Economy

Modinomics and Behavioural Economics Are Two Sides of the Same Coin

Despite the well-documented adverse effects of demonetisation, Modi government’s continued support for it reflects the arrogance of the behavioural ideology that thrives in its sense of certainty, far removed from the struggles of everyday people.

Demonetisation is an excellent example of the devastating effects of the arrogance that makes up behavioural economics. Credit: PTI

Demonetisation is an excellent example of the devastating effects of the arrogance that makes up behavioural economics. Credit: PTI

The news of Richard Thaler, the guru of behavioural economics, winning the 2017 Nobel for Economics has added new energy to the BJP IT cell, which rushed to bandy around Thaler’s tweet in support of demonetisation right after Narendra Modi’s surprise announcement of a ban on high denomination notes on November 8, 2016.

Soon after the announcement, Thaler tweeted, “This is a policy I have long supported. First step toward cashless and good start on reducing corruption.”

The tweet included a link to a Breaking Business tweet about demonetisation in India.

Although the Twitter account is not a verified one, the official social media releases of the Nobel organisation tagged this handle in their announcement of the prize.

Propaganda machine

Soon after the Nobel announcement, BJP IT cell head Amit Malviya tweeted “Richard Thaler just won the Nobel for economics,” inserting with it Thaler’s tweet supporting demonetisation.

Malviya’s tweet was then shared and celebrated by the army of the BJP, including BJP leaders and ministers such as the union minister Giriraj Singh, former BJP IT cell head Arvind Gupta and BJP Mumbai spokesperson Suresh Nakhua.

However, Alt News quickly debunked the campaign by pointing out how the BJP’s tweets had omitted Thaler’s second tweet – “really? Damn” – that he released after someone on Twitter alerted him about the Modi government’s decision to issue a currency note in the even higher denomination of Rs 2000.

So well-documented are the highly adverse effects of demonetisation, the critiques of demonetisation from various quarters including from within its ranks, that the BJP can’t be blamed for trying to clutch at straws. But there is a bigger issue at stake here that deserves closer scrutiny: the authoritarianism of Modinomics gels perfectly well with the authoritarianism underlying the ideology of behavioural economics.

Authoritarianism as economic decision making

Demonetisation – like many of the decisions of the government – was carried out behind closed doors, with decisions made within a small elite circle without democratic consultation and public participation. The ones most affected by it, the poor at the margins of India’s neoliberal economy, only came to learn about it when the little cash they held on to became worthless.

The element of secrecy was justified by the government which claimed the idea was to catch those with large stocks of black money off guard. However, it was well known even before the November 8 decision was announced that only a very small proportion of black money is held in the form of cash. This truth has been validated by the fact that nearly all the demonetised cash has come back in the form of bank deposits.


Also read: Demonetisation is a Clear Case of How Public Policy Should Not be Made


The premise of behavioural economics that environments can be designed to gently direct consumer behaviour is embedded within an authoritarian framework that assumes the designers of interventions know best (as experts) what is good for the consumer/user.

That Thaler originally supported the demonetisation announcement, far removed from the everyday experiences and context of India, speaks to the arrogance of the behavioural ideology that thrives in its sense of certainty, far removed from the everyday struggles of everyday people.

De-contextualised arrogance

Demonetisation is an excellent example of the devastating effects of the arrogance that makes up behavioural economics, and for that matter, much of the institutional structures of neoliberal economics.

The certainty of the ideology of behavioural economics comes from its confidence in the universality of the truth claims it produces through controlled experiments, divorced from the actual travails of people and from the constitutive role of context.

The confidence drawn from small-scale controlled experiments to generate large-scale policy solutions erases the very context that constitutes human behaviour. To be able to make claims with certainty about the effectiveness of an intervention, context is controlled for through randomisation.

The contexts of informal economy, lack of bank accounts, etc are erased. The long lines, loss of economic opportunities, everyday harassments and death toll of demonetisation get written off into context.

For the celebratory story of demonetisation as a behavioural solution, the pains of demonetisation felt by everyday Indians are strategically obfuscated.

Had Thaler sought to learn about the context of India, he would have learned that a large proportion of the poor and the middle classes in India thrive on cash. He would have learned that the informal economy based on cash flows forms a major element of Indian economy. He would also have learned that for a large proportion of Indians, having a bank account is a distant dream. Had Thaler sought to learn about the politics of corruption in India, he would have learned that corruption and black money generation are constituted in networks of power, with politicians deeply embedded within these networks.

One would hope that the story of Indian demonetisation would disrupt the confidence of behaviourist ideology. But it won’t because the Indian demonetisation story can be written off as one marked only by poor execution. And the ideology would continue perpetuating itself, devoid of empiricism.

Managerial governmentality

Behavioural economics is naturally attractive to the growing category of of expert bureaucrats and managerial politicians across the globe, offering renewed hope in new techniques of control through the knowledge and manipulation of human behaviour.

From its newfound status in the Obama government under the White House Social and Behavioral Sciences Team and in the UK in the form of the UK Behavioural Insights team, behavioural economics could give politicians the tools needed to manipulate their citizens as consumers to making the ‘right’ decisions.

This arrogance in the power of expertise, in spite of the critical body of evidence that points toward the failure of expertise as a method of governance, reproduces an ideology that offers false confidence to career politicians and bureaucrats, far removed from the experiences of the citizens they govern, about the power of top-down decision-making.

Evidence that questions the effectiveness of the decisions is written off in the face of the overarching seductive appeal of the ideology.

That voices of people and their everyday lived experiences don’t really matter forms the foundation of expert-based decision-making, reflected in the seductions of behavioural economics and demonetisation.

Neoliberalism 2.0: Nudging as individualised solutions

Amid the vast inequalities reproduced by neoliberal reforms implemented globally and the rising tides of citizen anger at the disenfranchisements produced by neoliberal policies, the ruling elite needs new rationalities for wealth extraction and consolidation, and for the reproduction of the status quo.

Behavioural economics offers a new face to neoliberal reforms that seek to privatise welfare resources and individualise development as behaviour.

The citizen, turned into a consumer, is offered choices, with the choices embedded in the rationality of behavioural economics.

The citizen-as-consumer is reduced to making individual-level choices, and development challenges are framed as challenges of bad behaviour.

To the extent that citizens as consumers can be nudged (by elite bureaucrats and politicians and private interests) into behaving ‘properly’, the vastly unequal economic structures that have been strategically cultivated by neoliberal policies stay intact.

That this new form of behavioural economics is being propagated in the midst of large-scale inequalities produced by top-down neoliberal reforms speaks to the accommodative nature of the “nudge” solutions being proposed. The framework of “nudge” as a solution to global challenges to policymaking keeps intact the vastly unequal distributions of economic and communicative resources.

As I have noted elsewhere, the behavioural interventions of nudging citizens as consumers into proper behaviour keep intact the vast inequities that underlie the challenges being experienced globally. The ideology of behaviourism is the perfect new recipe for the conservatism of privatisation and individualisation, the twin ingredients that hold the affections of the BJP.

Mohan J. Dutta is a professor of communications and news media at the National University of Singapore.

  • Anjan Basu

    Excellent! For a lay reader like me, this article has been an eye-opener. By clearly tracing the links between neo-liberal economic orthodoxy and the intellectual apparatus of behavioural economics, Mohandas J. Dutta has earned our gratitude. So has The Wire, by marshaling such a lucid contribution from Dutta.

  • S.N.Iyer

    Brilliant article and analysis . Being blind to one’s own folly through arrogance can be very dangerous and the death knell to change in one’s arrogant behaviour.

  • alok asthana

    Anyone who supports demonetisation in India is a fool. It seems Thaler is a noble laureate fool.