he thinks he has woken economics profession from it’s “dogmatic slumbers.” But Keynesian opinion is just one of the many strands of economic thought. There are other schools who had argued and have been arguing till this day against this very prescription of Keynes before Gurumurthy was even born. To give an illustration, this was criticized by French economist Frédéric Bastiat in his 1850 essay “Ce qu’on voit et ce qu’on ne voit pas” (“That Which We See and That Which We Do Not See “). Sir Leslie Stephen had remarked in late 1800s that the test of a good economist is that he doesn’t believe in a singular relationship between aggregate demand and level of employment. Austrian school of economics has argued against macroeconomics as a discipline with a rigor that Gurumurthy can only aspire to achieve.
His second obsession is with Max Weber’s thesis of Calvinistic sources of capitalism. Because Capitalism has Calvinistic sources — argues Gurumurthy — economic system of India should be something which has Hindu sources. Thus, he argues for a Desi Economics. Here is Nobel Prize winner in Economics, F.A. Hayek, talking with another Nobel Laureate in Economics, James Buchanan. Watch from 20 minutes and 8 second mark.
Hayek explicitly mentions that Weber was completely wrong in his thesis of Calvinistic sources of Capitalism.
Gurumurthy doesn’t understand that economics is a value neutral science[See introductory part of “Human Action” by Ludwig von Mises.] It takes as given that people have values, whatever those may be. And it arrives at conclusions which aren’t affected by the value system of people. Take for instance Ricardo’s law of comparitive advantage. It doesn’t matter whatever creed one may belong to, the law works inspite of that. Gurumurthy takes advantage of the part of economics profession who claim that economic theories are inductively arrived at through empirical testing — a methodology which has serious drawbacks in economics — and he uses empirical data, many a times wrongly, to make theories which go against mainstream macroeconomics opinion.
His third obsession is that since Indian economy doesn’t have much of a formal sector therefore stock market is not a barometer for assessing Indian economy’s health. A clichéd observation for which Gurumurthy pats on his back N number of times.
His fourth obsession is methodological individualism, which he misunderstands. Methodological individualism advocates the view that individuals have values, not such wholes as family or society or nations — an idea which is not incompatible with the existence of families and societies. That’s the way economic analysis proceeds. Gurumurthy thinks methodological individualism means destruction of family as an institution, which is absurd. Economics is a science of how to employ means to fulfill one’s goals, whatever they may be. It has no obsession with one’s goals. If anything, the only goal of economics is to create a system which leaves maximum space for everyone to pursue their own goals.
His latest obsession is printing additional currency to finance government expenditure. He argues that since US has printed so many dollars to finance it’s investment, why shouldn’t we too? It doesn’t occur to him that dollar is both, an international currency, as well as domestic currency of US. Printing additional dollars can be used to buy imported goods and impact of inflation can in this sense be overcomed. But can printing additional rupees ever be used to buy imported goods? It puts pressures on the domestic production capability leading to inflation.
Furthermore, prices are abstract signals which convey information as to what to produce, in what quantity, how, for whom and in what time. Such information is distorted by additional influx of money. It changes the relationship between costs and prices and sends out wrong signals. Government projects aren’t backed by any real market demand. As a consequence of distortion, laborer gets shifted from production of goods it was preciously employed in- backed by real demand- to sectors where demand of his labor is contingent upon repeated influx of money from government. This later leads to great unemployment. Influx of additional currency also changes the capital structure in the economy. Thus, the result is wrong goods being produced, in wrong quantity, in wrong time and for wrong persons, a phenomenon which Austrian economists have called as ‘malinvestments.’ This explanation is a priori valid and no amount of external evidence can refute it. The result flows from deducing propositions from apodictic axioms, a method followed in deducing Ricardo’s law.
(See Ludwig Mises’ Human Action and his Theory of Money And Credit.)
It was precisely due to the ills of monetary expansion as stated above that Nobel Laureate economist F. A. Hayek argued for denationalisation of money.( See ”Denationalization Of Money: The Argument Refined” by F. A. Hayek.)
Gurumurthy is royally ignorant of all this literature and yet he has opinions on economics.
Murray Rothbard had remarked:
“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”
In a similar spirit, Mark Pattison had remarked, “A man who does not know what has been thought by those who have gone before him is sure to set an undue value upon his own ideas.”
This holds true for the trio I mentioned in the beginning of my post.
It’s time that they begin to pay heed to these wise dictums.
P.S.- Gurumurthy mentions in his speeches that India has around 6,68,000 villages and towns and only 12,500 police stations and then goes on to claim that India has one of the lowest rates of crime in the world. It doesn’t occur to him as to how crime will even get recorded if there’s such serious lack of police force? However, it’s interesting to note that India is in order inspite of such lack of police force.