In my previous post about Satya Sai Baba, my point was that he was a fraud. Just to be sure, I define a person to be a fraud if he uses fraudulent means to achieve an end that benefits him. SSB deceived and lied to people to gain an advantage. All the evidence shows that he did so but I would be happy to see evidence to the contrary. His supporters don’t bother with refuting the evidence that he cheated and instead come up with specious arguments about how he did lot of good work. Here I will address those points.

But first, I appreciate the comments to that post. I would especially point to Loknath’s comment and thank him for taking the time to address another comment which was just an ad hominem directed at me. Thank you all for the discussion.

Sudarshan Gaikaiwari wrote,

Satya Sai Baba was a product of the free market economy. Do you want the government to regulate the god men? All the wealth he accumulated was from an exchange of value with other consenting adults without any coercion. Why do you consider him a bigger fraud than other businessmen?

I see that you have half the argument correct. The correct bit is that consenting adults (for the most part) gave SSB freely whatever they thought was appropriate for what they got in return. Voluntary exchange is part of the workings of a free market but whether or not an exchange is welfare improving (socially or privately) depends on whether or not there were “distortions” in the market. Without getting too technical, let’s just remember that market efficiency is not achieved if there are information imperfections.

One kind of information imperfection is information asymmetry. Person A donates money to SSB, and in exchange, SSB delivers a brief inane truism about the need to be truthful and good, and sprinkles some holy ash on A. The problem is that SSB knows that A is ignorant enough to believe that things can materialize out of thin air. SSB knows something that A does not and that knowledge is material in this exchange. If SSB were to truthfully reveal that he had the ash concealed in his hand and that it is no different from any other ash, that it was all a simple conjuring trick, that he no extraordinary powers — all the things that A does not know about or has been actively mislead to believe about SSB — then the information would be symmetric and the exchange welfare improving.

Let’s take an example. A is the seller of car to potential buyer B. A knows the true condition of C but B does not. That’s information asymmetry. B voluntarily buys the car. Was that “free market” exchange welfare improving? Yes, if A told B all he knew about the car. If A lied about the car, then even though no one forced B to buy the car, the exchange was welfare decreasing.

I would not like to make this into an Econ101 lecture. So let’s just say that SSB knew that he was cheating while millions of his followers actually believed that he was an honest person. Therefore even if they willingly parted with their money, those exchanges do not meet one of the most important conditions of welfare improving trades in free markets: no information asymmetry.

What’s the role of the government in this regard? Nothing new or extraordinary, actually. Any reasonable society should have laws that punish fraud and dishonest advertising. If someone is selling snake oil as a cure for cancer, and it is certain that the claim is false, that person should be punished and prevented from profiting from the ignorance and gullibility of the public.

In the case of SSB, someone should have dragged him to court on the charge that SSB was indulging in false advertising. This brings me to an important point. Markets involve trades between people. People are the active agents bringing stuff to the market. We don’t just bring bits of stuff to the market but also bring our understanding of what is what and what is the value of what, if you get what I mean.

Some people are uninformed about the harm that someone like SSB does to society (or “the market”, if you please) and that is a distortion that needs correction. People like me bring to the market a point of view which seeks to persuade others that people like SSB should be ridiculed and run out of business. What I do corrects the information failure and mitigates against the harm done by false claims by crooks and snake oil salesmen.

So, Mr Sudarshan Gaikaiwari, there is a difference between an honest business selling you a widget and SSB doling out holy ash. If the widget does not perform as advertised, the business will go out of business and other businesses would supply a widget that works. Survey the landscape and you will see the wrecks of businesses that were unable to make widgets that work.

Now what about all the “good work” he did such as funding schools and hospitals. I think that is admirable service. SSB gathered a lot of money from a lot of people — much of it from very ignorant and gullible people under false pretext — and some of it he used to fund social causes. That’s good. If he had not lied and cheated, he would still have gathered donations to fund social causes. That he lied and cheated is a terribly sad commentary on our society.

It is this. We as a society are not enlightened enough to fund social causes. We as a society are gullible and ignorant that we get taken in by cheats, and we give money to these people because we think we are gaining something in exchange. The cheats are cynical enough to take the money but savvy enough to channel some of the gains to social causes.

In other words, what SSB and his organization reveals is that as a society we are not only not smart, we are not very good. That we give money to crooks, who then use it to fund needed social institutions, and then we hold these crooks up as paragons is perhaps one of the most damning indictment of our society.

Anyway, the lesson endth here. Go in peace.