Economics

Profit = Philanthropy

This is the 20th installment of Lighthouse, my monthly column for BLink, a supplement of the Hindu Business Line.

Never talk to me about profit,’ Jawaharlal Nehru once said to an industrialist friend of his. ‘It is a dirty word.’

Nehru’s sentiments were understandable in those times, and his sentiments were noble. India had just rid itself of the British, who had come to India ostensibly to do business and had left it impoverished. Nehru, who had played a notable role in the freedom struggle, had spent his formative years in England learning from the Fabian Socialists, as well as from Howard Laski, the Marxist professor at LSE who had a greater influence on modern India than Mahatma Gandhi, through students such as Nehru and VK Krishna Menon. The Soviet Union seemed to be a model to admire, America itself vastly expanded the role of the state after the Great Depression, and the top-down command-and-control economy must have seemed incredibly attractive to Nehru. The center had to hold. The profit motive was evil. Those exploitative capitalists had to be kept in check.

It is not fair to judge Nehru in hindsight, and he was right about other things that mattered. But he was wrong about this. Profit is the secret behind all prosperity. And it is a distrust of the profit motive that has kept this country poor.

The fundamental fallacy that Nehru committed was of looking at the economy as a zero-sum game. By that thinking, if someone is winning, someone else must be losing. If the industrialist makes a profit, someone else is getting exploited. But this is not the way the world works. All trade is a positive-sum game; and indeed, it is not possible for one person alone to make a profit in a transaction.

I am fond of illustrating this by citing what the writer John Stossel calls the Double Thank-You Moment. When you buy a cup of coffee at a Cafe Coffee Day, you say ‘thank you’ when you are handed your cup of coffee. And the cashier says ‘thank you’ when you hand over your money. This double ‘thank-you’ illustrates that both of you benefited from the transaction. Both of you profited.

This is, simply put, the root cause of prosperity. Every single voluntary transaction that takes place makes both parties better off, and increases the sum total of value in the world. Equally, every impediment that anyone places on the ability of consenting adults to trade freely with each other reduces the notional value in the world, and is an impediment to growth. It stands to reason, then, that trade should lead to prosperity, and that economic freedom should be correlated with a nation’s wealth. Does the data bear this out? You bet it does.

First up, I urge you to consider this chart. (Here’s the source.) It shows the wealth of the world as a flat line for centuries, until 1800. And then, boom, the world economy takes off in a spurt that economists call the Hockey Stick of Human Prosperity. It correlates perfectly with the explosion of markets across the world, of double-thank-you moments.

But it doesn’t take off uniformly across countries. Free markets are a necessary condition for prosperity, so let me now draw your attention to another chart. This one, from the Index of Economic Freedom 2015 brought out by the Heritage Foundations, shows a clear correlation between economic freedom and the wealth of nations. The freer you are, the wealthier you tend to be. (Also, the freer you are, the faster you grow.)

Forget the data, you say. Capitalists are exploitative. What about the low wages paid by Walmart? What about sweat shops run by large multinationals in third world countries like Bangladesh, where workers toil jn inhumane conditions? Isn’t that the profit motive at work?

Yes, it is. And I deeply admire Walmart and every company that runs a sweatshop in a poor country. That is because the people who work in Walmart and in those sweatshops do so because it is the best option open to them. They are not fools. They are choosing to work where they do because they deem all other alternatives to be worse, and those evil capitalist behemoths should actually be thanked for actually providing them an option that is better than the best option otherwise available to them. We condescend to those workers when we say they are being exploited. (Indeed, it is possible that we are exploiting them by using them to feed our sanctimony.)

This doesn’t apply to slavery and trafficking, of course, for by free markets I mean markets where consenting adults trade freely under the rule of law. Also, let us not conflate rent-seeking and profit-seeking. Many large companies get together with government to put restrictions on markets so that their market share is protected from competition. Such protectionism hurts the common consumer, and amounts to a redistribution of wealth from the poor at large to rich special-interest groups. Big companies are often the biggest enemies of free markets, and capitalism often unfairly gets a bad name because it is confused with crony capitalism – or ‘crapitalism’ as some call it.

To sum up, the profit motive is not something nefarious, but is actually noble. You can only profit in a free market by improving someone else’s life. And the more you profit, the greater the good you do in the world, the more the value you create. Profit, indeed, is the purest form of philanthropy.

I must admit here the very slight, teeny-weeny possibility that I am being unjust to Nehru. Maybe he had a mischievous glint in his eye when he said that profit was a ‘dirty word’. I can imagine him sidling up to Edwina Mountbatten at a party, gently putting his hand on her waist, and whispering to her, ‘Edwina, my dear, would you like to, ahem, profit with me?’ That certainly could have led to a double thank-you moment.

The Great Redistribution

This is the 19th installment of Lighthouse, my monthly column for BLink, a supplement of the Hindu Business Line.

India is a poor country. We were poor when we became Independent in 1947, and while other countries have lifted themselves to wealth in that much time, we’re still poor. And government policies are the reason for our continuing poverty. For the last 68 years, since a group of white-skinned rulers handed over power to a bunch of brown-skinned rulers, all the governments that have run India have done one thing incredibly effectively: they have redistributed wealth from the poor to the rich.

Yes, you read that right: I’m not talking about redistribution from the rich to the poor, which itself would be an ineffective way of fighting poverty, but from the poor to the rich. They have taken money from the poor in our country and given it to the rich, and, as if to troll us, they have done this in the name of fighting poverty. For that reason, while there are some very rich people in our country, on average, as our GDP-per-capita indicates, we’re still a third-world country.

Let me take a recent event to illustrate what I mean. A few weeks ago, the central government announced that it would not allow foreign direct investment in retail e-commerce. Business Standard reported: ‘Minister of State for Commerce and Industry Nirmala Sitharaman last month met executives of Flipkart and Snapdeal and representatives from the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (Ficci) to assess the impact of FDI on Indian e-commerce companies.’ The government then decided that it needed to protect the local players, and therefore did not allow FDI.

Do you see what happened here? Who benefits from competition? The consumers do. The greater the competition, the more value for money the common consumer gets. This is axiomatic. Our local retailers—all the people consulted by the ministers—were scared that their bottomline would be affected by this competition, so they successfully petitioned the government to block it. The result: the consumers will get less value than they otherwise would; the local retailers will make more money than if competition was allowed. In effect, it is a transfer of wealth from a large, dispersed group of consumers to a small, relatively wealthy interest group.

All tariffs have exactly this effect. Let’s say I like to buy widgets. Local manufacturers sell me widgets for Rs 100 each. Foreign manufacturers, for a variety of reasons from technology to labour, can sell me widgets for Rs 80. But the local manufacturers petition the government to put a tariff on imports, and the government puts a Rs. 30-per-widget tariff on the foreigners, so they don’t bother coming over. The net result: each of us loses a notional Rs 20. Who gets that money? The local manufacturers. What just happened? The government redistributed wealth from the relatively poor masses to a specific relatively rich interest group.

Governments that impose or continue tariffs will do so in the name of protecting the domestic industry. But at whose cost? The French economist Frédéric Bastiat once wrote a great essay called ‘What is Seen and What is Not Seen’, which speaks of the hidden effects of such actions. What is seen here is the good done to one specific group of people (with money usurped from a poorer group, which by itself is surely morally wrong). What is not seen is what the consumers would have done with that money. They would have spent it or invested it, and it would have gone back into the economy, creating growth and employment. But the potential beneficiaries of that are not even aware of what didn’t happen.

Subsidies are also redistribution of the reverse-Robin Hood kind, if in a more obvious way. The wealth taken from the poor is not in terms of marketplace prices or value for money, but is taken directly from your taxes. And while the poor may not file income tax returns, they pay taxes too. Every time your maidservant buys a bag of salt or the beggar at the nearby traffic signal buys soap, they are contributing to the Rich Interest Group Benefit Fund. This is not just poor economics –  it is morally wrong.

Here’s the upshot: All interventions in free markets amount to a redistribution of wealth from the poor to the rich. Anything that reduces competition or artificially raises costs for the consumers amounts to just this. Restrictions on FDI, tariffs, licensing processes or regulations that make it harder to open a business or to run it, subsidies; and so on. The interest groups to benefit may differ in each case, and will often include rent-seeking forces within the government, but always, without exception, the wealth will flow, in relative terms, from the poor to the rich.

So why don’t we protest, you ask, given that we are a democracy? Well, think about the winners and the losers here. The costs of such redistribution are dispersed among more than a billion of us, and the benefits are concentrated to a few. If Rs 2 from the taxes you paid last year went as a subsidy to the widget industry, you won’t even know or care. The widget industry, making millions from the accumulated Rs 2s, will care, and will lobby aggressively, contribute to party coffers, buy off politicians and bureaucrats – whatever it takes. That is why government policy is not dictated by the people at large, but by the aggressive lobbying of hundreds of interest groups, out to make a killing at the expense of the poor. That is why government grows and grows, and so many constraints are placed on the only force that can make us wealthy: economic freedom.

The Price is Right

This is the 18th installment of Lighthouse, my monthly column for BLink, a supplement of the Hindu Business Line.

A few days ago, I got ready for a meeting, switched on my Uber app, saw that there were no taxis available in my area, and remembered an earthquake.

More than two decades ago, when I was in college in Pune, an earthquake ravaged the region of Latur. I got together with some friends to collect money for relief efforts. We decided that we would go to the affected areas ourselves to figure out the most efficient way of using the money. We hitched a ride on an ambulance of paramedics headed there with medical supplies. While in the affected district, we stopped at a village where around half the houses had been destroyed, and only one grocery store was still standing. “They are the only place one can buy groceries from,” a resident complained to us bitterly, “and they have tripled their prices.” That made me very angry. “Exploitative bastards,” I thought to myself, “feeding off the misery of others.”

Today, I know that my reaction was misplaced – just like the complaints of everyone who’s taken issue with Uber’s dynamic pricing. In case you missed the controversy, cabs and autos in Mumbai recently went on strike to protest against the competition they got from the likes of Uber and Ola. Since people had to get to work, the ironic short-term beneficiaries of this were the very parties they were protesting against. So when demand for a particular product or service goes up and supply can’t keep pace, what happens? That’s right, the prices go up, and Uber uses a mechanism called dynamic pricing which is an incredibly efficient way of arriving at an appropriate price for their service based on demand and supply. So commuters who switched on their Uber apps in the morning were informed that the base price had gone up by as much as 5x. Naturally there was much outrage and shouts of ‘exploitation’ and ‘predatory pricing’, and Uber, rattled by the bad press, announced that they would suspend dynamic pricing for the duration of the strike, and operate at their usual base fare. They put this into effect, and I woke up the next day, switched on my app, and found that no Uber cab was available.

Do you see what happened here? When demand goes up relative to supply, two things can happen. The price can go up to reflect the growth in demand; or, if the price is fixed, there is inevitably a shortage of the product or service in question. In Uber’s case, with their dynamic pricing disabled, all their cars quickly got booked, and whichever customers switched on their apps after that found that there were no cars available. Their need could have been urgent: they may have needed to rush to the airport to catch a flight they couldn’t afford to miss; or take an aging relative to hospital; or head to town for a make-or-break meeting. But even if they were willing to pay more, too bad.

The most efficient way of allocating resources is to let things find their own equilibrium, their own prices. Price controls are foolish and never work. And the demand for them is based on a sort of a fantasy. Fixing the price of a product at a base price below what the market would pay does not mean that everyone gets it at this price—it just means that a lucky few get it and the others don’t. The fundamental truth about the universe is this: everything is scarce. You can’t wish this scarcity away by agitating or legislating against it.

*  *  *

Speaking of prices, another company that disrupted an industry, Amazon, has announced that it will pay authors on its Kindle direct publishing program according to pages read, not units moved. This is an opt-in program, applying only to self-published authors on their DP platform, but authors on my Facebook timeline have already reacted with horror. Their instinctive aversion to the idea is understandable: commoditization of art and all that. As in the movies, they can imagine a publishing executive in a suit telling them to clip their novel by 30% and have only one 8-letter-word-per-100,000 because more than that diminishes page-turning rate. The horror! But those fears are overblown. I think this development, like almost everything Amazon has done with regard to books, is visionary and good for authors.

Look, there isn’t, and shouldn’t be, a central politburo that decides how much authors get paid according to some high-falutin notions of literary merit. Authors get paid, quite simply, based on copies sold, and how many people want to read them. Literary authors accept that they will not make remotely as much as those who write airport potboilers. That’s just fine, because if they’re good at what they do, they’ll find an audience that appreciates their work anyway.

Amazon’s new system achieves the same end—paying writers according to the demand for their writing—with greater granularity. Good literary writers will still make money – I devour every word Alice Munro or Anne Tyler write—because their work is compelling. But if I get bored with a writer after reading ten pages of his work, I don’t see why he deserves any more of my money than those ten pages represent.

It’s somewhat silly for an author to have a sense of entitlement, and believe that other people should pay him money even if he can’t produce work they want to read. As silly, indeed, as for an Uber user to feel entitled to the service at a lower price than others are willing to pay, at the expense, therefore, of the service provider. Such arrogance is priceless.

We Are All Sharks

This is the 36th installment of my fortnightly poker column in the Economic Times, Range Rover.

A few days ago, I was shooting the breeze with a friend of mine when he told me about a couple of business ventures he was planning, and the investors he’d lined up for them. ‘You won’t believe how gullible they are,’ he said. ‘If there’s one thing I’ve learned from poker, it’s how to find fish and exploit them. And there are so many fish in the business world.’

It’s a good thing I was sipping lemonade at the time and not my usual hot Americano, or I’d have singed myself. Having recovered from the shock of his statement, I shook my head sadly. Poker is a beautiful game, and it can teach you a lot about life. But the lesson my friend had learned was entirely the wrong one.

Poker is a zero-sum game. (A negative-sum game, in fact, if you’re playing a raked game.) The only way you can win money is if someone else loses it. So it’s natural that the key skill in poker lies in exploiting the mistakes of others, sometimes after inducing those mistakes in the first place. It is a mathematical exercise that plays on the frailties of human nature. The game is played by consenting adults, and as your opponents are also trying to exploit you and take your money, they’re fair game. But the real world works differently.

Life is a positive-sum game. This is most eloquently illustrated by what the libertarian writer John Stossel once described, in an old column, as the Double Thank You Moment. When you buy a cup of coffee at a café, you say ‘thank you’ when you are handed the coffee, and the person behind the counter says ‘thank you’ on receiving your money. Both of you are better off. Indeed, the vast majority of human transaction, including all business transactions, are like this. Both people benefit – or they wouldn’t be transacting in the first place.

This amazing phenomenon, which we take for granted, is responsible for the remarkable economic and technological progress of the last three centuries. The economies of nations across the world have grown in consonance with the rise of free markets within them. Think about it: if every transaction leads to both parties benefiting, and a consequent increase of value in the world, then the more people are free to transact, in whatever form, the more we progress as an economy and a society. This is why libertarians such as myself consider it a crime to clamp down on any kind of freedom, be it economic or social.

The positive-sumness of things is unintuitive, and many people reflexively speak of the world in zero-sum terms. For example, socialists, with all their talk of ‘exploitation’, the rich getting richer at the expense of the poor and the need for redistribution. But that is not how the world works; it is not a game of poker. Just as in poker there is no possibility of a Double Thank You Moment, in life, we can all be sharks.

So much for learning the wrong lesson from poker. What does poker teach us about life that is useful to us? Well, the most important lesson I have learnt from poker is not to be results-oriented. Luck plays a huge role in the short term, you only get what you deserve in the long run, so just focus on doing the right thing and don’t worry about the fruits of your actions. The Bhagawad Gita teaches the exact same lesson. Lord Krishna would have crushed the games.

An Economic Message from God

The editors of Okonomos, the economics journal of the Hansraj College in Delhi, asked me to write a guest article for the current issue of their magazine. Here it is.

Imagine one day God comes down to Earth. He’s an old man with a beard, hanging out in the clouds, and he latches onto the wing of a plane and sits there, cross-legged, until the flight lands. A communist man who took a reclining-emergency-row window seat for the legroom has to be taken off the plane on a stretcher, for he faints after seeing 1), a gentleman who is obviously God on the wing of the plane, and 2), the T-shirt God is wearing, which says, in fluorescent pink letters, ‘Free Markets Rule.’

God is instantly met by waiting paparazzi, and an impromptu press conference is convened. ‘Oh God,’ says an overwhelmed young lady, who appears to be on the brink of orgasm, or something equally divine, ‘Oh God, please tell us: why that T-shirt?’

‘I was hoping someone would ask me that,’ says God. ‘Or rather, I made you ask me that. This is why I have come down here. You should know that I’m a bit of an efficiency buff.  I made the universe, and then the earth, and then amoeba and fish and monkeys and all you folk, but the thing is, I was not much into micro-management. The universe is full of tons of shit, and fine-tuning every small aspect of each creation would take eternity. And while I do have that much time, why sweat the small stuff, so I decided to just put systems in place and take a nap.

‘When I went to sleep, there was primordial ooze. I put natural selection in place, and as I slept, evolution happened. I knew that something like you humans would eventually evolve, though I must confess I couldn’t have anticipated Honey Singh or Kim Kardashian. Wtf , really? Anyway, I put systems in place for you folk too, so you could reach reach your optimum levels as a species, in the pursuit of happiness. But when I wake up I find, hey, what’s going on here, the most beautiful, elegant aspect of my creation, which was meant to help you reach fulfilment, is being maligned. I’m talkin’ about free markets. So here I am, to put the record straight, and to set you on the right track as a species. So listen up carefully, because I won’t be back to repeat this: I have to rush after this to North-West Andromeda, and I could take quite a while there, a black hole has been acting up, keeps spitting galaxies out, wtf?’

‘Oh God,’ says the young lady we have already met, on the verge of rapture. ‘Tell us everything. Oh God!’

‘Right,’ says God. ‘Listen up, here come some basic truths about economics that are really just common sense, but you may consider them divine revelation if you wish.

‘One: Life is a Positive Sum game. Every time two people make a trade, they do so because both of them benefit. One of my blessed children, John Stossel, illustrated this by coining a phrase, ‘Double Thank You Moment.’ You buy a cup of coffee, and as you pay for it and take the cup, you say to the guy behind the counter, ‘Thank you,’ and he says the same thing to you. Two Thank Yous! And indeed, in every single transaction that takes place across the world, both people benefit, or they wouldn’t have entered into that transaction. This is how productivity goes up, how the amount of value in the world rises, how societies grow prosperous. For my sake, think about how drastic progress has been since the 18th century, when free markets started becoming common. Look at the two Koreas, identical once upon a time, and now so different because of the different paths they chose. And listen up, listen up, to what I say next:

‘Since every trade leads to both parties benefiting and value being created in the world, anyone who comes in the way of free trade anywhere is sinning. Yes, you heard me, it is a sin to get in the way of free enterprise. Tariffs and duties are evil, and regulations and license rajs are man’s way of trying to play God. Don’t you dare!

‘Two: Business is better than charity. Given what I told you above, how does a human being make money? Only by increasing the value in the lives of other people. Put another way, you can only enrich yourself by enriching others. That is exactly what business is. You make money by giving people what they want. The more value you create for others, the more value you create for yourself. Thus, it’s nonsensical to speak of a system where the rich get richer and the poor get poorer. In a free market, that’s not possible. The rich can only get richer if the poor also get richer.

‘And this is why I consider businesses better than charities. Both aim to help others, but the survival of businesses depends on their ability to do so, and I like those incentives better.

‘Three: Money Trickles Up, Not Down. No respectable economist has ever spoken of trickle-down economics. There is no such thing. It is a straw man. (You are all like straw to me, but never mind that.) In a free market, money trickles up, not down. In a business, it is the suppliers and the workers who get paid first, and the consumers who get served, and only then, right at the end, do the owners make any money. They are at the end of the chain. Ask anyone you know who runs a business how it works.

‘Four: Capitalists are among the biggest enemies of capitalism. Raghuram Rajan, a man I created in my own image (aren’t I handsome?), once co-wrote a book titled ‘Saving Capitalism from the Capitalists.’ Note that sentiment. People often think that defenders of free markets are defending the actions of evil capitalists and big businesses gaming the system. Wrong. Established capitalists are the ones who have the most to fear from competition, and they are the ones who lobby governments to manipulate markets in their favour. To take an example, look at India. When India gained Independence, a group of its top businessmen came up with something called the Bombay Plan, which was their vision of what the economy should be like. They wanted an interventionist state, with plenty of regulation and many curbs placed on free enterprise. Historians have presented this in support of the argument that hey, even capitalists wanted unfree markets, so free markets can’t be all that great, right? But think about it: of course the entrenched businesses would want government to keep out competition. Like, duh!

‘So beware of crony capitalists and the governments they partner with. And every time a new regulation or tax or tariff is introduced, consider who it is likely to benefit.

‘Five: Government is a false God. If offends me when people have blind faith in entities other than me. Like government. Governments came into being to serve the people and protect their rights, but instead, have ended up ruling the people and infringing their rights. Think about it, if any individual or group of people forced you to pay a third of your income every year to them, which effectively meant you were enslaved to them till April every year, you’d be pissed, and would correctly call them thieves. If they regulated all your activities, curtailed your freedom even when you were causing no harm to others, and took a cut of all your purchases, you’d feel that a mafia was running your life. But when an entity called government does all this, and sanctimoniously tells you that this is for your own good, and it’s your duty to obey it, you somehow accept it. And furthermore, you expect it to be the solution to all your problems, even when the biggest problems around you are caused by government itself. What a con job!

‘The biggest force in human progress over the last few centuries has been free enterprise. And the biggest enemy of free enterprise – indeed, a sinner in my books – is government. And yet, you worship this false God, while forgetting all about me and the beautiful, natural system I put in place for you, tailored perfectly to human nature. So here’s a commandment for you: Embrace freedom – and question everything that your governments do.’

God stops here, and the young lady we mentioned earlier takes advantage of the lull to shoot a quick selfie with Him. As soon as she clicks the button on her cellphone, God, having delivered His message, disappears. The communist man of the reclining-emergency-row disappears with him. And far away, in North-West Andromeda, an alumnus of JNU is hurled into a black hole and is promptly hurled back out, for it is a universal truth that all transactions should be voluntary.

Seven Thoughts on Modi’s Mandate

All right, here are some quick thoughts on the election results:

One, I’m overjoyed that the Congress got hammered. We are close to seeing the end of the Nehru-Gandhi dynasty in politics, which is fantastic. This vile family has caused incalculable damage to our country with its destructive economic policies, which has kept our country poor for the seven decades since independence. It’s impossible to quantify the effect of this, but I believe that this family has orders-of-magnitude more blood on its hands than, say, a Narendra Modi would even if all the allegations against him were true. I’m glad to see them finished as a political force, though it is likely that they will continue to be a political spectacle for a while yet, which I welcome. Pappu provides much amusement.

Two, I’m ambivalent about Narendra Modi but I’m glad he has a decisive mandate. Here’s why I’m ambivalent: I’m classical liberal (or minarchist libertarian, if you will), and freedom matters a lot to me. I want a free society with free speech and free markets. In conventional terms, I’d be right-of-centre on economics and left-of-centre on social issues. The BJP is right-of-centre on both. So I worry about issues like freedom of speech—but remember that the Congress had a deplorable record on this front, and was, in fact, the party that banned the Satanic Verses. We have so far been a reasonably pluralistic society; that, and our (meagre and somewhat inadequate) constitutional safeguards should protect us if the RSS nutjobs get out of hand. One can only hope.

On economics, Modi can’t do worse than the UPA did. Yes, I worry about crony capitalism, but Modi has done a lot to create a conducive environment for small businesses in Gujarat, and his main campaign slogan, ‘minimum government and maximum governance,’ is music to my ears. But it will take a lot of doing, and this is why I’m glad his mandate is so overwhelming, and he is free of the constraints of coalition politics. He now has the power to get the job done, and no scope for excuses. He can carry out the measures that are essential if we are to be the manufacturing superpower that he has said he aspires to make India. (I’d start with labour reforms.) He can reduce the number of ministries at the centre, cut down on red-tapism throughout the country, and reform agriculture and education, moving from a culture of patronage to one of empowerment. He has the power to do all this; we will now see if he can walk the talk.

Three, this is a seminal moment in Indian politics, and the political landscape has changed forever. It is estimated that around 100 million people voted for the first time in these elections, part of a demographic shift that is going to continue. If these new voters alone were a country, that country would be the 12th largest in the world, bigger than Germany, France or the UK. This country is where the Modi wave happened.

While this nebulous wave might have been embodied in the figure of one man, consider what it stands for, and why so many first-time voters exercised their mandate: These people are shrugging aside considerations of identity and patronage politics: caste or the Gandhi family do not matter to them. They want progress, development and also, implicitly, the eradication of poverty, which goes hand-in-hand with the first two. For seven decades, parties have only paid lip service to that last aim, and followed policies that perpetuated poverty and nurtured vote banks. Modi embodies the hope that we can break away from this. Even if he doesn’t deliver, and these new voters, and other new voters to come next time, abandon him, we can see the parameters based on which they are making their choices. Those won’t change. The parties that don’t adapt themselves to this new political marketplace will be ejected with, as Pappu would say, ‘the escape velocity of Jupiter.’

Four, It will nevertheless not be easy for the BJP to replicate this performance the next time around. Consider that a big part of this wave was the party winning 71 out of 80 seats in UP, masterminded by their brilliant strategist, Amit Shah. Now, one can expect the BJP to also win the next UP assembly elections. So at the next Lok Sabha elections in 2019, they’ll face double incumbency in UP. They’ll be fighting on the basis of performance, not promises, and perceptions of the former will depend not just on Modi’s governance, but also extraneous factors like the last monsoons and the state of the world economy. A few percentage points could lead to a huge swing in terms of seats.

Five, Consider the percentages. In terms of seats, the BJP did 6.4 times better than the Congress. In terms of vote share, they did 1.6 times better. (31% to 19% of vote share respectively, nationally.) The Congress is moribund, relying on feudalism, led by morons, and I expect their vote-share to drop. But note that relatively small swings in terms of votes can lead to much bigger swings when it comes to seats in parliament. Don’t take anything for granted in 2019. A 4% swing away from the BJP, for whatever reason, would almost certainly result in a coalition government.

Six, AAP has shown itself to be the political economy’s equivalent of candlelight vigils and online petitions, both futile gestures made by self-righteous people who want to feel good about themselves and lack an understanding of how the world works. Leave aside its constituency, the party itself was a meld of contradictions, defined only in opposition to others. It articulated a faith in government and leftist economic policies that would take our country backwards, not forwards. It claimed to speak for the common man—but the common man chose the chaiwallah over the income-tax officer.

What really got my goat was the coverage given to AAP by our Delhi-centric media. This was a party expected to get at best 10 seats in a parliament of 543. (I expected them to get one [Rakhi Birla], they surprised me and got four [Punjab].) And yet, from the media coverage given to them, you’d think they were a major contender to form the government. William Dalrymple, in fact, referred to Arvind Kejriwal as one of ‘the three front-runners’ in these elections. Immense WTFness.

Seven, What about 2002? Was Modi personally responsible for engineering the riots? If he was, nothing else matters, and that would be enough to condemn him. But was he? I’ve spent a fair bit of time going through the evidence to implicate him (quite convincing) and the defences in his favour (also, weirdly, convincing). I know that almost all my friends will jump on me for saying this, but I no longer believe that it is possible for anyone on the outside to know, for sure, whether he engineered those riots. The facts are such that what you choose to believe will be what you want to believe, and will reveal more about you than about him. This is an epistemological position, not an ideological one; and I therefore have no choice but to consider him innocent until proven guilty, though he can be proven neither innocent nor guilty, but I know where the burden of proof lies.

In any case, as I’ve written before, I believe that Modi acts purely out of self-interest and not ideology. At the centre, he will do whatever he believes will increase his political capital. I don’t think communal violence will be part of that equation. I think development will. That gives me hope.

First Lessons

The quote of the day comes from Thomas Sowell:

The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.

I got the quote from an excellent piece by David Boaz on the fallacies in many arguments for a bigger role for the state: The Empty Case for Big Government. Read the full thing.

The Two Roads to Happiness

In an interview with Abheek Bhattacharya, the Chinese economist Zhang Weiying says:

We human beings always seek happiness. Now there are two ways. You make yourself happy by making other people unhappy—I call that the logic of robbery. The other way, you make yourself happy by making other people happy—that’s the logic of the market. Which way do you prefer?

Or what John Stossel once called ‘The Double “Thank You” Moment’. It’s a ridiculously simple insight, which makes it all the more amazing that so many people just don’t get it.

Dead Rats and Incense Sticks

So here’s the story: 15 dead rats land up in the drains of St George’s Hospital in Mumbai. A massive stink ensues (literally), and the hospital staff can’t figure out where the smell is coming from. So:

The hospital’s staff tried different methods – burning incense sticks, spraying room refreshers – to ‘clear the air’, but to little avail.

And this is exactly the way in which the Indian government deals with our country’s poverty. Every single government measure to tackle poverty is equivalent to incense sticks and room fresheners—it smells good for a while, and then the stink is back. The rats remain.

And yeah, if you read this blog regularly, you know what I think the root cause is: the lack of economic freedom. If only Rajaji, Patel and Prasad had their way 60 years ago instead of Nehru…

What Summers Has To Say

Via Felix Salmon, here’s an excellent interview of Larry Summers.

Key quotes you may find interesting:

We don’t really have a problem that there aren’t enough television sets in our society.  We really don’t.  I mean we did once.  I mean it used to be that some people had television sets and some people don’t.  We don’t have that problem anymore in America.

and

When somebody writes the human history of Americans, the fact that 25 years from now we will have done most of the following:  cure Alzheimer’s, apply stem cells to prevent diabetes, develop approaches that enable most of us to be the weight we want to be, rather than the weight we are, and find a solution for dementia, the fact that 25 years from now we will have done not all of those things, but we will have done most of those things, I think that looms enormously large.

and

If you look at the price earnings ratio for technology companies relative to the price earnings ratios for all industrial companies, you take that ratio, PE technology divided by PE industrial, you can plot that ratio over the last 40 years, and it is at the lowest point that it’s ever been.

So if you look at the large tech sector, it’s very, very hard to see a bubble. […] What is true is that the Internet, the last time there was an Internet bubble, was 120 million people dialing up.

The Internet today is two billion people and two billion mobile devices, with wireless connectivity at a far more rapid pace.  Today, the businesses have cash flow, which they didn’t ten years ago.  So I think it’s a little facile to assume that just because the numbers are big, that it’s obviously a bubble.

There’s a section in which Summers talks about the different styles of the two presidents he’s worked for, Bill Clinton and Barack Obama. Most interesting.

*  *  *

And yeah, I’m encouraged by his prediction that 25 years from now, I’ll be the weight I want to be. An exercise regime, in these circumstances, seems short-sighted.