A slightly shorter version of this was published as the 30th installment of Lighthouse, my monthly column for BLink, a supplement of the Hindu Business Line.
In theory, a devout politician is a good thing. A politician who believes in God seems to accept the existence of an entity more powerful than himself, and that should be a reassuring thought to Indian voters. We have plenty of devout politicians here, and while the ones in the ruling party are most vocal about it, opposition politicians aren’t far behind. Take Delhi chief minister Arvind Kejriwal, for example.
When he was sworn in as chief minister at the Ramlila Maidan, Kejriwal repeatedly thanked God for his newfound status. “I thank the Supreme Father, Ishwar, Allah, Waheguru,” he breathlessly proclaimed, trying to cover all bases. And in case the concerned gods missed it, he later said, “This victory is not because of us. It is a miracle, and I thank Bhagwan, Ishwar and Allah.” (At this point, I can imagine Bhagwan turning to Allah and saying, “Dude, any idea what he’s talking about? I thought I was Ishwar!” And Allah replies, “Dunno, man. I’m just a party worker.”)
Kejriwal’s stated piety isn’t restricted to the major religions. He recently came out in support of the Jain monk Tarun Sagar after the musician Vishal Dadlani made fun of him. Kejriwal tweeted: “Tarun Sagar ji Maharaj is a very revered saint, not just for Jains but everyone. Those showing disrespect is unfortunate and should stop.” (The last sentence is stunningly convoluted, and we all know what Orwell said about clarity in speech correlating with clarity in thinking.)
Now, Kejriwal was reportedly an atheist before he came to politics, and it is natural to suspect that this new-found piety is part of the populism he’s embraced. But let that pass. In this column I will argue that there is one religion that he truly, deeply, madly does believe in, and it is the most dangerous religion of all. It is the religion of government.
Contrary to popular belief, the majority religion in India is not Hinduism but the religion of government. We have been brought up believing that if there is any problem in this world, government can solve it. If there is a social ill, ban it. If prices are too high, pass a law demanding that they be kept low. If there aren’t enough jobs out there, create jobs by legislation so that people can earn an honest living. And so on.
I call this, with apologies to Richard Dawkins, the God Delusion of Government. Devotees of this particular religion believe, like devotees of any other, that reality is subject to the whims and fancies of their God. To change the state of the world, God needs to merely decree it, or government needs to pass a law, and boom, reality changes. Water turns to amrut, copper to gold.
This kind of God delusion isn’t restricted to India. A recent example of a country ruined by it is Venezuela, which has been ravaged by the socialist policies of Hugo Chavez. Venezuela was lucky to be oil-rich, but unlucky to have Chavez as a leader, who tried social engineering on a vast scale. One of his pet schemes: price controls on all essential commodities. (If something should be cheaper, let’s make a law mandating it.) This led, as econ 101 would predict, to shortages, so much so that Venezuela’s queues became legendary. The current government, perturbed that these queues were embarrassing the country, hit upon an innovative solution. It banned queues.
I’m not kidding. They really banned queues, and when I read that news, I thought of Kejriwal, because that’s exactly what he would do.
Kejriwal thrives on finding the simplest possible solution to every problem through the Godlike intervention of government. He has no grasp on reality, though, and no understanding of how such interventions typically play out. Most tellingly, like Chavez and other socialists, he simply doesn’t understand how the price system works.
Left to themselves, prices are determined by supply and demand. If the demand for a product or service outstrips supply, the price goes up. This rising price acts as a signal to potential suppliers, and they are incentivised to fill the gap. Similarly, if demand goes down, the price goes down, and suppliers start moving their efforts to where they would be more valued. We can only make a living by fulfilling the needs of others, and the price system gives us the information and the incentives to do this most efficiently. But for this, it has to be left to itself. If these signals are distorted, the system falls apart.
Now, Uber’s surge pricing is a fantastic mechanism to speed up the process of price discovery. But Kejriwal decided that people were being fleeced by high prices, and decided to ban surge pricing. The ban didn’t last long, because there was an immediate shortage of cabs, just as econ 101 would predict.
What happens when you put a price cap on something is that it becomes first-come-first-serve, and after the first lucky bunch get it, it doesn’t matter how urgent your need is, it’s not available at all. More crucially, the rising price that would act as both information and incentive now no longer does so, and other suppliers don’t rush to fit the shortfall.
While that experiment didn’t last long, Kejriwal moved from price ceiling to price floor. He announced an increase in the minimum wage in Delhi, to Rs 14k a month. Now, this sounds most compassionate, but is a government diktat enough? If it was, why not, say, make the minimum wage in Delhi Rs 10 lakhs a month? Wouldn’t Delhi instantly become the richest city in the world?
The answer is obvious. Such a law would merely put everyone whose work was worth less than 10 lakhs out of a job, and most businesses would shut down. Similarly, if the minimum wage set is Rs 14k, it effectively renders everyone whose labour is worth less than that unemployable by decree. Businesses are forced to discriminate against anyone they’d pay 13k a month or less, and it is the poorest of the poor who would bear the brunt of this. The law would hurt those it purported to help. (Being the country of jugaad, all workers below the minimum wage level will simply be shifted to the informal sector, and government inspectors will get a higher hafta than before. But it is no defence of a bad law to say that peeps will find a way to work around it.)
For anyone who isn’t economically illiterate, these effects are predictable. A price cap (or ceiling) inflates demand relative to supply, and a shortage in supply is inevitable. A price floor inevitably decreases demand and leads to excess supply—or, in this case, more unemployment.
The laws of economics, such as that of prices, and supply and demand, are as immutable as those of physics. So why are such interventions so popular then? A key reason is that the laws of physics can be tested and proved in controlled environments, but you can’t do that with the laws of economics. Data is noisy, other variables abound, and all sides can point to ‘evidence’ with spurious correlations. So those who believe in such simplistic interventions continue with them, because it makes them feel (and seem) compassionate.
Kejriwal has a record of taking the high moral ground with self-righteous positions, and strikes a chord with common people by identifying many problems correctly. But his suggested solutions usually make the problems worse, as in the case of his anti-corruption crusade, or the different price controls he has championed. A good question to ask here is, Does he actually believe that such interventions work, or does he not give a damn about that, only wanting to take a position that gets him most votes from the economically illiterate masses? In other words, is he a devout fool or a devout scoundrel? Hanlon’s Razor states, “Never attribute to malice that which can be adequately explained by stupidity.” In Kejriwal’s case, I’m not so sure. But he’s devout all right, so God help us.
* * *
For more on minimum wages in general, I find this explanation by Milton Friedman to be particularly lucid. Categories Economics ▪ Essays and Op-Eds ▪ Freedom ▪ India ▪ Lighthouse ▪ Politics