Population breeds no poverty

Population breeds no poverty by Sauvik Chakraverti

Tuesday, June 24 1997, The Indian Express  

Consider the economist: he notches up a credit on the national income accounts every time a farm animal is born. Yet, when a human infant arrives, he reduces per capita income appropriately and falls prey to the delusion that population is somehow a major problem that has to be tackled with strong state action. Such a belief is widespread in India, and the strong-armed methods used by a probationary dictator to tackle the population problem should be fresh in our minds.

The other viewpoint -- that of the free-marketeer -- has never been prominent in Indian development economics. It could not, for it did not believe that strong state action was required at all. Lord Peter Bauer has for long been writing that economics begins with the activities of traders -- not manufacturers. Hence a free trade regime can foster development better than one in which state action to restrict markets props up an inefficient manufacturing industry -- what was called ``import-substitution industrialisation''. On population, Bauer was equally free from state's bias: open up commercial contracts between people of different nations and, with prosperity, birth rates will stabilise -- development as the best contraceptive.

Mancur Olson, the leading public choice theorist of the Chicago School, recently presented a paper in Delhi in which he examined the possible reasons for the differences between rich and poor countries. One of the factors Olson examined was population -- the delusion that human numbers cause poverty. Here, the critical indicator is population density: number of persons per square kilometre. If this is uniformly high for poor countries and low for rich countries, then we can identify population to be a cause of national poverty. The actual figures gave a different answer. Germany, Belgium, Holland and Japan had higher population densities than India -- and they are rich. Zaire and Argentina have very low densities -- yet they are poor. Some of the richest parts of the world -- like Hong Kong and Singapore have astronomically high population densities. Olson arrived at the conclusion that the only factor behind the differences between rich and poor countries was ``national boundaries''.

Julian Simon from Maryland has been tackling a big group that believes in the population problem: environmentalists. His research, which led to a Columbia University debate with the environmentalist Norman Myers, has featured on a BBC ``Horizon'' programme. Simon takes the anti-statist position regarding the environment: that it is with prosperity and freedom and knowledge that the world can be cleaned up and nature managed; strong state action is not the solution. Human population growth does not demand it.

Today, India and China are both seen, not as future population explosions, but as the two Big Emerging Markets. The notion that population causes poverty therefore deserves burial. It survives in India on impressionistic grounds. Astronomically high real estate values are not on account of population pressures on scarce land, but because of inadequate investments in roads. Wherever money is not diverted from public goods to development schemes, cities decongest and the countryside is populated. This spreads prosperity. This also reduces real estate values by adding more land to overall supply. Some leave the city for the village; population and prosperity spread. The key: investments in public goods like roads. The Planning Commission invests in a spoils system based on unsound economics.

There is an entire host of literature in development economics that comes from free-marketeers. This is neglected. That is because it fundamentally brings to question the basic belief on which planned economies rest: that `development' requires strong state action. The Indian state lauded Gunnar Myrdal when he won the Economics Nobel Prize in 1974. Myrdal advocated strong state action by an intellectual-moral elite: planning. The man with whom Myrdal shared the prize, Friedrich August von Hayek, represented the other point of view. And it is this latter school of thought that needs to come to the forefront here. We need to have a clash of ideas. Not more of the same.

Chakraverti is a freelance writer based in Delhi

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.

http://www.indianexpress.com/ie/daily/19970624/17550363.html

We No Longer Need Economists

We No Longer Need Economists by Sauvik Chakraverti 

6 Feb 2004, 0000 hrs IST, The Times of India 

Our adversaries rail at us liberals for being ideological; they say we are full of empty theories. So here is a simple travelogue. For some months now, I have been living in Mangalore, an ancient city on the west coast. A 13th century Kannada poet has marvelled at the fact that as many as 38 different kinds of coinage circulated in the city’s markets then. It becomes obvious that the city owes its existence to overseas trade: At the centre of the old city is the Bunder, the port.  

It is another ancient trading city that came up by the sea, like Alexandria or Venice. They were all glorious centres of civilisation although there were no economists then. In modern Asia, Hong Kong and Singapore are thriving port cities and neither has produced a single economist of note. The other day I was taken to a beach just beyond the New Mangalore Port Trust. What struck was the wall. The entire port is surrounded by a 20 ft high wall. 

So, because of some theory, Mangalore has moved away from having a port open for the citizens to trade, and now possesses a walled port to which citizens are denied entry. The gates to the walled port are manned by armed guards paid for by the taxpayer. Also at the taxpayer’s expense are a whole lot of customs officials who do not permit trade without prohibitive exactions. All this must be justified by reams of economic theory, for there is an economics department is St Agnes College here, the oldest women’s college in south India. There is a Mangalore Economics Association. 

Driving along the wall, I passed some towering examples of industrialisation: Nehru’s theory. A sizable amount of prime beach-side land is occupied by a phenomenally ugly public sector iron ore exporting plant. 

There is a fertiliser factory which surely survives on production subsidies. So the dealbetween New Delhi and Mangalore is clear: We stop you trading and then we give you industrialisation. There is, at the taxpayer’s employ, an entire Indian Economic Service wedded to this theory. The wall is bad for sailors as well. I was with a ship’s engineer when he suddenly announced his departure, saying that if he did not return by 10 p.m., he would get into trouble with the personnel manning the wall. He said that even an ordinary sailor spends at least $20 a day while ashore but here the wall keeps them on board. 

Mangalore is a dream city for eating and drinking out, famous for its cuisine. The seafood is superb, and much, much cheaper than Goa. Mangalore also possesses many establishments where what is offered might be called cabaret. Surely anyone will realise that we do not need economists to know what is good for Mangalore. What sense does the wall make? The path to commercial success and the regaining of the city’s old glory should be obvious. The citizens of Mangalore should do to the wall precisely what Berliners have done to theirs. Then, as with the old Bunder, they should set up a big market there. After all, didn’t God promise Jerusalem greatness by making it a mart for all nations? The mayor of New Jerusalem should issue externment orders to all the customs officials and the armed guards. 

The prime land occupied by the ugly iron ore plant and the fertiliser factory ought to be seized and auctioned so that hotels, shopping malls and beach resorts take over the landscape. Within a decade, this will be India’s leading city, especially considering the fact that all the others, including Bangalore, are perishing. To unravel the sophisms in the theories justifying the wall, I recommend Frederic Bastiat, who did not have a formal education in economics, who never taught at university, and who was just a journalist and pamph-leteer. In one essay he put the point across thus: There is this steel magnate in France. He sees cheap steel imports coming in from Belgium and this threatens his profits. He now has two choices. One, he can hire a posse of men and arm them with guns, with instructions to shoot anyone who brings steel into France from Belgium. But such a course is highly inadvisable. 

So there is the other option: Go to Paris and pay some politician there to do it for you. He will deploy armed men at the borders at the taxpayer’s expense. And the two of them will share the profits, while the taxpayers who paid for the guards will now pay out even more for steel. After reading Bastiat I arrived at a conclusion: We don’t need the WTO; we need unilateral free trade. Get every government out of trade. And every trade economist too. 

The late professor B R Shenoy, a classical liberal who studied under Hayek himself, was the only economist to dissent officially with Nehru, and in writing. His daughter, Sudha Shenoy, an eminent liberal economist, in a recent interview, said that nearly every economics depart-ment in the world could be shut down without having an ill-effect on the world of ideas. 

Strong words indeed. She bemoaned the sad fact that economists do not study the real world of human action any more; they are all lost in theories and models and mathematics and statistics. I entirely agree. The wall proves it. 

http://timesofindia.indiatimes.com/articleshow/477732.cms

Employment Guarantee a Hoax

Employment Guarantee a Hoax by SAUVIK CHAKRAVERTI 

Posted: Aug 06, 2005 at 0000 hrs IST The Indian Express 

The UPA government, with an eminent economist at its head, is attempting to perpetrate an economic hoax on the nation under the pretext of guaranteeing employment for one and all. This hoax can be unraveled at four levels.

First, is the government there to see that everyone is gainfully employed? In the bad old days of socialism, the state did emerge as the nation’s biggest employer. It still is. Even today, one in every fifty Indians is employed by the state. They perform not a single task well, and society would be much better off if the state did not employ such a huge army of ne’er-do-wells. It would make far more sense for the government to cut down its flab, cut down its expenses, and perform the tasks expected of it efficiently, employing far less people. In a free market economy, people are expected to generate wealth for themselves either through kaam or dhandha. They are not expected to survive on alms from the state.

Second, anything the government does must be paid for by taxes. If the government pays money to A in order to employ him, then it takes the money from B, who is already employed. This is the ‘‘zero-sum game’’ of the politician (and his economic advisers): B loses while A gains. If the government did not tax B, and let him spend his own money, then B’s private spending would generate as much employment as government spending, if not more, considering that a lot of money is lost from the government’s ‘‘leaky bucket’’. Thus, government spending generates fewer jobs as compared to private spending. The government is an agency that taxes and spends; it does not create wealth. It cannot create wealth. If the government employs hordes of daily wage earners in public works, what is of relevance to the tax-paying citizenry is the public works, not the employment. Public works like roads and bridges are required by the people, yes, and the aim should be to build good roads and bridges; not shabby roads and bridges with the aim of employing as many people as possible.

Thirdly, as industrious individuals, we do not seek to maximize work; rather, we seek to maximize production. So should the nation. India and all Indians would be better off not by working more, but by producing more. Increases in productivity are what we should be pursuing, not increases in work: the sweat theory of value! Indeed, increasing productivity is the only means of raising the wages of the poor. Our productivity today is extremely low. For example: a truck covers 250 miles a day on Indian highways; they do more than 800 miles in the rest of the world. Productivity increases occur when more is produced given the same time and effort. These productivity increases would occur if we revamped our transportation system and employed the latest technologies in whatever we seek to do. Then, every Indian would earn more, by producing more with the same time and effort.

Fourthly, the government is actually a destroyer of jobs because of the innumerable restrictions and bans it imposes on the people. 75,000 dancing girls have just lost their jobs in Bombay. Will they spin and weave in rural India, or work carrying stones for road-building works? Restrictions imposed on economic activity in India are an enormous hindrance. We are ranked 122 in the World Economic Freedom Index, bare notches above the ‘‘economically repressed’’. We would be far better off if the state were to get off our backs.

The socialists and communists who make up the UPA government should give up the idea of guaranteeing employment, and public opinion should be garnered in this direction. All that India needs are complete economic freedom, free trade, property rights under the rule of law, and sound money (freely tradeable money without inflation). Apart from that, we could do with good roads and clean cities and towns. In such a scenario, the state will be minimalist, with only one task to attend to: going after the bad guys while leaving the rest of us alone. In such a ‘‘haven of freedom’’, poor Indians will survive far better than they do today, even by selling peanuts, for they will not have their surpluses stolen by the petty kleptocracy. The government will not guarantee employment; rather, it will guarantee a free and fair business environment. That is what the country needs of the state in a free market system.

The writer, a journalist, coloumnist and an author of books, can be reached at: sauvikc@yahoo.com 

http://www.indianexpress.com/oldstory.php?storyid=75729

False Currency

False Currency by Sauvik Chakraverti

3 Mar 2006, 0000 hrs IST,

When a bad king of yore 'debased' his currency by mixing some 'base' metal with the gold in his coins, he and the officials of his royal mint acted as counterfeiters. 

The 'false' coins were then used to take over 'real' properties of his subjects, and finance his banquets, palaces and wars. The same is done with currency notes by modern-day governments, but the process is far more insidious. 

A currency note is, in truth, a 'property title': The note is supposed to entitle the note-holder to obtain, from the issuer of the note, on demand, 'real' money in exchange for the note. 

However, each and every central bank in the modern world issues notes that are irredeemable. Even the 'mighty' US dollar is not convertible into anything. 

Thus, all the governments of the world today use 'false' money to take over 'real' resources. In effect, then, all the governments in the world are guilty of acting in the manner of counterfeiters. 

All the currency notes issued in the world today are 'property titles without property'. As this false money pervades the global market, the rich get richer while the poor get poorer. 

The immediate effect of currency debasement is that those who first get to use the 'new money' buy up resources at current prices. 

First users of the 'new money' are politicians, bureaucrats, government contractors and those 'crony' businessmen who get generous loans from banks. Those who lose most are those who get to use the notes last: The poor, and those who save. 

There is thus a 'transfer of wealth' from the poor to the rich, and from creditors to debtors, due to the step-by-step process of creeping monetary inflation.  

The world economy is headed towards a monetary crisis as the lead counterfeiter, the US Fed, becomes unable to cope with its 'twin deficits': A huge fiscal deficit combined with a huge trade deficit. 

This time, the blame should not fall on markets and speculators, the blame should fall squarely on central bankers. As we inch towards global capitalism, we need to ditch the false ideas that created central banking (and the IMF). Then only can a true capitalism arise and leftists be put permanently in their place. 

http://timesofindia.indiatimes.com/articleshow/msid-1435777,flstry-1.cms

Second Republic

Second Republic by Sauvik Chakraverti 

TOI 21 Apr 2007, 0000 hrs IST 

Nandigram, Naxal and Maoist insurgencies, Kashmir, Manipur, and the sealing drive in Delhi all point to the fact that we in India are living in a state of 'unlaw'. 

We are ruled by decrees, whims, diktats, military might — anything except by the rule of law. 

The reason why this great nation has come to such a sorry pass is because the founding fathers of the Republic were almost entirely socialist, and collectivist ideas on laware the root cause of disorder and injustice. 

The socialist principle fetishises collectively held properties and despises private ownership. A government by collectivists plunges headlong into the perpetration of injustices guided by these false principles. 

Sixty years down the line, the nation must see collective property as a sham, an ugly spoils system, and a fraud. 

The nation must also see its future in a legislation that makes right to private property inviolable by anyone, including the government. This calls for a new constitution, a Second Republic. 

Instead of recalling the writings of Marx, the nation must remember John Locke: "Where there is no property there is no justice" and Lord Acton: "A people averse to the institution of private property is without the first elements of freedom". 

If we want to live with liberty and justice, a new constitution is the need of the hour. There is no need for electoral politics to make this happen. 

We must take inspiration from the English who gave themselves the Magna Carta. We must pen our own charter, one that guarantees liberty, property, freedom to trade by land and sea, and civic self-government for all cities and towns. 

This statute should be above the government, something that the Parliament of the day cannot amend, whatever be the majority disposition. 

This is a necessary precondition for the rule of law. In other words, the government itself must be placed under the law if the rule of law is to prevail over the rule of arbitrary rulers. 

The 'unlaw' we suffer from today is entirely because of the fact that the sovereign's ministers, bureaucrats, judges, policemen and soldiers are above the law, and are breaking it with impunity. 

It is time now for the birth of a new league of Indian Liberals.

http://timesofindia.indiatimes.com/articleshow/1931433.cms

Second Republic: Securing Indians from the vagaries of the state by

Second Republic: Securing Indians from the vagaries of the state by  Sauvik Chakraverti

 A version of this article appeared in the Times of India, on 21 April 2007. 

We in India are living in a state of 'unlaw'. We are ruled by decrees, whims, diktats, military might – anything except by law. The government itself must be placed under the law if the rule of law is to prevail over the rule of arbitrary rulers, writes Sauvik Chakraverti. 

Nandigram, Naxalism, Maoist insurgencies, Kashmir, Manipur, the sealings of Delhi – all point to the fact that we in India are living in a state of 'unlaw'. We are ruled by decrees, whims, diktats, military might – anything except by law. The reason why this great nation has come to such a sorry pass is because the founding fathers of this First Republic were almost entirely socialist, and collectivist ideas on law are themselves the root cause of disorder and injustice. The collectivist idealises collectively-held properties and despises private property. A government by collectivists plunges headlong into the perpetration of injustices guided by these false principles. Sixty years down the line, the nation must see collective property as a sham, an ugly spoils system, a fraud. The nation must also see its future in a law that makes private property inviolable by all, including the government. This calls for a new constitution, a Second Republic. Instead of recalling the writings of Marx and Proudhon, the nation must remember John Locke: "Where there is no property there is no justice". And Lord Acton: "A people averse to the institution of private property is without the first elements of freedom." If we want to live with liberty and justice, a new constitution is a must. 

There is no need for electoral politics to make this happen. As with the English people in 1215, so too must our own capricious King John be made to affix his signature on a "First Statute of the Realm" that guarantees liberty, property, freedom to trade by land and sea, and civic self-government for all cities and towns. This Statute will thus be above the government, as something that the government cannot amend, by any majority whatsoever. By this, we will make our sovereign "bound by a law that he did not legislate", and this is a necessary condition for the rule of law. In other words, the government itself must be placed under the law if the rule of law is to prevail over the rule of arbitrary rulers. The 'unlaw' we suffer from today is entirely because the sovereign's ministers, bureaucrats, judges, policemen and soldiers are above the law, and are breaking it with impunity. A League of Indian Liberals is required.

Author : Mr Chakraverti is an economist.

 See also Liberty Institute, India

 

Curse of false philanthropy

 Curse of false philanthropy by Sauvik Chakraverti 

Government philanthropy based on notions of social justice is just show-business--false and theatrical. 

The idea of philanthropy has undergone enormous change in the last 500 years. Then, a man who had made his fortune would donate some of it to a public cause. Today, there are professional charities that collect funds on a huge scale. Their fund-raising activities are carefully choreographed and they pay celebrities huge amounts for endorsements. This is philanthropy as show-business. And then, of course, there is government philanthropy based on notions of “social justice”. This is also “show-business”—in the precise sense that all is false and theatrical. 

During classical times, philanthropy was rightly considered noble. It is on record that the Mayors of London, who were among the wealthiest men in the kingdom—each, without exception, richer than their King—routinely donated one-third of their estates to public causes. The legendary Dick Whittington, who served thrice as Lord Mayor, built almshouses for the poor, a college for secular priests and Guildhall till today has a paved floor and glazed windows with his name on them that are his bequest. He gave libraries to Guildhall and Greyfairs. He also built a public toilet known as Whittington’s longhouse in Vintry Ward, which had two long rows, each with 64 seats, one for men and the other for women, built over a gully which flushed into the Thames with every tide. Whittington’s longhouse was in use till the 17th century. 

Even Adam Smith, who entered the scene much later, and who famously said that “we get our lunch not from the benevolence of the butcher, the baker and the brewer, but from their self-love”, understood well why human beings are philanthropic. In a sadly neglected work, A Theory of Moral Sentiments, Smith said that sympathy was a “moral sentiment” present in each one of us. We sympathize with the poor, so we are naturally inclined to help. But do we know how to help? 

The moral sentiment of sympathy is being exploited: by beggars, by charities and by governments. 

A true classical liberal among “development economists”, a man who studied poverty in Asia and Africa deeply, was the late Peter Bauer. In his 1961 classic on Indian planning and development, Bauer made the penetrating observation that widespread beggary on the streets of India and Pakistan is not a sign of poverty; rather, beggary persists because the dominant communities in both these countries, Hindus and Muslims, respectively, believe they earn spiritual merit by offering alms. In these very countries, there are no Sikh, Parsee or Jain beggars. It would seem that we are all steeped in the moral sentiment of sympathy. And our philanthropy has negative consequences. How then can we truly “help” the poor?

While my reader ponders over this vital question, allow me to shift the discussion to government “welfare”. Government netas and babus never donate their own money. Nor do they collect voluntary donations. Theirs is, by their own admission, “redistribution”: They forcibly tax the rich to give to the poor. But it doesn’t end there. They then print money and spend on “social justice”. India’s huge budgetary deficit has much to do with “helping the poor”. In reality, the poor are paying the “inflation tax”. This is “false philanthropy”. 

Classical liberals understood well the evil of inflation. Unfortunately, the Keynesians of our times have obscured this understanding. Keynesians are still talking of government deficits as a “stimulus”. They love their “welfare state”. Yet, their paper money is just a “property title without property” that is “legal tender” in all exchanges by which “real” goods and services can be obtained for the paper notes. Thus, an increase in paper property titles without any increase in the real goods and services produced can only lead to a redistribution of real wealth. Those who get to spend the paper notes first, gain. Those who get to spend them last, lose. Inflation is a tax on the poor, on savers and on all those with fixed incomes. This is no way to “help the poor”. This is a falsity; this is certainly not “philanthropy”. Nor is it “welfare”. It is, of course, “redistributive”, but in the opposite direction of that which theneta claims it to be. It takes from the poor to give to the rich. 

Hard-working people must wake up to the fact that their moral sentiment of sympathy is being exploited from all sides: by beggars, by charities and by governments. But most importantly by governments. And among the world’s governments, none more than by our own government of India. In every international forum, this socialist state lays claim to being a monopolist on poverty. But the fact is that it is entrenching this poverty. It loves poverty for perverted reasons of its own. 

So what do we do? First, let us wake up to the reality. Let us call for an end to all this false philanthropy. Let us not give too generously to beggars either. Let us also make the call for liberty so that the state cannot stand in the way of voluntary exchanges. In that liberated market order, let us appeal to all the people—especially the poor—to work, to produce, to exchange; in other words, to engage in “self-help”. And let us put an end to inflationism. The liberal mantra is: free trade, sound money and property titles. With these and self-help, all can survive. For those who fail, let there be genuine philanthropy. State welfare based on paper money is a curse. 

Bauer once wrote these telling words: “Poverty indicates just one thing—the absence of economic achievement.” He then went on to add: “Economic achievements are made in markets.” So let the market really be free. Remove all obstacles. Poverty will vanish on its own. 

Sauvik Chakraverti is an author and award-winning columnist. He blogs at www.sauvik-antidote. blogspot.com. Comment at theirview@livemint.com 

http://www.livemint.com/2008/12/02222217/Curse-of-false-philanthropy.html