The Economic Survey 2021-22 released on Monday made a reference to noted economist Friedrich Hayek in its preface. The theme of this year's Economic Survey, it said, was "the art and science of policy-making under conditions of extreme uncertainty" mandated by the coronavirus pandemic that led economists and policymakers to look beyond the predicted models of policy making generally followed.
The policy-making model followed in India and the rest of the world till the pandemic struck was reliant on a pre-determined "Waterfall" approach, the backbone of five-year plans and urban masterplans, and relies on " upfront analysis of the issue, detailed planning and finally meticulous implementation."
This approach, the document said, does not account for "random shocks and unintended consequences" that happen in the real world.
To overcome this, traditional economics created ever more detailed plans and forecasting models despite evidence that this did not improve outcomes. This is "The Pretence of Knowledge" – a concept Hayek outlined in his Nobel Prize acceptance speech.
Here's what Hayek had said in his Nobel Price acceptance speech in 1974 (excerpts):
..... It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences – an attempt which in our field may lead to outright error. It is an approach which has come to be described as the “scientistic” attitude – an attitude which, as I defined it some thirty years ago, “is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed.
..... It has, of course, to be readily admitted that the kind of theory which I regard as the true explanation of unemployment is a theory of somewhat limited content because it allows us to make only very general predictions of the kind of events which we must expect in a given situation. But the effects on policy of the more ambitious constructions have not been very fortunate and I confess that I prefer true but imperfect knowledge, even if it leaves much indetermined and unpredictable, to a pretence of exact knowledge that is likely to be false. The credit which the apparent conformity with recognized scientific standards can gain for seemingly simple but false theories may, as the present instance shows, have grave consequences.
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