Your Vote for My Money

A democracy cannot exist as a permanent form of government. It can only exist until a majority of voters discover that they can vote themselves largess out of the public treasury.
— Alexander Tytler

Some numbers are well beyond human comprehension. We can talk glibly about millions and billions of this or that but we cannot intuitive grasp what they actually mean. Evolution has equipped us with fine brains but those brains never needed to deal with thousands — leave alone millions — of anything. So we have to do some mental gymnastics to get a fleeting glimpse of what very large numbers represent.

Here’s a way of realizing how large millions, billions, and trillions are relative to a thousand. One thousand seconds passes in less than 17 minutes. A million seconds takes around 13 days. A billion seconds takes a bit over 31 years. We humans live for something between 2 and 3 billion seconds. A trillion seconds is over 31,688 years. We don’t really know what thousands of years mean, of course. Human civilization is not a trillion seconds old.

The US war in Iraq has been estimated to cost around $3 trillion. That is, $3,000,000,000,000. Details are in Joseph Stiglitz and Linda J. Bilmes’ new book, “The Three Trillion Dollar War: The True Cost of the Iraq Conflict.” See The Cold Price of Hot Blood in Salon for more on that. The total cost globally could well be over $6 trillion.

In any case, one way of looking at that number of $3 trillion is that every man, woman, and child in Iraq could have been paid over $100,000. In other words, the average family of five could have been given over half a million dollars. Most of us, of course, don’t quite fully understand how much money half a million dollars is. We just know that it is a real truck load of money.

Even for the US, a few trillion is a large sum. As has been plausibly argued by some that it is possible that the wars in Iraq and Afghanistan will eventually hasten the decline of the US. In a sense it is a self-inflicted wound which will bleed the US. It is the pitiable ignorance of the people that is the cause of this. Think about it. They voted for the warmongering dictators. These dictators then did what was in their best interest and in keeping with their ideology. Turning nations into rubble — not just other’s but even their own — is not too high a price for them.

Yes, I know that democracy is all the rage these days. India is the largest democracy and the US (for a while at least) is the most powerful democracy.

In other news, the government of Manmohan Singh has decided to cancel the debts of small farmers. It will cost Rs 60,000 crores (US$ 15 billion.) That once again is a large number even though it is several orders of magnitude lower than the US cost of the Iraq war. However, the US is an order of magnitude richer than India and so it can afford things that India cannot. If not exactly cripple India, the cost of debt cancellation will most definitely very severely adversely affect India. Its long term growth will suffer.

So why is the UPA government doing it? Because it is good for the party. It is the very nature of democracy that creates the perverse incentives for the politicians to implement policies that help themselves at the cost of immense harm to the country. Those who make the policies enjoy the indirect benefits of the policies — votes from specific groups — without paying any of the costs.

There is another asymmetry. The direct beneficiaries of the policies naturally have a concentrated interest in voting for the politicians. The costs are diffuse and poorly understood by the rest of the population. So while they bear the costs, they do not connect it with the policies and the politicians.

So in very simple terms, here’s the model. Groups A and B. Politician P determines that by robbing group B and giving it to Group A, Group A will definitely vote for P. Group B does not realize that it is being robbed. So group B does not penalize P. Politician P wins, and handles the cash register with very sticky fingers as long as it can. Strictly speaking, group A is voting to steal group B’s money — with the eager helpful intermediation of the politicians. This is democracy. Meanwhile, group A suffers in the short term, and both groups suffer in the long term. The only winner: the politicians that figured out how to buy votes using someone else’s money.

In the final analysis, a country is only as rich or as poor as its collective wisdom allows it to be. The politicians can be expected to make those decisions that are good for them, just like you and I make self-interestedly rational decision in our daily lives. However, we get to play with whatever little money we have; the politicians can play with billions and trillions that do not belong to them. So they are understandably less careful with billions than we would be with out few thousands. We are poor because we make poor choices and our poor choices arise out of ignorance.

It is all karma, neh?



Categories: Why is India Poor?

10 replies

  1. Atanu, have you been reading “Mein Kampf” lately? Such contempt for democracy based on one sop given to farmers? Aren’t you conveniently overlooking the other positive aspects of democracy?

    And quoting two sentences (without context) from someone who agrees with you at the start of your post doesn’t mean your case is strengthened – there are many “famous” writers and one can find plenty of quotes for-or-against any issue – though the readers who are none-the-wiser are probably impressed. (“OMG, Alexander Tytler said so about democracy? Wow, that must be true then.”) For example, I could quote someone who said many centuries ago “Pothi padh padh jag mua, pandit bhaya na koi…” – and it would be true for this post. 😉

    Very poorly written post – almost in a knee-jerk fashion. Remember “We the people..”? The solution is to strengthen democratic institutions, hold the elected politicians accountable and elect honest people, IMHO.

    I’m also not clear on one thing. Are you an Indian nationalist, or a Free Market proponent/fundamentalist? And what happens when there is a conflict between the two, as there is many times (e.g. Union Carbide and Bhopal)? Where does your loyalty lie in such cases, e.g. introduction of BT cotton at the behest of MNCs by the politicians more than a decade ago (political parties on both sides have done that when in power), changing the traditional way farmers have been growing crops, and that decision playing some role in Indian farmers committing suicide? I think corporations have only one mandate (as you’ve pointed out in an earlier post) – to make profits for their shareholders. They don’t care about countries or nationalism or injustices. Or maybe you’re suggesting that once all Indians buy some shares and stocks and have a portfolio, everything will be hunky dory. 😉

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  2. Atanu
    Maybe we should start thinking of some of the flaws in the democratic model and continually improve it?

    Will we need tweaks or big shifts to eliminate these distortions and asymmetries?
    Can proportionate representation help? Or maybe a Presidential system of government?
    Or do we need budgetary controls that prevent such large scale stupidity (imbecility — is that even a word?) from occurring again.

    Would be interesting to know those and start assembling a “new democracy”!

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  3. The sources of taxes in India are broadly
    1) salaried class (non govt)
    2)tax on traded commodities: at least this is distributed among the entire population

    The cycle that you have described may be possible because the tax-paying community in India, which funds this country, is miniscule, and hence have no say in how their funds are disbursed.

    The fact remains that people of India are grouped into jatis, and in many cases, entire jatis are economically and educationally backward. They have no qualms in voting into power polticians promising them freebies. As pointed out above, they lack knowledge about the source and nature of their apparent “gains”.

    This leaves our netas in a very powerful position indeed; an assured source of funds AND an assured source of power.
    Legalised looting is the obvious result.

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  4. There are two obvious examples from India that show democracy works and while people may be poor or illiterate, they’re not stupid – Indira Gandhi losing the elections in 1977 and a light thrown on “India Shining” in 2004. Democracy works when elected officials and politicians do their dharma as public servants instead of becoming masters. It’s the dharma of the citizens to hold their feet to the fire through civic engagement.

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  5. Atanu,

    It would be nice if you could write about how the govt ensures future generations are poor. A significant portion of the budget just goes in paying interest on loans taken (for what?! ). The vile and decadent politicians take huge loans just so that they can steal.

    Interest Payments and Prepayment Premium – 1,90,807 crores – almost 2 lakh crores, about 25% of budget spending.

    http://indiabudget.nic.in/ub2008-09/bag/bag3.htm

    http://indiabudget.nic.in/ub2008-09/bag/bag1.htm

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  6. Atanu,

    If we take only India as an example of Democracy, things have not worked the way they should have. We survived not because of Democracy but inspite of that.

    But Democracies have survived, flourished and have been succesful in a whole lot of states where the average intellect is high.

    India is a sad statement on Democracy. One Monarchy ruling us for more than 85% of the period post independence is not really Democracy. (Ya, we know Amit, “they” have been “elected” again and again and blah..blah..). Democracy has worked in US, UK, France etc where two poles have shared power and brought progress. In case of India it has been unipolar and will continue to be unipolar, with LEFT/Socialist appeasers setting Nation’s agenda and emptying it’s coffers while in power.

    Yet i just feel Democracy will finally save us. An entire generation of people who were bred on the “Hindu Rate of Growth” by the criminal Nehru has long gone and a new much confident generation is coming of age. I think we need to give Democracy a chance.

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  7. Amit wrote:

    Atanu, have you been reading “Mein Kampf” lately? Such contempt for democracy based on one sop given to farmers? Aren’t you conveniently overlooking the other positive aspects of democracy?

    No, I have not read MK. Should I?

    My post was not a thesis on democracy. Democracy is an idea. Under what circumstances is it effective and what are its strengths and weaknesses in the actual implementation is a legitimate empirical question. Putting an idea above all scrutiny and examination works for some who are worshipful of it. But I find all ideas worth a critical look.

    Quoting you again:

    I’m also not clear on one thing. Are you an Indian nationalist, or a Free Market proponent/fundamentalist? And what happens when there is a conflict between the two, as there is many times (e.g. Union Carbide and Bhopal)? Where does your loyalty lie in such cases, . . .

    You may find it useful to define categories and then shoehorn me into them. Excuse me if I refuse to comply, not the least reason for which is that our definitions of your categories must be different. These categories are not like the SI meter — they are not unambiguously and clearly defined.

    Market is an idea, just like democracy. Whether markets work is contingent on the circumstances. The idea has been studied sufficiently (both theoretically and empirically) for us to know how it works and under which circumstances it fails.

    Intellectual laziness or incomplete understanding of the idea and its limitations allow people to claim for themselves, or accuse others, of being “market fundamentalist.” It is that old “you are either with us or against us” mentality.

    It is quite possible for a person to appreciate the idea of markets and also appreciate its limitations. So also, democracy is a fine idea and until its limitations are understood, it is possible to insist on democracy where it is inappropriate.

    I am not sure I know what you mean by “nationalist” and so cannot answer it by a simple yes or no. But let me give you a short answer. I am for myself first and foremost. I am not for any race, linguistic group, state, nation, ideology or creed. I don’t owe any allegiance to any body or any institution. So I am free to criticize whoever and whatever as I see fit, and I do use that freedom.

    If I were an “Indian nationalist” (as defined by some people, say), then I would lose the freedom to be critical of Indian nationalism. So also, if I were a “market fundamentalist,” I would be unable to be critical of markets. You get the idea.

    I cannot blame you for your attempt at pigeonholing me. Most people can be put in neat little categories because they latch on to an ideology and even if they were capable of critical reasoning, are prevented from doing so because they fear losing that identity. Their identity is defined by that a category and they become automatons forever controlled by it.

    Now I suppose it is only fair to ask you which categories define you.

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  8. Democracy is not scientific. If science were done using polls, everyone would still be regurgitating the bible.

    Proponents of democracy first make an assumption that democracy is the best form (just like other fundamentalists do with their own idealogies) and argue from that position. Also, they don’t understand criticism of one thing doesn’t imply supporting something else, unless one explicitly states so.

    I think this is what they think: Everyone’s views must be respected (coz everyone has a view and everyone must be respected!) and the best way to do this is to aggregate everyone’s ‘respectable’ views and push that thing down everyone’s throat.

    Domain expertise and specialization are important. Next time you get sick, try a democratic approach, use polls (I will help you setup an online one in a few minutes) to vote on your sickness and treatment. If you visit a doctor, then you are not being democratic, being a bigoted fundamentalist who doesn’t respect people (your well-wishers!!) and their views.

    The sooner we get rid of respect others views, the better. If we had to respect views, we’d still be teaching sun revolves round the earth, coz when Galileo proposed his theory, everyone can *see* that that Sun is indeed revolving round the earth and had it been put to vote, Galileo’s theory would have been defeated. In the most optimistic case, we’d be teaching two theories, one of sun revolving around the earth and vice versa. This doesn’t accomplish anything.

    The sooner people got rid of their silly egos and that their views *ought* to be respected, the better.

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  9. Atanu, thanks for your response.

    Why would you assume that I’m placing democracy on a pedestal and am immune to any criticism of it? I could quote Kant and Churchill on it, whose views on democracy are along the same lines as the person you quoted (BTW, there’s some confusion whether that quote can be attributed to him or not). The fact that I mentioned democracy needs to be improved means that I see there are faults in the way it is currently functioning. I’m not particularly attached to democracy, but it is the best we have for now and I don’t see a different (improved) system (which I won’t be opposed to just because I love democracy) replacing it anytime soon – so I think it’s more productive to work with and improve what we have. YMMV.

    As for pigeon-holing and shoehorning, that was not my intention. How about “interests of India at heart” and “strong belief in implementing free markets”? Surely you are smart enough to see beyond labels and get at what my question was, instead of launching a Galt-like speech on identities.

    As for me, I like to explore life and world, and just like you, I also do not like the baggage of ideologies (including “objectivism”). I do find it interesting that you criticize everything and anything under the sun, yet have not written a single post criticizing corporations and big businesses – how they are accumulating more and more power and have a role in corrupting the democratic process. As history has shown us, more power in the hands of a few is not a good idea. Maybe you should also turn your critical eye to the economic theories (which are not scientific – they are just theories and likely to have faults) on which you stand and view the world. 🙂

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  10. amit, it is an important point that you bring forth. Control of capitalism by big corporations. A few years back, there was a letter in business standard that mentioned how, due to market reforms, companies that were monopolies during the license raj suddenly became behemoths gobbling up one and all(M & A), entering any market they saw fit and raising money from markets like stealing candy from kids. However, the process of capitalism in India was stymied by the socialists that were in power. Small firms could not raise capital effectively, could not expand due to adverse labour laws and bureaucracy. Today, SME, small manufacturing units are suffering due to govt apathy in infrastructure, power, labor reforms. However, in the US and japan, SME had a chance to grow and become big enterprises through the 1950’s to 1990’s. Big corporations truly took over since then. Where did small firms in India get such a chance? Big corporations are taking advantage of the markets(why won’t they?) but blaming them is not the only panacea. Prior govts have lent a helping hand to this process.

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