This refers to Madan Sabnavis’ article “When all theories collapse” (February 11). If economic theories are found wanting in bailing out the world’s downhill economies, it is because 21st-century economists have to grapple with a complicated world economy. They have to contend with numerous variables and constraints that cannot be encapsulated in an integrated model. Economies the world over are more interdependent than ever, and yet very competitive. They are interactive and open through widespread communication systems, and yet cautious about sharing information. The task of balancing growth and inflation is strewn with conflicting mediators, such as the fiscal deficit, current account deficit, liquidity trap, investment and consumption, exports and imports, exchange rates and so on. So far it has proved to be the search for the Holy Grail.
In particular, no economic theory can explain, or resolve, the self-destructive mixture of electoral politics and good economics that has distinguished India. It boasts of a unique model of “entitlement economics” (subsidies, the Mahatma Gandhi National Rural Employment Guarantee Act, etc), which has been pioneered by the National Advisory Council and is being implemented by an eminent economist prime minister.
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