Dr. Subramanian Swamy on difference between Micro and Macroeconomics

hello and welcome to Peru Channel this is your host shri Iyer today I have the privilege of having a conversation with dr. Subramanian Swamy member of Rajya Sabha dr. Swamy welcome to p guru's channel Thank You viewers today we are going to discuss a little bit about the history of economics and to place it in the right context dr. Swamy I'd like to allude to one of the governors of RBI this person on his resume a had a degree in engineering from IIT then an MBA from I am then went on to get a PhD in finance and and and when I was teaching in a school in you know in you know United States and and that was said as that was enough qualifications to be the governor of RBI and and you were one of the few individuals who probably pointed out that this is really not the qualifications you need to be the governor of RBI and I think you are coming at it from a person's knowledge of economics so for our viewers why did you say that and then maybe we can go on from there well first of all before I get into the policy prescriptions of there is a fundamental difference between macroeconomics and microeconomics the chartered accountants the mba finance they are all in working in the field of my curriculum hmm economists not only know microeconomics but they also know macro macro economics now the difference between the two is that microeconomics is bilateral because you must produce a buyer seller [Music] mmm-hmm profit loss that sort of thing and that is therefore basically on individual transactional level hmm when it comes to macroeconomics you're dealing with the system hmm and the economy is a macroeconomic system hmm and it's an equilibrium like the universe is because of mutual gravity hmm so a policy move hmm in microeconomics might seem obvious mean and common sense but when it's applied in a macroeconomic Network it doesn't move the same way for example hmm the case of mr. Galan Rajan he said that he was going to control inflation by raising interest rates which will contract the money supply mm-hmm and therefore reduce prices my argument was that if you raised interest rates then the cost of capital for the small and medium industries you know up hmm and they rely totally on the Indian finance market hmm for loans and they will cut back their production which will mean that maybe prices will come down hmm but it will be like a dead man temperature comes comes down right right it's not a phenomenon that we welcome so in our country he may have controlled inflation but it was at a heavy cost mmm of a large number of small and medium industries going out of business unemployment so the controller inflation was accompanied by employment in other words it was not a controller inflation it was actually inducing depression in the eniac oh I see I said okay and yeah now this mistake is something that mr. Landrigan fear even the modicum of elementary knowledge of economics not so now we see in the United States in 1925 the US president called all the top economists hmm and he said he is unhappy with the state of unemployment will be mm-hmm so is there any way we could reduce the unemployment hmm hmm so at that time the concept of microeconomics which really essentially flowered after John Maynard Keynes came in as a cure for depression hmm America it was a horrible depression the whole world was in it right there the this this classical economist hmm use this bilateral economics I see Micro I see my curriculum and said that if you lower the wage rates mmm then unemployment will come down they were thinking that there is a full of money if you lower the Veda there's more going around to add more people was there no then the capitalists would find it cheaper to to hire okay okay so therefore an employment now what happened is the opposite happened the President of the United States persuaded labor unions to accept mmm eh cut hmm and father lonely on unemployment he please hmm the reason was that the purchasing power hmm went down went down right because of a page cut hmm and therefore industries had to suffer a recession which led to further you know unemployment because they started throwing out people from their right right and therefore a cut in wages actually led to an greater unemployment in the exact opposite to the bilateral understanding mm-hmm you are likely to hire more people if you have a lower wage right right but that's bilateral so this is the fundamental difference of the economy now become a really sophisticated and one thing can trigger something else these subprime loans right just happened that the small recession hmm just like a ricochet effect hmm you know just the whole Western world was right right right and III think that there are only two explanations for this idiocy of and he wasn't willing to listen such a hopeless because the society ladies were all going to about his publisher getting carried away he was addressing them they were turning up with large numbers of relative to their population right right and he became arrogant hmm and it's not that he wasn't told that this is not correct economics but there's nobody else to tell you now government mr. Jaitley does know in economics mmm what he knows could be fitted fit in the backside of a postage stamp so if they don't want to correct him hmm and then therefore I had to move in the matter hmm and said you gotta know early to say it's caustic and with so high in United States you can get him known for 2% if just direct right right and then there you can raise from 2 to 3% it's not such a big deal right right but in India it's already a prime lending rate was 12% and the market rate was being 80% and informal 25 percent hmm and these are all you know people living on the margins and they were all getting unemployed hmm and it was an anti-national move I feel personally that mr. Rajan even if you are he had come to realize what I said hmm he couldn't do it because he keeps him to have come with an agenda hmm hmm because he soon branched into the question of intolerance and right right right right of course he was very corrupt because his brother in Tatas and he and oh I don't want to get into it because they told the Prime Minister hmm if we don't sack him hmm then I'll have to go into this hmm what he's done with small Mena small banks lots of that hmm so I fortunately the prime is decidedly different although till today when he himself admitted there was nothing on the table so I had to leave right right right the all these society ladies were going how he rejected the offer to continue yeah these are all massaging and I said yeah yeah especially our English media there was huge media right right it's very unfortunate you see but he came with an agenda which I think the American British mental illness so some people had said that by keeping the interest rates high in India he was creating an environment for people to do arbitrage yeah in the interest rate differential right I mentioned that also to the Prime Minister hmm that's now very profitable for somebody from America here take a loan right right right right and you know I mean take a load from America for 2% - it was 0.25 percent roll oh yeah and come here and formally right right this is going on especially they were giving to the the big industries giving in hmm in the demo FDR right so or participate we know art spectra notes said let's step take a step back in terms of the evolution of economics early in the 20th century up until that time economics is considered more of an art rather than a science form English and so at some point this this thing changed and I think you have attributed professor Samuelson as one of those people who actually created an economic miracle model that could actually predict how economics happens at a at a large level so maybe for our viewers you can just take us through the last hundred years of the economics evolution mathematical ization was it's phoretic there was lots key equation there was a smattering of it in John Hicks it was here there walruses general equilibrium cholesky so there were people but they were all that what samisen did hmm I mean he is truly a genius and have great privilege that I was his co-author and hmm in a paper and I was a student and long-term association which lasted two he hmm passed away you're the true genius now what he did was he did two things with mathematics hmm first is he was able to explain phenomenon which you can explain by graph hmm for example hmm in the in the methodological I would say because we have not been in recession this really happened or not mmm in a mighty illogical Irish Famine hmm the price of potatoes shut up hmm but the consumption but it is also shut up how to explain that graphically right because you have a demand curve which goes like that mm-hmm [Music] made no sense right right but he borrowing on the earlier work in its infant form Tennessee did two things one is that he showed by calculus hmm that when prices rise there are two components what is is what he called as the price effect and the other he called is the income effect and then he converted that into into what is he called as comparative statics I mean he's really the father of comparative statics which means I got an equilibrium hmm and then I make a perturbation in it disturbance a small you can do the disturbance right then using differential calculus hmm you get the oh I see I see so he got these equations the first great contribution he made his comparative statics mmm I know the guys the genius mind it's not obvious it's not lack of knowledge of mathematics or nothing it's just the application hmm the second thing he did was he says I'm observing data hmm I observed market prices observed people buying selling right so if I get this observable data hmm hmm can I convert this in what is the engineers call as you know when you get the final product and you work backwards reverse engineer correct reverse engineering right right can I do a reverse engineering I see I see find out what is your maximum mm-hmm the utility function right maximized right right right which we have a notional concept correct correct they had a notional concept that you maximize your satisfaction which is measured by a utility function mm-hmm multivariate function of all the commodities you buy right right insurance is you use so he said no I observing these data hmm and this in those days there wasn't much computers also going up that's right everything had to be done manually using slide rules and what-have-you so he actually converted that into a form hmm that if I today buy so much at this price and I buy more at less price then he worked out what is called as weak axioms of revealed profits oh wow so why are you buying and selling these are all revealed preference so he developed this theory of giving preference as a graduate student at Harvard absolutely he also suffered like I have suffered but religious reasons that I could get a job in oh my god afterwards of course when you get a genius established genius now you try to dream so he stated MIT but these you're observing this data from this observable can I work backwards correct correct that's what really led to the use of set theory mmm-hmm and matrix analysis and this right right so so your association with him started in the 60s probably when I landed in 1962 September hmm I was a admitted to this course for a PhD at Harvard hmm now Harvard ph.d you get after qualifying in a general exam mmm there's a general qualifying exam it's called a general exam not a qualifying exam hmm we're about four papers you write I see and show that you're fit for research it's a tough exam right right right try to take it up to four years I see I see um so you you take that and at that time you have to take you know while you are preparing for the exam hmm you take courses so I took a I went to before coming I was already interested because I had demolished mr. Malla novice but I love calculus right he was a giant you know he was favorite of Neru Learning Commission wash all that hmm and in one calculus equation where I differentiated an integral hmm and I got the result to show that what mr. mono visas for passing off as a great new invention hmm 300 years old except it was the first derivative of the Lorenz curve okay so I bye then you know it didn't matter that got a master's degree I didn't get scholarship all paid for anything and people the my T semi referee for my article was a chairman of the admissions committee and also the so there was a Planning Commission member in sahaja called relaxing mmm he was also London School and all but all stage six period he was member mmm mid favorite neighbor also but he was not my father's friend so he took a great liking for me my he recommended to so it was confluence of two things common ship and you know somebody who has roots in India right so when I landed there by then I had already read Samuelson's textbook which most people don't know about they know about the what you learn in economics one right there's it's a general introduction to economics is very engaging English and all that but he had on mathematical thesis I mean that is his PhD thesis converted into a book hmm and that's called foundation economic analysis and that's all mathematics so I had already because I had a mathematics degree and I remotely statistics degree so I was equipped of all the students hmm to read it so I started mastering news thing and when I landed there there was this elite force people to commit the 30 or 40 oh I see I wanted to take it the very first semester so I went to his office and the secretary said no he can't see you hmm hmm you know just the first year hmm you can see him hmm all right so I said can I at least write him a note hmm so he she said yes you may not answer pass it on to him hmm so I'm that note I wrote the revealed preference equations mm and I suggested that there was a problem whatever he was saying about the integrity integral integral ability mm-hmm but there's something would be integrated right practice at all in in in physical changes mm-hmm price change small amount right right right you know how do you integrate it is yes so I wrote on it hmm I'd just reach Harvard back hmm mighty disappointed that discourse hmm to the Chairman hmm saying about 17 wants to see hmm boy that's my first mm-hmm the second thing which endeared me him unlike Indian climate which I could have had an opposite effect mmm I was sitting in the class who's writing all these equations in the advanced mathematical methods in economics which I was taking a first-year everybody else was 30 or to take their PhD in journals hmm and he wrote an equation where he made a mistake in the conformability of matrices mm-hmm so I told him interrupted never late mm-hmm I said first Emerson you've made a mistake hmm well not get the results you are going for hmm dr. silence in the class so I said I said what did you say hmm I said you have made a mistake hmm would you have to correct otherwise you won't get the dessert so he said okay go to the board and show me baptism by fire that's over today hmm the only 10 minutes left after that but he said you come and see me in my office some I had these classmates I've got to get back to India should have come here this place is not something I went to his office he suddenly looked at me and he said you know I think you and I should work together hmm what is your interests so I don't know my interest is now because you have introduced me and this Louie prefers theory into index numbers that I won't pursue that hmm my father was a statistician in any subjects got a start working hmm that's how this famous paper on index no salsa huh 300 mm hmm so that's was then you know it was this that he used to remind me meeting him when I decided to leave for India he was not very unhappy he said let me tell you one thing he didn't say Nobel Prize but you say wait you're going hmm you're probably one of my 10 best students I've had hmm I can't say which part of the ten you are kept people grounded but you'll get a price you just write a treatise on index ality hmm and I'm telling you you know so I came back hmm and he wrote me a very strong recommendation later hmm which helped me get the IIT hmm physician hmm was the chairman of the selection committee there was the American scholar Polly honored Oh leaks who began the selection committee meeting saying what is there to select hmm I'll give my right arm to do a joint paper small services this man has already done it but when they treatment my battery even started yeah and of course my fatherly figure who protected me throughout Simonson was pure scholarship mm-hmm but the man who was like a father who protected me from elements holding like or even those who are coming to India to do Indian studies there are professors like that the World Bank so that is Simon Kuznets also a Nobel laureate he was very fatherly figure hmm and he looked up to me protected me and so on I got all my appointments there was no way anybody would blocked me from assistant professor to associate professor about to become professor hmm that's a time I left hmm so the Simon Kuznets and and Samuelson both were Jews hmm and they never spoke to me about Israel or anything like that but they were Jews and you know I was doing the family functions thing that so I developed a certain not fondness of the Israelis I mean the Jews at that time and when they came to know I was getting held in media mmm I said come back why did these countries are grateful to him hmm immigrants I never went in the emergency both Simon Kuznets and and Simone said hmm they said you were right I mean after all there can be anybody in any number of people doing research but to keep a country democratic hmm this so after that they never tried to persuade me I see ice except they made me come every year mm-hmm to take it back or so two courses one China did it till this controversy came that by these left and loonies and artisans and Sonia Gandhi financed individuals that I should not continue at our things hmm I mean they could to sack me so they got my poses correct correct correct correct correct that's how it'd be done he died mm-hmm I mean Simon could make a girl fall term el salón Severson great thank you doctor

Channel: PGurus

Views: 51,179

Keywords: Dr. Subramanian Swamy, Dr. Swamy, Raghuram Rajan, Narendra Modi, Subramanian Swamy, Paul Samuelson, Simon Kuznets, Macroeconomics, Microeconomics

Id: f_84sjiBNT4

Length: 27min 39sec (1659 seconds)

Published: Sun Sep 24 2017