It?s both amusing and interesting to notice the similarity between a fully grown tree and the education system. Like the roots of the tree spread across vast expanse of land and draw on every possible inch of the soil, school level education takes the children through the spectrum of subjects from drawing to maths; and from sports to history. Like the roots, once above the ground, converge into the narrow tree-trunk and move the nutrition upwards in a more focused manner, undergraduate level college education specialises students in their chosen area. Like the branches and leaves of the tree spread across vast space in the air, drawing from sunlight, atmosphere and clouds, so should higher education at post-graduation level. This article emphasises the need to include a course on domestic and global economic environment in higher education of all streams. To exemplify, it elabo-rates on how better knowledge about trade cycles would further enrich higher education.

Trade cycles, or business cycles, are the ups and downs in economic activity, viz, GDP growth rate, employment level and inflation. Trade cycles are a necessary evil of any market economy and as the world converges towards an economic system of regulated market forces, the incidence of trade cycles is inevitable and measures to smooth out the cycles will be sought on all fronts. In a hypothetical situation of complete absence of government, the ?overheated? or prosperity phase of a trade cycle tips the economy into a downturn by virtue of overoptimism of the business, leading to too much of capacity creation and investments. At the tipping point, something falls short, maybe finances, market, raw material, or human resource and it marks the end of the prosperity phase. At the bottom of the trade cycle, if enough businessmen make the apparently irrational decision of investing to replace their worn-out machinery, it generates employment, incomes, demand and further investments, thus lifting the economy out of the recession.

It?s curious that prosperity is self-defeating; carries its own seeds of destruction, or digs its own grave, while recession becomes self-correcting at one point. The overheated phase is undesirable for the economy because of the high inflation and misallocation of resources it causes and recession is undesirable because of the huge unemployment and mass-misery it generates. In presence of government, economic policy is used to reduce the intensity of trade-cycles, so as to limit the undesirable effects of both the phases. This is done through fiscal policy wherein government uses the budget deficit to either boost or contract the economy, and monetary policy wherein the central bank increases or reduces the money supply in the economy. All this is one of the simpler theories of trade cycles. The question is, how effective are economic policies? Isn?t there anything short of government intervention? Can higher education do something to avert the painful incidence of trade cycles? Let?s examine all these questions.

Economic policies can be a bit too effective due to three reasons. One, there is a time lag in some of the policy instruments and if it is misjudged, the policy instrument can have a stronger effect than desired. Two, economic policies work through the multiplier and accelerator effects. It?s rather difficult to calculate and predict these numbers exactly, and hence the policy instruments can sometimes be a shot in the dark. Three, a democratic government needs to do ?something? to tackle situations of high inflation, or high unemployment and often ends up over-doing it. Good politics can be bad economics. An example of over-effective policy is the tight credit policy in India in late 1990s, causing a recession. And the decade-old liquidity trap with almost negative real interest rates in Japan. And the historic German unific-ation, fiscal expansion, overheating and subsequent ?tightening?, causing pains to the European countries who were facing recession, but were committed to fixed exchange rate with Deutsche Mark. And the debt trap faced by the ?PIGS?. And the scary possibility of the US entering a liquidity trap by December 2010 rendering the monetary policy ineffective.

Just short of government intervention, the only effective thing can be self-restraint by the business. The unscrupulous material pursuit of ?more? ?more production, more incomes, more marketing, more demand, more depletion of resources, more pollution, yet more production, more waste, more market share, more revenue and more profits are the culprit causing trade cycles and pains to the entire society and indeed themselves. Realisation that this ?more? has no end and is bound to boomerang one day, will lead to this self-restraint. Economic policies in recession can be like throwing money into a bottomless pit, as seen after the US sub-prime crisis. No amount of regulations would cure this ill of ?more?. If anything can, it?s the understanding of such economic phenomena by the highly educated youth that is poised to take on the productive activity of the nation.

The Biotechnology dept of Pune University has brilliantly added an entire course on such economic and business matters for their MTech students. It?s necessary to give inputs on macro-economic environment to all post-graduate students, not only MBA, but also ME, MSc, MA, MSW for the simple reason that almost nothing is untouched by economic environment. By creating an entire generation of ?aware? youth, we will be spreading the branches of our ?tree? of education thick and dense and capable of giving shadow, fruit, shelter and protection to all under it.

The author is visiting faculty in economics, Symbiosis Institute of Management, Pune Email: shubhadasabade@hotmail.com