Mao Zedong was the founding father of the People’s Republic of China, a country he ruled by the virtue of being the Chairman of the Communist Party of China, from 1949 and 1976. Given his position, Mao could do almost anything that he wanted to.As Vijay Kelkar and Ajay Shah write in In Service of the Republic—The Art and Science of Economic Policy: “Chairman Mao extolled practical knowledge and denigrated intellectualism. One day, Chairman Mao organised millions of people to kill sparrows in China, on the grounds that sparrows eat grain.”Of course, Mao wasn’t bothered about the ethics of killing sparrows. He was just trying to ensure that sparrows did not eat grain and the simplest way of doing that was getting rid of the sparrows. Or so he thought.The problem with simplistic thinking, especially when it concerns a big complex system, economic or otherwise, is that it often doesn’t work. The law of unintended consequences strikes. And what is that? Kelkar and Shah define it as: “A government intervention that is intended to have a certain outcome will very often end up yielding a very different outcome.” What happened in the sparrow case? With sparrows out of the equation, the insect population went through the roof. Instead of sparrows, the insects ate the grain. The law of unintended consequences often stems from ignoring the second order effects of a problem.In the sparrow case, the first order thinking was that sparrows ate grain, and get the sparrows out of the equation and the problem is solved. But sparrows also ate insects which in turn ate grains. So killing sparrows made things easy for insects to feast on grains.Like Mao decided to solve the sparrows eating grains problem by killing them, Narendra Modi decided to solve India’s black money problem by demonetising Rs 500 and Rs 1,000 notes.As Kelkar and Shah write: “There is a vision of black money, perhaps drawn from Hindi movies, where there are suitcases of cash that are stored… But black money is a flow and not a stock. It is paid and received every day as part of businesses activities that evade taxes, bribe government employees, etc.”What this basically means is that while cash is used to carry out tax-evading transactions (or what we call ‘black’ in India), people don’t continue to store this cash as cash. It is converted into other forms of wealth like real estate, gold etc., or is simply spent away. In fact, the data from income tax search and seizure operations suggests that only around 5% of the black money recovered is in the form of cash. The demonetisation decision would have never been made if this factor had been taken into account.As it happened in case of killing of sparrows, the law of unintended consequences soon struck. While, the objective of the government was to destroy black money, demonetisation took 86% of currency in circulation suddenly out of the financial system.Without cash, in a primarily cash-driven economy, economic transactions came to a standstill. Also, large parts of the informal economy, which provided jobs and kept the economy going, were destroyed. The country is still bearing the costs of demonetisation.Also, both Mao and Modi, followed informal ways of policymaking and ended up hurting their respective economies. As Kelkar and Shah write: “The formal discipline of policymaking generates improvements by forcing due process. We are forced to write down: What is the problem that we are trying to solve? Are we able to demonstrate that there is a market failure? Do we have an instrument through which the identified problem can be addressed?”If a formal method is not followed, politicians can easily shift the goal post after what they attempted to do was unsuccessful. A similar thing happened with demonetisation with all the money coming back to the banks and very little black money being destroyed, as was the original idea. The goal post was soon shifted to increasing digital penetration in the economy, being the main aim of demonetisation.While Modi did not bear any political cost of demonetisation, the country is clearing facing it’s economic cost, with the non-government economic growth down to close to a little over 3%.