Ep 123: Beware of the Crisis

**Amit Varma** (0:00)
Welcome, you're listening to the audio version of Everything is Everything. This show is a video show, there are sometimes visuals that help you appreciate the content better, but mostly the audio should be enough. Please, please, please do subscribe to us on YouTube also. Gentle readers, welcome to Everything is Everything. I am Amit and this is my good friend, Ajay. It's a beautiful day, Ajay, isn't it a beautiful day?

**Ajay Shah** (0:33)
A great day.

**Amit Varma** (0:34)
It's a great day and some would say that the world is in crisis. Nature is doing this, government is doing that, state is doing this, etc., etc. But we say, no, it's a beautiful day, but also the world is in crisis. And this episode is really about a common belief that comes out of crisis, especially in India. Because in India, we got some outstanding reforms done in 1991 when there was an economic crisis, and immediately people started parroting the conventional wisdom that, hey, you can only make great sweeping changes in a crisis, so a crisis ain't a bad thing, a crisis is a pretty good thing. But that, in a sense, is doing two things. It is mistaking correlation for causation in one way, and in another way, it is committing the selection bias, that you're looking at one particular crisis and good things that happened then, and you're not looking at what crisis in general can do, and they can be quite disastrous, and today you're going to help us bust the myths that formed at conventional thinking.

**Ajay Shah** (1:33)
Let's go.

**Amit Varma** (1:43)
So Ajay, there are people who say that a crisis is a great thing, it is an opportunity to make sweeping changes. You disagree, but before you come to your disagreement, I want you to steel man the position. Why is a crisis a good thing according to those who say it is?

**Ajay Shah** (1:58)
So there's a beautiful famous quote by Ram Emmanuel, who I think was chief of staff for Barack Obama. He says, a crisis is a terrible thing to waste. Okay, which is a riff on the mind is a terrible thing to waste. And similarly, many other people have argued that there's something special, there's something unique, that only in a crisis can you break the lock of special interests upon the way the world works. Here is a behavioral psychology way to think about it. Let's locate ourselves in prospect theory, and the behavioral psychologists would tell us that normally humans baseline on their world around the world is fine, then you don't want to take the risk of rocking the boat, because we have lost aversion.
Whereas in a crisis, it appears that the world is going to hell anyway. Now you're more willing to look at new things. So it seems that normally the political economy will be locked, there will be special interests, there will be the tyranny of the status quo, and we will be unable to move progress. And there is merit in all that. There is merit in all this discomfort. So let me show you another example. You of course talked about the 1991 crisis, which is a singular Indian success story that out of the balance of payments crisis was forged an IMF program, which put India on the path to progress. We are very grateful to the IMF and to all the people who contributed to it. Do you know who was a key person on the IMF side for the 1991 program?

**Amit Varma** (3:39)
Urjit Patel.

**Ajay Shah** (3:40)
Yes.

**Amit Varma** (3:41)
See, my GK is in place.

**Ajay Shah** (3:42)
Your GK is great.

**Amit Varma** (3:43)
Do you know who was... Okay, how do I say this? I was going to frame a question that led you to identifying another important person who happened to be a Varma, not related to me, but there was an AN. Varma who was also critical. So you get good things done with Varmas in the mix.

**Ajay Shah** (4:00)
No, AN. Varma was core to that story.
I want to take you back to the food crisis of India, starting from the 50s and 60s. In the 50s and 60s, the population growth rate in India was considerable. And by and large, the food system was not getting fixed. Many people knew many of the pieces that needed to be done, but they weren't getting done. And, you know, that's life. Then came the incredible monster years of 1965 and 1966 The kharif crop of 1965 failed, and the kharif crop of 1966 failed. So, back to back, we had two bad harvests. And we were at the verge of mass starvation in India. And at that time, the United States bailed out India with their PL 480 program, which gave concessional aid in the form of food grain. So India was reduced to taking development assistance in the form of food. And that's a pretty terrible place to be. And that did help focus the mind. And then, all credit to Indira Gandhi, C. Subramaniam, they thought through this new set of ideas of high yielding varieties, fertilizers, irrigation, a whole bunch of interventions that gave us the Green Revolution. And that made a huge difference to India. So these are stories and there are many, many such stories. But our main argument today is that be scared of what you wish for and crises have a way of going very, very bad. I want to say it in a little more analytical way right away. General readers, you should know a phrase, the overton window. The overton window is the range of possibilities that are accepted in the common public discourse. What crises do is that they widen the overton window. And you'd like to think that many good ideas are now taken from heretical to doable because the overton window gets widened in a crisis. Well, many terrible ideas are also normalized when you have a crisis and the overton window is widened. So you shouldn't be sure about which way this goes. And actually in poor countries, in developing countries, this is even more dangerous than it is in mature democracies.