As some of you may have noticed, I have been away. That is why this blog has been dormant. Oh I have not been physically absent. I was only mentally away, taking a break to learn some economics. I was teaching a couple of courses for the Summer term at UC Berkeley. I am sure that teaching is the most rigorous and effective way to learn something. It is impossible to teach the fundamentals without coming away with a renewed appreciation and understanding of what really matters. What did I re-learn this time around? Lots of very interesting stuff, but one thing stands out.

In his book, The Fatal Conceit, F A Hayek noted that “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” A study of development economics can be seen as a series of depressing lessons on how people afflicted with fatal conceit meddling in areas that they don’t understand end up making a mess, and the resulting needless misery and suffering of untold millions of absolutely innocent victims.

A proper study of economics teaches humility. We are limited beings: our rationality is bounded, our knowledge finite, our information local, our comprehension imperfect. Attempts at the grand design to reach the commanding heights are guaranteed to fail. Look behind any economy that has failed to develop, and you will see the dead hand of powerful ignoramuses throttling the living.

India figured prominently in the development economics course as a case study of how a potentially rich country has been engineered to be desperately poor. It is a demoralizing tale of how people are trapped into poverty because of their bad luck of having been born into system which is designed to be poor.

India’s poverty is engineered, it is by design.

Two fun facts about India stand out starkly. First, India is a very poor country, and second, India is a very corrupt country. But note that while the average Indian is definitely poor by contemporary world standards, the average Indian is not any more morally bankrupt than the average human. Although I don’t have any hard evidence, I am convinced that Indians are at least average when it comes to honesty, intelligence, diligence, social capital, and the rest of it. So how do one explain India’s poverty and corruption? Is one the cause and the other the consequence? Which came first? Or is there another hidden variable which is the cause of these two?

It is my belief that the hidden variable is India’s lack of freedom. The stress is on “hidden” — Indians don’t know that they are really not free. There is a lot of talk about India having attained freedom in 1947. But all that is really cheap talk. With regards to freedom, India is no more free than it was under the British Raj.

The evidence is overwhelming that India’s political leaders are uniformly corrupt. It cuts across political party lines. Public corruption is not contained in some specific geographic region. It is not bounded by linguistic or religious divides. The percentage of criminals in the various state and central legislative bodies far exceed that in the general population. What’s more, that percentage has been increasing with time. And the magnitude of the corruption has also been increasing. The average corrupt deal was in tens of crores of rupees a couple of generations ago — small change compared to the deals these days which is counted in billions of dollars.

If Indians are not characteristically uniformly dishonest, how is it that India’s politicians are so acutely dishonest? Perhaps the system selects the most dishonest and the least principled.

Here’s how it works. The rewards of political power are enormous. Without loss of generality (as economists put it), let’s consider the position of an MP (member of parliament.) As an MP, a person has the opportunity to make $1 billion. Mind you, there’s no compulsion to actually make that amount of money — merely the opportunity. Now let’s ask who is likely to become an MP? Contesting the elections are A, B, C, and D. Of the four, Mr D is competent, honest, and hardworking. The rest are venal incompetent criminals. Mr D will not steal a penny if he were to become an MP, and therefore he cannot afford to spend more than whatever he can raise from his supporters. But A, B and C — they will make a $1 billion if elected. So they are willing to spend quite a bit of future loot, and this they can raise that from their cronies who will in essence be making an investment, the return on which they are assured post the elections.

The corrupt can outspend the honest in any elections because the former will recover the expenses (and more) upon assuming office. It should not come as a surprise that India has degenerated into a kakistocracy — rule by the most corrupt and the least principled.

It is the opportunity to make billions of dollars as an official of the government that is the proximate cause of the criminalization of the government. In turn, the proximate cause of the opportunity to make billions is that the government has control over vast areas of the economy. Being in government gives one immense discretionary powers — to grant or deny licences, to block and prevent legitimate economic activity, to extract rents wherever possible. The more powerful the government, the less power the people have. The larger the government, the less freedom the people have.

Dr Manmohan Singh was made the prime minister — not because of his competency as an executive (as evident as the testicles of an elephant) or his character (which is notable due to its absence) but because of his moral pliability and his ability to obey orders from his superiors without question. Removing him would be of little use because surely there are others who are equally compromised and would be happy to fill the chair.

Dr Singh rose to the top not because the people chose him but because the system is such that it selects the most corrupt. His boss is the most corrupt, and he in turn appoints corrupt officials. Dr Swamy has trained his guns on P Chidambaram as his next target. (Dr Swamy, hats off to you.)

The circus is in town. It is a three-ring circus. There’s Dr Singh’s boss as the Lion Tamer in the center ring below the big top. (Pardon the pun.) She takes home the biggest share. The side-show in ring number two is Civil Society — led by Anna Hazare. They are the dog and pony show. And in ring number three are the chimpanzees and the monkeys — the Dutts, Sardesais, etc — who pretend that they don’t belong to the circus but in truth are the ones who clean up the horse-shit and elephant droppings. (Where the elephants fit into this scheme, I leave it to the diligent reader.)

Everybody loves a good circus. It is a good distraction from the harsh realities of life — prices are rising, poverty is deepening, cities are increasingly becoming unlivable.

But the show can’t go on. We have to bring this to an end. There’s a way out and I will go into that in my next post. I promise.