Can compassion be built into an economic model?

Liberal thought is just emotion pretending to be intellect.

There’s nothing like an electoral defeat to throw liberal thought into a cocked hat. No greater proof of this is needed than two such defeats in the world’s two greatest democracies, though ten years apart.

The first was in 2014 when a self-confessed chaiwala routed the Congress party. The second was earlier this month when an enormously rich American routed the Democratic Party by a large margin. Immediately the howl went up: this is the end of democracy. It’s the ruination of democratic institutions. The winner is a fascist. The Nazis are back. And so on.

It’s striking how similar, or even identical, the language is. Only the Communists can match this because in both cases it’s all from a script.

The same thing, by the way, happened in Britain when Margaret Thatcher came to power in 1979. It has happened all over Western Europe from time to time. Liberals, when they embrace the Left, lose all objectivity and therefore credibility.

Unfortunately for them, however, not only did all these undemocratic leaders hugely strengthen their countries, they were all also eventually shown their place by the very liberal institutions that they were accused of destroying or trying to destroy. The reverse also happened. Left liberals when elected adopted the policies of the right wing fascists they abused so much. This still happens. The Biden government is proof. It’s hard, therefore, to escape the conclusion from the experience of the last 45 years that, generally speaking, liberal thought is silly because it’s not thought at all. It’s just emotion pretending to be intellect. Wokeism is the ultimate example of that.

But let me not get into questions of groups versus individuals and rights and duties and so on. Those are western hemisphere constructs. Instead, just focus on the core of liberal thinking; compassion. And within that just briefly enquire about its place in economics.

The central question

How do you build compassion, especially for the have-nots, into an economic model, or what is the same thing, a system of equations whose main purpose is to introduce logical rigour into the analysis of an inanimate mechanism that produces goods and services, namely the economy?

The short answer is you don’t because you can’t. Compassion as a driver of policy and related actions fails a basic test: Pareto optimality. It is also a zero-sum game unless played voluntarily.

Yet, for the last seven decades in India, and six in the West, this is exactly what has been attempted by liberal thought and the governments guided by it. These attempts have various names but they all try to do the same thing, namely, introduce the central tenet of religions — compassion — into economics, thus rendering it useless.

If John Maynard Keynes used economics to inject compassion into politics, liberal thought since 1980 has been trying to use politics to inject it into economics. The most egregious and recent example of this is Modern Monetary Theory which says governments must create as much money as possible by printing notes. This money must then be distributed amongst people. Fortunately, the idea died at birth.

Efficiency vs equity

More sensible liberal thought has been struggling with the contradictions of efficiency and equity but hasn’t been able to come up with a consistent and coherent framework. Foolish ideas have, therefore, found acceptance amongst even amongst not-so-foolish people.

There is another problem. The biggest contradiction which liberal thought is unable to resolve is that even as it hugely expands individual agency in the political and social spheres, it limits it massively in the economic sphere. The State is required to withdraw from the first two arenas and become utterly dominant in the third.

An entire body of politically correct, nicely warm and highly cuddly thought, however, is no substitute for the harshness of the practical issues of managing survival. Individual human development sounds nice, yes, but for that, as so many countries have demonstrated, liberal thought has to stop lamenting the exigencies of collective development.

Let me put it another way: the sum of the parts is not the whole, just as the whole is not the sum of the parts. This is not something I am saying. It’s what some very big names in economics, including Amartya Sen, have said.

If maximising individual utilities doesn’t maximise social utility — which is what we see in highly welfare oriented countries — and if maximising social utility can actually minimise individual utility — increasing inequality for example — how is a balance to be achieved?

The answer lies in how balance is defined and by whom. Liberal thought has a set of criteria based on compassion. Conservative thought bases its criteria on practicability. It’s heart vs brains. You can choose which you prefer.