'Bad argument': Ex-CEA Subramanian after economist says 'corruption is grease for economy, should continue'

Former Chief Economic Advisor (CEA) Krishnamurthy Subramanian on Sunday rejected the argument that sometimes corruption is good for the economy. He called it a 'bad argument' that should be ignored. Subramanian's remarks came after an author asked him to comment on one economist's argument that "corruption is the grease of the economy, wo hoti rehni chahiye (that should happen)".

In a June 13 podcast, economist Saloni Khanna stated she does not justify corruption, but pointed out that an IAS officer's salary of Rs 80,000-90,000 is insufficient. "Can a house run on Rs 80,000-90,000?" she asked, urging the government to find a way to reduce corruption.

Khanna further said that not just officers, but society is also doing corruption. "It is not morally good, but as an economist, corruption is the grease of the economy. Agar corruption nahi hoga to sab to kuch bahut slow chalega, that will impact businesses, productivity, and GDP," she said. "Thodi corruption grease hoti hai, wo hoti rehni chahiye (a little bit of corruption is the grease of the economy, and that should continue to happen)."

Khanna's comments triggered a volley of reactions. An author and tech enthusiast said he was blown away by this argument. He asked Subramanian to "enlighten me with your knowledge".

The former CEA said in economics, purely theoretical models can deliver any result using convenient assumptions. He said economist Kaushik Basu had floated the "ridiculous idea" that bribe giving should be legalised as "his theoretical model "predicted" that this will reduce corruption". 

"As an engineer-turned-economist, I find pure theoretical work like that by Kaushik Basu to be useless," the former CEA said. "You can get any "cute" result using convenient assumptions if you can SELL THEM well to peer reviewers. That's why bilge like "corruption is good" is ONLY found in economics." 

Subramanian said the math in theory models like that of Kaushik Basu was only of high-school level. "So, they are purely TOY models for "intellectual entertainment" but no practical relevance." 

"Such theory models don't examine issues in their entirety. In technical terms, ideas like legalize corruption by Kaushik Basu are "partial equilibrium" TOY models, not "general equilibrium" models examining larger sociological implications of legalizing corruption. So, IGNORE."