A few notings before voting

Nation is slowly entering in to election mode and we can see a lot of heated and often polemic arguments about performance of NDA government. Supporters of either side are arguing with their own data sets and narratives to prove their point. In this write up, let’s see some parameters with which we can measure the performance of any government of the day and can vote accordingly.

1)      Correlation is not necessarily be  causation- 

We often confuse between causation and correlation and thereby misjudge the performance of a particular government. There can be in correlation between umpteen numbers of variables and we can very well plot it on a graph. But unless those correlations can be intelligently explained as having any causation, it cannot be attributed as failure or success of a particular policy.

For example, one can have a correlation between increased financial allocation to irrigation in budgets and increased agricultural production. However, it is not necessary that money for irrigation was spend efficiently and resulted in more lands under cultivation/ irrigation and hence increased output. Agricultural output could have jumped due to increased use of better technology, seeds, good monsoon etc. Only carefully designed empirical tests can determine existence of any causation in a correlation.So before we give credit to government, we have to see whether this particular outcome was the result of a conscious policy or it just happened because of something else. 

2)      Necessary but not sufficient condition-

    We often blame our government for not doing enough, or a particular policy being ineffective for achieving a stated goal. This happens particularly in matters related to GDP growth rate, employment creation, tax collection etc. It is true that government play a critical role as an economic actor but its command over economy is not absolute.

     Many of the efforts and policies of the governments come under ‘Necessary condition’. For example, liberalizing FDI related regulations, easing labor laws or constructing Highways etc are Necessary condition for  increased investments ( and there by economic growth) but not a Sufficient condition. This policy will have a visible impact only if it is accompanied by a similar reforms in other areas which may be more difficult to accomplish ( for example, improved law and order, ease of acquiring land, ease of contract enforcement etc). Thus, when sufficient conditions are not fulfilled, the effectiveness of necessary condition would be minimal.

     A voter has to see whether the government is moving in right direction and have taken enough possible steps, and our judgement should not be blindly depend on whether it had resulted in any visible success or not.

3)     Random events are not patterns-

     Voters should see that many events and happenings in our country are random in nature and may not be occurring as a predictable pattern. However, both government and its opponents will try to see that these random incidents are forming a pattern and hence are a failure / success of a government.

     For example, ‘escape’ of Vijay Mallya, Lalit Modi and Nirav Modi are seemingly random events and we need not attribute a pattern to it.  For concluding it as a pattern, we have to see whether there is any binding commonality in it and whether any government policies, attitudes are responsible for that. If not, these incidents can be seen just as random events which can happen at any time. Hence, these stray events should not influence our voting decision. In the words of Nassim Nicholas Taleb, one must not be Fooled by randomness.

4)     Counterfactual scenarios-

Opposition regularly blames government for a particular policy or an event where they accuse the government for failing to act.  They appeal the voters to punish the government for not producing desirable outcomes.

However, before falling prey to such appeals of opposition parties, voters should imagine and construct a counterfactual scenario where in which

a)     What this present day opposition would have done under similar situations, if they were in power ?

b)     Would the scenario were been better under them and could they have managed it better?

              This is a tough challenge as none can exactly re-imagine a counterfactual scenario. However, we can come to certain probable scenarios based on our experiences of past policies of the present day opposition.

For example, opposition accuses the government for ‘failing to create jobs’, lower economic growth rate etc. We should think of a counterfactual situation wherein which opposition party being in governance and under similar circumstances, whether the economic growth would have been higher than otherwise and whether they would have created more jobs.

If you believe that the stated policies of the opposition (as they practiced earlier) would have been helpful to create more jobs or higher growth rate, you have every reason to support and vote for them. If not, there is no reason why you are blaming present day government for job problem.

5)     Lag effect- 

Positive or negative impact of a policy reforms will come out and get reflected on macro-economic figures only after a lag period. For example, a populist budget with a lot of ‘give aways’ will result in increased fiscal deficit. Yet, this higher fiscal deficit will translate in to higher inflation and other bad consequences only after a lag of more than a year or so. Similarly, reforms in labor or land markets will reflect in higher investment and job creation, but after a couple or more years.

It often happens that an incumbent government takes a painful policy decision for which it get voted out but the next government get credit for having higher economic growth rate owing to those reforms. A result oriented policy reform will always be painful in the short term and may adversely affect some vested interest. Similarly, a government can make mess out of its last years, will sit in opposition benches next time and accuse the government of the day for ‘low economic growth’. Unfortunately, people often attribute low economic growth to the present day government without realizing that it could be because of past policies of previous government. 

An intelligent voter should see that a low economic growth need not be due to failure of a government or its policies. He should decide whom to vote based on whether the policies of the government are helpful for the larger and long term interest of the economy or not. In other words, voting decision should be based not on the past 5 years of data, but on the expected macroeconomic figures for next 5 years.

Having said all these, the author realize that an ordinary voter would take a call based on his or her perception about the performance and not go by examining and analyzing data sets on his excel sheets. Any government of the day has to fight this perception battle to get re-elected and can’t win an election using raw data and logical arguments alone.