Experts got the election wrong. Here’s the reality they missed

Although no data is available, it’s fair to say a big majority of economic experts got the election wrong. Some of them got it spectacularly wrong. When you go wrong, and especially if you are an expert, you should try to learn some useful stuff from your errors of judgement/analyses.Therefore, here’s my decidedly modest contribution to that process of learning. My non-expert, journalistic submission is that experts got elections wrong because they ignored ‘me’croeconomics.Experts do rigorous analysis of macroeconomics and microeconomics. ‘Me’croeconomics is field study of the immediate economic environment of people. Economics as it affects ‘me’.Pundits were right that economic slowdown and stalled private investment at a macro level and consumption slowdown at a micro level coincided with Narendra Modi’s reelection campaign. But some of these economic numbers reflect the ‘me’croeconomics of India’s top 15% people by income and purchasing power.What experts didn’t quite see — or they saw and didn’t appreciate enough — was that ‘me’croeconomics of millions of ordinary voters across many states had been altered by one or some or all of Modi’s many welfare schemes. In some cases, the alteration was real — funds for building a house — and, in many cases, there was firm hope that change is coming. The latter, because the message of Modi as a deliverer was firmly anchored.The Indian Express reported on Friday that Modi’s welfare schemes “resonated” in 115 poor districts that returned 60% of NDA seats in these elections (bit.do/eTfEv). That’s ‘me’croeconomics in electoral action.The big pre-election discussion among experts on jobs — in which the political economic question was how much would joblessness hurt Modi electorally — could have done with a healthy dose of ‘me’croeconomic reality check.The Torn Book of JobsFirst, though, an interesting piece of data from conventional economic analyses. As explained by Aunindyo Chakravarty in ndtv.com (bit.do/eTfF5), the relationship between job growth and national electoral verdicts has worked in almost the opposite way than assumed by many experts. He points to Reserve Bank of India-KLEMS (‘Kapital’, Labour, Energy, Material, Services) employment data (‘Measuring Productivity at the Industry Level’, bit.do/eTfGE) to demonstrate two points all pundits should consider: Far more jobs were created when Atal Bihari Vajpayee was prime minister than in the first tenure of Manmohan Singh. Yet, Vajpayee lost and Singh won. In Singh’s second term, the pace of job creation picked up considerably. Indeed, UPA-2’s job creation record was better than every government’s since 1980. But Singh’s second government suffered a humiliating defeat.So, even assuming job creation was really slow under Modi’s first term, this data should have been a warning for experts when they pegged down his reelection prospects.There’s another piece of conventional economic data that should have also been a warning to experts. India’s employment elasticity — a measure of how jobs grow as the economy grows — has been falling for a long time. Between 1990 and 2007, the elasticity halved, from 0.3% to 0.15%. So, as India’s economy grew post-reforms, the pace of job creation fell. And if jobs were such an electorally critical issue, surely many poll verdicts would have been influenced — but they weren’t.‘Me’croeconomy helps understand this better. Just short of 50% of India’s workforce is self-employed. The vast majority of them are at the lower end of the socioeconomic pyramid — farmers and those in related activities, shopkeepers, carpenters, plumbers, electricians, small vendors, etc. Many switch between self-employment and occasional employment.When Modi mentioned pakoda-sellers and was critiqued by pundits for wishing away the problem of job creation, the latter were right to the extent that larger formal wage employment is desirable. But the PM was bang on in identifying the relevant ‘me’croeconomic fact.Self-employment and barefoot entrepreneurship have been individual realities for millions in India for a long, long time. Modi’s invocation of pakoda-sellers was a message intended to connect at two levels.Politically, the message was that there’s dignity in self-employment and barefoot entrepreneurship. In terms of policy, the message was that Modi’s many welfare schemes were specifically targeting self-employed Indians whose incomes were uncertain and low.Dancing to a New MudraThe MUDRA (Micro Units Development and Refinance Agency) scheme, which gave loans up to Rs 10 lakh for non-farm small entrepreneurs, may have attracted questions. But its impact is part of the same ‘me’croeconomy that experts missed. Modi’s connect with the millions of ordinary voters was in part mediated through his sharp understanding of the ‘me’cro part of India’s economy.Now, post-verdict, experts are again advising the PM — rightly — to pay attention to faltering macro and micro numbers. But you won’t get Modi’s economics if you don’t pay equal attention to the ‘me’cro.

from Economic Times http://bit.ly/2JBMphB