Economic theory was at play all through the Lok Sabha election
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Jun 11, 2024 | Page No.: 12 | Position: Top Right | Source: Madan Sabnavis | Sq Cm: 464 | AVE: 371058 | PR Value: 1855290
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Economic theory was at play all through the Lok Sabha election From Pareto optimality to Giffen goods various economic concepts offered close political parallels election as well as during recent state Every party is eager to give out all the assembly polls Hence this time all of information needed to attract voters them seem to have followed a policy of This could be in the form of what has adaptive expectations by which the been done or what will be delivered if last outcome is simply scaled up in an elected to power With symmetric effort by pollsters to look good Such information available to all participants expectations are considered safe this is largely an efficient market Most because we learn from the past and economic markets are not assume that the present will carry on in A major part of election campaigns is MADAN SABNAVIS the future But exit polls went wrong centred on making the right noises is chief economist at Bank of Baroda and again like GDP forecasts no analyst These are what are called announce- author of Corporate Quirks The Darker projected 8 2 growth for 2023-24 ment effects Just as regulators in the Side of the Sun The last two elections in 2014 and financial sector are thought capable 2019 had resulted in what would be of moving markets by just making called a monopoly in economics A announcements talking them up or single-party Lok Sabha majority results down i e voting patterns are mostly The outcome of India s election was in monopoly power that can be wielded driven by political announcements quite singular compared with in every field A coalition this time They are credible because if parties 2014 and 2019 All major parties means that there would be more of an renege on them they would face the celebrated it The NDA was happy oligopolistic structure so we can wrath of the market or voters the next because it returned to power the expect some checks and balances as time round A plethora of announce- Congress and INDIA were happy that every partner would have a unique ments are made by all parties to send they did better than in the past while strategy This is where game theory the electorate the right signals a term regional parties were pleased they came comes into play with each party trying used by George Akerlof who espoused out stronger in their states This is what to maximize its gains by guessing the a theory of signalling in the market for in economics would be close to a Pareto response of the other These dynamics second-hand cars or lemons optimal situation where everyone is are likely to prevail even after the new The outcome patterns of election better off and no one worse off coalition government takes charge results are also interesting There are All through election season one If one goes back to this year s election several constituencies and states that could see several concepts of economics campaigns including manifestoes continue to vote en masse for the same at play The most startling was the irra- promises of monetary benefits formed a party Here the theoretical concepts of tional exuberance witnessed on 3 June common theme These included cash Veblen and Giffen goods come in The when the Sensex closed at a peak of transfers apart from free power bus former refers to a luxury good for which 76 468 on the back of exit polls on 1 rides etc What has been brewing for one is willing to pay a higher price even June which indicated a huge mandate long in election seasons is the creation if just for social appearances The latter for the ruling establishment The prem- of a moral hazard by so-called freebies is something one may consume more ise was that a landslide majority of 350- The hazard is that once implemented of even if its price rises because it s a 360 Lok Sabha seats for the NDA would handouts will be hard to withdraw as it necessity Brand loyalty induces similar accelerate economic reforms thus would antagonize beneficiaries who inelastic behaviour So too in the case of reviving the Keynesian animal spirits may vote for the opposition parties that get votes as part of a family of industry When the results on 4 June For individuals what matters is what tradition or for an appeal of ideology revealed a majority for the NDA though Adam Smith laid emphasis on self Behavioural economics has taught us not for the BJP the market index interest While a G20 summit Vande that many decisions taken are based on crashed to 72 079 amid worries that Bharat trains and the goal of becoming a psychology which can be influenced by reforms would slow down In market developed country can inspire pride marketers including politicians On a parlance stocks tend to revert to the and lift people s morale votes are cast lighter yet ironical note the final results mean and not surprisingly on 5 June for tangible benefits So the micro pic- have not entirely been Pareto optimal the Sensex closed at 74 382 which was ture matters more than the macro They were bad for India s Left parties higher than its closing level on 31 May Elections however present a market which face the threat of withering The exit polls were another exercise that is better than goods and money away as Friedrich Engels prophesied of that saw economic laws prevail These markets in terms of what economists the state under communism polls went wrong in the last Lok Sabha would call information asymmetry These are the author s personal views