A case for Evenomics

Dear Reader,

Hi! Happy women’s day! Here’s a piece I wrote under my column Tweakonomics in the Hindu Business Line as a women’s day special! You can see it at http://www.thehindubusinessline.com/opinion/columns/a-case-for-evenomics/article8324270.ece; else read it here directly…Enjoy!

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On women, economics and sexism

Look at the centre-piece of economic theory. The entire science hinges on the assumption that economic agents are rational. Households, firms, governments and bureaucrats all act in a rational fashion so as to maximise utilities, profits, revenues, rents or social outcomes. Really now. Can anyone smell sexism here?

Mister Ricardo

This is not to imply that rationality is a male domain and that women are irrational. But the very definition of rationality in that other things being equal, rational people think at the margin and always respond to monetary incentives, is so construed as to be necessarily a male domain.

Think of Ricardian equivalence. This theorem says a tax break given to a household today does not really prompt it to consume more immediately; that is, households look at their consumption inter-temporally i.e. across time. So households believe that any reduction in taxes today will be compensated by governments increasing taxes later and, hence, a tax cut may not really promote consumption, in a manner that was assumed by Keynes.

Did Ricardo never indulge in that fun thing called as impulsive shopping? Had he just thought of consulting Mrs Ricardo about her inter-temporal choices, he would undoubtedly, have been given a totally different angle to look at things, saving him a lot of criticism in the future.

Another centre piece of neo-classical economics that has been blasted by feminists is Gary Becker’s paper on “A treatise of a family.” Becker, using rational neo-classical norms goes on to prove that the utility of the family would stand maximised when each partner performed the task in which he or she “specialised”. Through socialisation, he claims, women have developed a comparative advantage in home production, and hence, a happy couple is one in which the woman stays at home. This inherently means that an egalitarian couple could not really maximise their well-being, a conclusion that derives from a premise based on male rationality.

Male models

A last example. Rating agencies failed to predict the sub-prime crisis. Obviously, react feminists acidly, given that the current set of models used by them look at things in a finite orderly, male fashion. So, the probability that things can go wrong becomes a function of fundamentals, bank regulations, housing prices, derivatives prices, etc. There is no place in this model to assume quirky agents, the behaviour of which may lead to super-quirky outcomes. Of course, all of the comments offered above come to a grinding halt when one thinks of Joe Stiglitz, who got famous for predicting the sub-prime bang on.

There is, however, a stream of thought emerging that such episodes could be prevented in the future by just making sure that we don’t simply man our policy posts, but rather wo-man them. Get that gender equality done, not just for woman empowerment, but for the empowerment that the intuition gets to the framework.

Because, maybe economic events cannot be classified just using formulae. Maybe the notions of rationality are gender-specific. Because, maybe markets are from Mars, but value is from Venus

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6 thoughts on “A case for Evenomics

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