How long will the Great Currency Swap be popular?

As long as schadenfreude exceeds inconvenience

Many of us at Takshashila have been struck by the seemingly paradoxical situation of the Prime Minister enjoying popular support for the Great Currency Swap (‘demonetisation’) even when everyone has been inconvenienced to various extents. In a recent post, I argued that this confirmed my cynical hypothesis of what kind of public policies enjoy public support, because “most citizens feel the cost they are incurring is a lot less than the cost others—those with unaccounted money—will incur. For the moment at least, intangible schadenfreude is outweighing tangible personal losses.”

In a discussion today, we attempted to project the two feelings — of schadenfreude and inconvenience — to see how public support might change over time. This is described in the following chart:

The excess of schadenfreude over inconvenience constitutes the level of support for the the policy. The excess of inconvenience over schadenfreude constitutes resentment against the policy. As of 15th December 2016, people still feel that the inconvenience is a price worth paying to ensure that those with unaccounted incomes suffer relatively more.

Note that this is a schematic, and the shape of the curves in this chart is not a forecast: events can move them in time or change their shapes.

For instance, if inconvenience continues to grow as people and businesses run out of adequate cash, and if they come to believe that the holders of unaccounted money are getting away relatively unscathed, then we might head towards point B, where resentment builds up. Then, as the situation eases — with adequate cash being pumped back into circulation, and with people adapting to a less-cash lifestyle — the resentment will begin to taper down towards point C.

The chart assumes that schadenfreude will diminish over time, in which case at point C, support and resentment will cancel each other out. However, if schadenfreude does not diminish, the policy will continue to enjoy popular support.

The Modi government can prevent or mitigate the rise of resentment by reducing inconvenience and by feeding schadenfreude. The former, by supplying enough currency quickly, before point A is reached. The latter way is to persuade the public that wrongdoers are getting their just deserts. However, as people hear news of seizures of hoards of new currency, or of others circumventing the moves using clever methods, the schadenfreude is likely to fall sharply.

The greatest danger to the Modi government, and to Prime Minister Modi himself, is if inconvenience does not fall, or fall quickly enough, and it continues to rise beyond point B.