We discussed taxation in the previous post. The critical point to remember is that the total losses caused by the tax are greater than the total revenue earned by the State. Thus, the very idea that government spending stimulates the economy is absurd: it goes not only against the teachings of Economics, it is also blind to the eternal verities of Political Science.
Let us now turn from taxes to subsidies – in this case, the low fares on Mumbai’s suburban trains. I took a ride Andheri-Churchgate 1st class at about 75 rupees. I returned 2nd class at about 7 rupees. This is a hugely subsidized fare. Anything that is under-priced is over-consumed – and the huge crowd in the train at 4 pm, long before the office rush, proves this point. There is the added fact that when something is provided by the State so cheap, private alternatives cannot compete – like buses or tramways.
But the most important loss caused by this subsidy is to the Mumbai suburban railway itself, which does not earn as much revenue as would be necessary to expand services and improve them as well. The coaches I rode in were horrible. Getting out was an incredible adventure, what with the fact that the coaches have no doors.
The assumption behind these subsidies is that the people are poor and cannot pay for an essential service. Or, what is more likely, is that the people will vote for politicians who keep this service cheap. This politician with the ‘vote motive’ is helping a section of the population with money that is not his. The poor people of Mumbai pay market rates for electricity, gas, telephones, water and everything else. They work hard (and the pace is furious) to earn the money to do so. But they are taxed to the bone, and there is the attendant inflation.
I do believe if private entrepreneurs were to take over this suburban railway, improve and expand services, charge market-based rates, compete effectively with other modes of transport (including the underground railway that is under construction), Mumbaikars would be much better off.
Better to leave such an important service to the ‘profit motive’ rather than the ‘vote motive’.
So we can all sing:
Let us now turn from taxes to subsidies – in this case, the low fares on Mumbai’s suburban trains. I took a ride Andheri-Churchgate 1st class at about 75 rupees. I returned 2nd class at about 7 rupees. This is a hugely subsidized fare. Anything that is under-priced is over-consumed – and the huge crowd in the train at 4 pm, long before the office rush, proves this point. There is the added fact that when something is provided by the State so cheap, private alternatives cannot compete – like buses or tramways.
But the most important loss caused by this subsidy is to the Mumbai suburban railway itself, which does not earn as much revenue as would be necessary to expand services and improve them as well. The coaches I rode in were horrible. Getting out was an incredible adventure, what with the fact that the coaches have no doors.
The assumption behind these subsidies is that the people are poor and cannot pay for an essential service. Or, what is more likely, is that the people will vote for politicians who keep this service cheap. This politician with the ‘vote motive’ is helping a section of the population with money that is not his. The poor people of Mumbai pay market rates for electricity, gas, telephones, water and everything else. They work hard (and the pace is furious) to earn the money to do so. But they are taxed to the bone, and there is the attendant inflation.
I do believe if private entrepreneurs were to take over this suburban railway, improve and expand services, charge market-based rates, compete effectively with other modes of transport (including the underground railway that is under construction), Mumbaikars would be much better off.
Better to leave such an important service to the ‘profit motive’ rather than the ‘vote motive’.
So we can all sing:
I Shot the Tariff
And I also Shot the Subsidy!
No comments:
Post a Comment