Dhan Vapasi — Credit Constraint

How can the poor be helped is the most insistent question that the bleeding-hearted ask but only the hard-headed can answer. The fact that one has to understand is that the state of being poor is the background, default, standard state of every one of us.

No one is born wealthy. Everyone is born naked, helpless and poor. Sure, some are born to sweet delight but most us reading this were not born to an endless night.[1] We were born to parents who were not poor, and could afford to give more us than what was needed for basic survival. And that makes all the difference. Non-poor parents are able to provide “credit” to their children. That credit helped us, their children, to become capable of producing wealth. We, in turn, can then provide credit to our own children — and the cycle continues.

The simplest and the most accurate definition of a poor person is someone who is “credit constrained.” Meaning that they are unable to borrow what they need to become productive enough to repay what they had to borrow.

Let me repeat that. Although everyone of us born naked and poor, some of us are fortunate enough to get “credit” from our parents to use for developing our talents and skills, which then enable us to produce wealth and thus not just repay the loan but actually increase the wealth that future generations can use.

The next bit of this argument is that there are unused resources that can be used to release the credit-constraint that many people face. Those unused resources are locked up by the government. They simply don’t allow those resources to be used by people who need them.

This is really stupid. Being stupid is the ultimate sin. Not greed but stupidity is sinful. If someone steals from another, that’s bad but at least one person’s loss is the other person’s gain. What is sinful is when one person loses but there’s no equivalent gain to another. Stupidity is when someone imposes costs on another without any compensating gain to anyone.

Imagine if someone owns a piece of land. Assume that the land could produce some value, if worked on by people. Suppose the land could yield, say, $100 of value. Assume further that some landless person would work the land by paying the owner $10 rent, and get $90 for his effort. Both the owner of the land and the renter of the land stand to gain. Then it makes sense for the land owner and the renter. But if the owner refuses to rent the land, then not only does the land owner lose the rent but he also imposes an avoidable cost on the landless person. That’s stupidity — imposing a cost on another with no compensating gain for oneself.

The Dhan Vapasi idea is based on these basic facts. India has a lot of unused and under-utilized resources. These resources are locked up by the government. If the people were given access to them, then they would be able to produce wealth for themselves and for the economy at large. By unlocking those resources, people would be able to escape from the credit-constraint they face, and therefore not only do good for themselves but actually help in creating wealth for the collective.

I conclude this bit with a concocted scenario. Suppose a poor person’s child is capable of becoming a doctor and if he does become one, his lifetime income goes up by, say, $500k. But the poor person cannot pay the $100k  needed for medical school. If only he could get $100k credit, then it would be a win-win.

Now imagine that that poor person’s share of the “public wealth” is a lot more than $100k. Then he should be able to borrow $100k against that collateral, and thus pay for this son’s medical training. Doing so will increase the net wealth produced in the economy.

Aside from whatever Dhan Vapasi will do, it will release the credit-constraint of millions of Indians. They will no longer be poor. They are actually quite rich. The problem is that the government has robbed Indians of their wealth. But then, that’s nothing new, is it? The foreign invaders robbed Indians, and now it is the domestic government that is continuing that hoary tradition that they learnt from the foreigners.

It’s all karma, neh!

{Image at the head of the post: When I first came to the US, an American friend of mine would say, “Thank heaven, for 7-11.” Seven-eleven is a common chain of convenience stores in the US. Others are AM-PM, WaWa, etc. Recently, after years of low-priced gas, suddenly we were paying a lot more than what we were used to. That price of $7.11 a gal matches the 7-11 name of the store selling the gas.}


[1] Phrase “some are born to sweet delight” is taken from “Auguries of Innocence” by William Blake (1757-1827):

Every Night and every Morn
Some to Misery are Born
Every Morn and every Night
Some are Born to sweet delight
Some are Born to sweet delight
Some are Born to Endless Night.”

Author: Atanu Dey


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