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.