Atanu Dey On India's Development

Freedom is Incompatible with Free

| 17 Comments

I hear that the new Delhi government is promising free stuff — water and electricity. It warms the cockles of this economist’s heart. Actually, I lie. What it does is deepen poverty and make people more dependent. Socialists love people to be dependent on them. So what we have in store for India is continued poverty. But we must remember that this is a choice made by the people of India, not something that is imposed from some force outside India. India is poor because Indians choose poverty over freedom. So be it. As I say, it is all karma, neh? (This piece was published on Niti Central today.)

Freedom is Incompatible with Free

“War is a judgement that overtakes societies when they have been living upon ideas that conflict too violently with the laws governing the universe . . . Never think that wars are irrational catastrophes: they happen when wrong ways of thinking and living bring about intolerable situations.” What Dorothy L Sayers wrote about wars can be usefully applied in the context of poverty. Societies that ignore basic economic principles are overcome by poverty. The most basic of those principles is that nothing can be had for free.

Poverty is a consequence of wrong ways of thinking. The prevalence of poverty shows that there is no shortage of wrong thinking among the movers and shakers of poor nations. The interesting thing is that the poorer the nation is, the more likely it is to suffer from the illusion that things can be had for free. And the illusion feeds back on itself and creates more poverty.

We all know that everything has a cost. Nothing can be had or produced costlessly. You have to either dig it out of the ground, or harvest it or make it or do a hundred different things – all of which requires effort – to produce something. Nothing that is of any use arises unbidden, spontaneously out of thin air. You get to have something when you have paid the cost of producing it.

What, then, does it mean when someone gets given something for free? It certainly does not mean that the free stuff was produced without cost. It just means that the person getting it did not incur the cost of producing it. And it also means that someone else who did incur the cost of producing it did not get rewarded for his or her labour.

Therefore, generally speaking, for there to be “free” stuff, there has to be theft. (The exception is charity – the voluntary giving of things without expectations of reciprocation.) One person cannot get stuff for free without someone else being deprived of what should be rightfully theirs. In societies, this theft is usually mediated through what is called the government. The people in government in such societies have a simple contract with their voters: we will help you in this theft if you support us at the polling booth.

This organized theft has pernicious side-effects. People who are the victims of theft realize that it does not pay to put in effort to produce only to see the result of their efforts being stolen. They therefore rationally respond by not putting in the effort to produce. This leads to less effort and therefore less production. This blunting of the incentive to produce is also seen in those who are the recipients of “free” stuff – if you can get something for free, why bother putting in the effort to produce?

The worst consequence of handing out “free” stuff is that people become dependent on the agent doing the intermediation in the theft, namely the government. Dependency and freedom are opposed concepts. People who depend on handouts from others – including the government – can not be free in any meaningful sense of the term. Accepting free stuff is the quickest road to serfdom.

The sad fact is that people who are determined to become serfs cannot be persuaded to be otherwise. Freedom and free don’t mix.

  • swapz83

    Technical snag: They’re not promising free electricity. They seem to have reviewed electricity supply since 2000 and found that the current charges are exhorbitant compared to corresponding increase in costs. So they have promised to cut down on electricity prices. On the topic of choosing this govt, Indian (Delhi actually) people might have chosen a corruption-free service proclaimer and not just someone who gives free water. Let some friggin party come up with a clean look of people, transparent election campaign fund inflow and talk about development and privatization and lowering of govt. control. I’d support it totally. But the current alternatives aren’t any better with 40+ % of candidates being accused on heinous crimes

    • shaviv

      They have cut the price of the first few units and they have done it by increasing subsidy. That is called free electricity. So, why do you say they haven’t done that in your first sentence?

    • Guest

      “On the topic of choosing this govt, Indian (Delhi actually) people might
      have chosen a corruption-free service proclaimer and not just someone
      who gives free water.”

      In India that is one and the same. If the people in Delhi or elsewhere haven’t realized it, its going to be a loooong road to sanity.

  • krishna v. shukla

    Nothing is really free when people are paying taxes on every little thing they use or buy and from their hard earned income, they only part with it with the belief that the Government will be able to compensate with atleast the most basic of necessities like Water, electricity and roads etc.

    When indians will be able to pay more for these services they happily will, But since independence neither the per-capita income of people or the quality of these services have come anywhere near to be compared to other countries.

    It is obvious Indians would appreciate lower prices of these, not just because they like free stuff, but because the rates on these make a big dent in their day-to-day livelihood. Its a question of survival not privilege in India.

    • ad

      Why can’t they promise 24X7 hrs electricity supply instead of cutting down the cost of electricity. Why can’t they promise continuous supply of water(24×7) to people who have pay water tax?

  • Naina

    What do you have to say about the “free” use other things pretty much all over the world – such as the free use of roads? Do you think that is a bad thing too?

    Our focus should be on improving the conditions in India, not on any particular party, thus ignoring the good work being done by the others. If we have the sole objective of furthering our seemingly good although selfish motive we may end up being the pigs (from Animal Farm).

    • shaviv

      If you think roads are free, you are mistaken. They are paid for by taxes.

      There are certain things called public goods which are indeed in a govt’s domain. Like roads, law and order, defence, etc. And, nothing in the world is free, not even the roads you talk about as they are paid for by taxes. Whether or not one chooses to put the power sector in the public sector is a matter of opinion. I think in most countries power is in the private sector. If you think it should be in the public sector, it still doesn’t justify it being free. Roads are investments that pay off over many years by increasing private wealth and thereby tax revenue. And, it is in the govt’s domain because the private sector cannot tax people to pay for the road and cannot make such long investments.

      The post does talk about improvement. There are two ways to improve things. Either by subsidies as AAP has done or by increasing supply of power, so that prices come down over the long run. Which do you think is an actual improvement? And, if subsidies are given, the improvement is only short term, at the cost of long run degradation. What is the incentive for power companies to produce more power if prices are kept down artificially? So, if you are interested in improvement why in the world would you want subsidies? Subsidies are an indication of a problem. And, they should be applicable only under special conditions for a limited time until the underlying problem has been solved.

      • Naina

        Tchk. Obviously roads are paid for by taxes. Notice the quotes around free in my comment.

        The whole point of my comment was – raking up some misguided point to criticize the AAP govt is not going to get us anywhere. I expect people like Atanu to be more attuned to the bigger purpose here (betterment of India) than venting his frustration that AAP trounced BJP. AAP seems genuine and clean. Give them some time, stop acting petty like the opposition.

        • shaviv

          But, how do you equate subsidies with betterment of India? Why do you miss all the other points other than the quotes around free?

        • Atanu_Dey

          Sorry I have to run. But if you think that handing out free stuff — electricity and water — would lead to “betterment of India”, then I suggest that we should not stop short: give away everything free and it would hasten the “betterment” of India. Knock yourself out handing everything free to everybody.

      • Atanu_Dey

        Oops, I just posted a comment and then read Guest’s comment. Ah well.

    • Atanu_Dey

      Nothing is free. Someone has to pay for it. The roads don’t drop from the skies. They are built using material and labor. Material has to be bought, and labor has to be paid wages. So there is a cost.

      Some roads have tolls. These pay for the cost. Some roads are open access. You don’t have to pay for them every time you use them but their cost is recovered through other taxes — at the gas pump, or at the vehicle license fee paid annually.

      In economics, we distinguish between “private” and “public” goods. Private goods are easy to figure out who should pay — because consumption is rival, which means only one person can use the good. A pair of pants or a cookie are examples of private good. Markets are good at figuring out the funding and provisioning of private goods. Markets figure out how much to produce and how it is produced, etc.

      Collective goods are hard for the market to deal with. An example of a collective good is say a radio broadcasting service. So the cost is recovered by say commercials. Or voluntary contributions from listeners. Or by the government using tax revenues to fund it. And once produced, the collective good is available to all.

      Roads are collective goods to some extent and to some extent they are public goods (up until the point of congestion.)

      Anyway, it may be useful to read up these bits on the interwebs and then reason through the points methodically.

  • rahul khanna

    Atanu why US don’t don’t mdii to be next PM.

    Please read below article

    http://www.indiafacts.co.in/stopping-modi-at-all-costs/#sthash.LbJ33S1v.mlYTWJGX.dpbs

    What is your view on this?

    -Rahul Khanna

    • Atanu_Dey

      I have not read that article yet but I have written about why Modi is not acceptable to the US. I will locate it and post it here.

  • Mahesh Sreekandath

    Something different, Murray Rothbard believed that even roads need not be free.

    For A New Liberty :: Chapter 11: The Public Sector, II: Streets and Roads

    http://mises.org/rothbard/newlibertywhole.asp

    https://www.youtube.com/watch?v=Os0BeA7sWV4

  • rahul khanna

    Atany how about freedom from income tax ? As an economist what are your views on narendra modi’s idea of abolishing income tax and having only one transaction tax ? Do you think it is practical in india ? Do you support it?