Where your taxes go: 21

Building malls.

You have to wonder what we have learned in the last 60 years. The BMC is reportedly planning to “construct ‘municipal malls’ at various spots in the city,” where “prices of commodities would be regulated … so that they could ‘cater to the masses’.” Mumbai Mirror rightly lashes out:

All this focus on a ‘business enterprise’ comes at a time when hundreds of roads across the city are still dug up, a large part of the Mithi river is yet to be cleaned up though the monsoon is already here, the city’s massive parking problems need urgent solutions, the Jijamata Udyan needs a thorough clean-up, octroi evasion is depriving the BMC of crores of rupees, the question of adequate and 24/7 water supply is still to be resolved, most BMC schools are on the verge of closure, and Mumbaikars on the whole want the city’s crumbling civic services to be improved.

The populist rhetoric accompanying the proposal is startlingly naive. These malls, a ‘civic official’ is quoted as saying, will “accommodate small shops that have been forced to shut because of big malls and also the BMC’s development projects.” The BMC should ask itself a few basic questions: If some small shops have shut down because of big malls, why is that so? When they don’t regulate prices outside those malls (with good reason!), how will regulating them inside the malls help? If those shops could function at a price lower than the market, wouldn’t they have destroyed the big malls, instead of the other way around? Isn’t the whole point of a market to satisfy the needs of the consumer, and is there any point accommodating stores inside government malls that the consumers have rejected outside them?

My prediction: If any such malls come up, they will become vehicles of enrichment for rent-seeking officials. Space within the malls will be allocated to merchants at the discretion of municipal officials, and corruption will be rampant. These malls will not turn a profit. You and I, again, will end up as shmucks. And the roads will still have potholes.

(Where your taxes go: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20. Also see: 1, 2, 3.

My essays on taxes and government: Your maid funds Unani, A beast called government.)

Why free trade rocks

John Stossel writes:

How many times have you paid $1 for a cup of coffee and after the clerk said, “thank you,” you responded, “thank you”? There’s a wealth of economics wisdom in the weird double thank-you moment. Why does it happen? Because you want the coffee more than the buck, and the store wants the buck more than the coffee. Both of you win.

Bang on. Read the full piece, it’s outstanding.

(Link via Cafe Hayek.)

Politics is different

The employee of a corporation who buys something for $10 and sells it for $8 is not likely to do so for long. Someone who, in a family setting, does much the same thing, may make his wife and children miserable throughout his life. A politician who wastes his country’s resources on a grand scale may have a successful career.

Ronald Coase, quoted in The Myth of the Rational Voter by Bryan Caplan, a book I’ve just started reading.

The excerpt above reminds me of Milton Friedman’s brilliant quote about the four ways in which you can spend money. But why don’t voters punish such extravagance? Well, that’s what Caplan’s book seeks to explain, so if you see it at a local bookstore, pick it up. I love what I’ve read of it so far, and you can read more about it from Tyler Cowen, Don Boudreaux and Greg Mankiw.

Giving something back to society

Rediff has a headline today that says, “Don’t show off wealth, pay back to society: PM.”

I know one great way in which rich people can “pay back to society”: By spending their money. There is no better way to spread wealth. Buy a service or a good, and everyone involved in manufacturing and distributing it benefits.

Thus, I find it odd when Manmohan Singh says that Indians “cannot afford the wasteful lifestyles of the Western world.” There’s nothing wasteful about any lifestyle from the perspective of spreading wealth, unless it involves sitting at home and refusing to buy or sell anything, which is a waste of the abilities a person is born with.

Manmohan says many other astonishing things in that piece. For example:

The Sandman and Spiderman should have teamed up!

Megan makes a good point:

[I]f the Sandman and Spiderman could have just gotten away from their positional stances (“I need to take money” and “I need to catch crooks” respectively), to their underlying interests (“I need to help my little girl” and “Dude, I’m all about helping the people”), they could have found some common ground. There was opportunity there, and it could have saved a lot of expensive plate glass and I-beams and cars being thrown about.

True, but my question is this: What if “I need to take money” was the Sandman’s underlying interest and “I need to help my little girl” just a rationalization, and thus a positional stance for himself? Heck, even Spiderman could have had a crook-catching fetish, and the altruism, and the story that the comic books and films tell us, could have come later. I haven’t seen the latest Spidey flick, actually, but who can tell the difference between reason and rationalization? Huh?

(Link via Marginal Revolution.)

Socialists – 1. Madisonians – 0

Shruti Rajagopalan, fellow libertarian and gurgling buddy, has an excellent piece in Wall Street Journal Asia today titled “Indian Property Wrongs.” (Subs. link, but the piece is also on her blog here.) It narrates the story of how “the socialists managed to out-shout the Madisonians” when our constitution was being written, which led to property rights not being adequately protected in India. And as a result of that, we have Singur and Nandigram. Fine piece, do read.

The Devil’s Compassion

This is the 12th installment of my weekly column for Mint, Thinking it Through.

This is the transcript of a speech given by the demon Beelzebub at the 90th Annual Convention of Demonic Beings.

Comrades and Monsters,

Welcome. I can barely express my joy at the unspeakable horror of being present among such hideous monsters as yourselves – demonic beings dedicated to the ruin and damnation of humanity. In various ways, under the cunning guise of doing good, we have brought sadness and misery upon humanity. We have perpetuated poverty, hatred and ill-health. I wish today, for the sake of the young apprentice beasts present here, to speak about our primary tool of achieving all this: Compassion.

Humans, you see, are fooled by appearances. Come to them as a wrinkled monster with horns, and they recoil. Pretend to be a loving grandpa, and their defences are down. We senior demons realised long ago that to hurt the humans, we have to pretend to care for them. Even as we have nothing but their marination in mind, we must appear compassionate. Stating the most noble intent, we must unleash the very worst of policies. Even better, we must fool some humans, who themselves wish to appear compassionate, into pushing these very policies.

And how we have succeeded! Everywhere there are politicians sincerely pushing well-intentioned policies that are disastrous for the people they are supposed to help. Of course, some people see through our evil designs and protest, but they are dismissed as cruel and uncaring, for they are questioning compassion itself. The irony!

A good example of this comes from Kolkata, a city you must be familiar with. The government there is outlawing all rickshaws pulled by men, because they feel it is “inhuman for a human being to carry another in this day and age,” as their mayor recently said. How caring this seems! And yet, this policy will put 18,000 rickshaw pullers out of a job that they preferred to all other options available to them. Now, that is inhuman. Joy!

Hell be praised, the same logic has long been used to protest sweatshops and call centers and dance bars. The people working there are being “robbed of their dignity,” we are told. Those pretending to care about them would love to deny them of the best options available to them, thus pushing them into a worse existence, and they often succeed. When dance bars were outlawed in Maharashtra – another of my favourite weapons, morality, played a leading role in that decision – many dancers went into prostitution.

Ah, Maharashtra! Mumbai is particularly dear to me as a demonstration of what compassion can achieve: Just see the misery rent control has inflicted there. It was supposed to protect tenants from evil landlords, but by restricting the supply of housing, has driven up rents, made affordable housing scarce, and made slums inevitable. Even more, it has disincentivised landlords from looking after rent-controlled houses, some of which are close to falling apart. Gravity is an invention of hell, I am proud to remind you!

India has many such price controls, which inevitably distort our enemy, the free market. These apply not just to goods but also to labour – how noble these legislators feel when they bring about a minimum wage, or support labour laws that dry up the supply of jobs and hurt the ones they’re supposed to help: the workers.

India’s redistributive schemes are also a devilish masterstroke, based on the principle, “Steal from the Rich and Pretend to Give to the Poor.” Actually our unknowing stooges, India’s well-meaning and compassionate politicians and bureaucrats, steal from everybody, and the money they steal has a cost: It acts as a disincentive to those it is stolen from, and would often have helped the poor more if simply left with the taxpayer.

The social policies we promote are as much of a slow poison as our economics. Why redistribute only wealth when one can redistribute opportunities as well? Consider reservations in India: Under the guise of being compassionate towards castes that have been discriminated against, reservations perpetuate thinking along caste lines, and increase awareness of and animus towards other castes. Some individuals benefit at the cost of other individuals, and they cancel each other out. But the hatred that is spread at the injustice, ah, priceless! (They even call it social justice! How noble they feel!)

There is lots more to say, and I could speak of India for eons, so much harm has been caused there under the guise of compassion. But I shall end here, for I know that you are looking forward to your repast. Let us move onwards to the dining room, my friends, where India’s poor have been laid out on the dining table. Let us feast!

Understanding inflation

If you have a few minutes, and the slightest interest in the subject, I urge you to read Sumeet Kulkarni’s excellent post, “Inflation for dummies – by a dummy.” It explains, among other things, why “inflation is a tax which we pay equally, independent of our income,” how Indian’s export successes are subsidized by “you and every Indian citizen – including the poorest,” and why “export-import balance” is a meaningless term.

(Link via email from Gaurav Sabnis.)

To understand inequality…

… figure out Harry Potter. Alex Tabarrok writes:

[JK] Rowling’s success brings with it inequality.  Time is limited and people want to read the same books that their friends are reading so book publishing has a winner-take all component.  Thus, greater leverage brings greater inequality.  The average writer’s income hasn’t gone up much in the past thirty years but today, for the first time ever, a handful of writers can be multi-millionaires and even billionaires.  The top pulls away from the median. 

The same forces that have generated greater inequality in writing – the leveraging of intellect, the declining importance of physical labor in the production of value, cultural and economic globalization – are at work throughout the economy.  Thus, if you really want to understand inequality today you must first understand Harry Potter.

Of course, inequality isn’t a bad thing, and is certainly better than being, in Joseph Brodsky’s words, “equal in poverty.” Most of the people who rail against Rowling’s success—and Bill Gates’s, for that matter—are just jealous. That’s all there is to it.

Where your taxes go: 20

Spending thousands to deny Rs 2:

The Department of Posts is prepared to spend thousands of rupees on expensive litigation in the High Court to prevent a 75-year-old pensioner from getting an additional benefit of Rs 2 as part of his pension.

Sigh. And how ironic that every time this gentleman buys something, he is contributing to the thousands of rupees spent to deny him his Rs 2. Such it goes.

(Link via email from Kunal.

Where your taxes go: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19. Also see: 1, 2, 3.

My essays on taxes and government: Your maid funds Unani, A beast called government.)