THE LAMPPOST THEORY

BY SRISHTI AGRAWAL

“If only”. When speaking about politicians, economists invariably turn to their patent phrase – “If only”. The tussle between economics and politics is as old as the disciplines themselves, and as constant as their existence. While speaking about the relationship between these two, Princeton economist Alan Blinder coined the phenomenon of ‘The Lamppost Theory’, as explained in his own words, “Politicians use economics the way a drunk uses a lamppost- for support, not for illumination”.

It is hardly shocking to see politicians overpowering economists in a democracy. While economists may develop the best courses of actions and make the most accurate predictions, it is finally in the hands of our elected representatives to actually formulate policy. It is this division of roles that leads to friction between these two factions. It’s almost as if they come from two different civilizations, based on two entirely different schools of thought. Economists rely on the theoretical mathematical logic taught in school, based generally on certain assumptions that at times do not match the real world implementation concerns. Politicians, on the other hand, have their own logic, it’s just political logic.

Politics isn’t only about taking the most cost-effective decisions, rather it is about the public, the voters. It’s necessary for politicians to take decisions that appease the masses and solicit support because they are ‘of the people, by the people and for the people’. And at times public welfare requires them to go against the orthodox ‘rational’ measures.

Take for example the 2017 Tax Cuts by Donald Trump, that he never bothered to make up for, which was swiftly followed by increased public spending by hundreds of billions of dollars. The US economy was in no need of this stimulus at the time, so what was the reason? Simple: people love tax cuts and Donald Trump wanted a boost in his local popularity ratings.

Whether it be the non-imposition of carbon and traffic taxes despite them being touted as the most effective measures to solve their respective problems or the clear populism in providing gas subsidies costing about 53,000 Crore INR, these actions are based on the unequivocal belief ‘Good economics is bad politics’. Even the introduction of Ayushman Bharat by the current regime, costing 5000 Crore INR this year, with the government paying the entire premium to cover about 8 Crore beneficiaries, instead of a part payment system despite the ballooning fiscal deficit shows the extent politicians do and can go to for public welfare, culminating eventually into votes.

But before criticizing our politicians, as is the general norm, on taking a closer look, one might find that it’s not only politicians who ignore the cost benefit analysis in favour of following their instincts. In the real world of biases and inclinations, the basic assumption of ‘a rational consumer’ flies in the face of the traditional economic theory. Humans are in fact emotional beings and unsurprisingly so, go against the perceived reason and logic.

In fact, Harvard psychologist Gerd Gigernzer believes that gut feeling is actually based “on lots of experience, an unconscious form of intelligence” that in some cases might prove to be superior to analysis. He even claims to have interacted with large international companies, who admit to basing 50% of all their decisions on gut feeling. In fact, the power of instinct has been seen time and again, with Calpurnia in 44 B.C.E., Julius Caesar’s wife, trying and failing to convince him to not go for a senate meeting because she had ‘a bad feeling’ that something might befall him, and he was actually assassinated that very day or Aileen Mahoney, director of Evotive Marketing going against her usual custom to follow her instinct and returning a missed call, which scored her one of her biggest clients.

I believe that in order to succeed one must move forward with a mix of both, instinct and analysis; just like an economy needs a balance of both- Politics and Economics. Politicians have time and again come under the fire for already deciding on a path and then seeking an economist to bless it. But it has been observed numerous times in business and in the ordinary course of life that people follow their hunches first and then seek the information or data to justify it. It is imperative for politicians to become more perceptive to the economic logic and rationale while economists must adapt a more political savvy and practical outlook, reconciling with political logic. They must accommodate one simple factor in their calculations that politicians too are, in the end, only human.