Bring Down Chacha

I am very pleased to note that the Total Chacha State has decided to postpone introducing the Women’s Reservation Bill in the Lok Sabha. It was also interesting to note that my friend Sharad Joshi was the lone dissenter when the Bill was passed by the Rajya Sabha. Surely that makes Sharad Joshi the tallest politician in the land.

The entire focus of the Total Chacha State is now on getting the Finance Bill passed by Parliament. If this Bill fails to get through, the Budget is not passed and the government falls.

Now, as far as the Budget is concerned, you will recall my post in which I had commented that this was “the monster’s budget.” The principal features of this Budget, as I had then outlined, are:

=> The Plan and Non Plan expenditures in BE 2010-11 are estimated at Rs3,73,092 crore and Rs7,35,657 crore respectively.

=> The “labour army” idea of the Mahatma Gandhi National Rural Employment Guarantee Scheme gets Rs40,100 crore.

=> Allocation for road transport increased from Rs17,520 crore to Rs19,894 crore.

=> Net market borrowing of the Government in 2010-11 would be of the order of Rs3,45,010 crore.

(1 crore is 10 million; 100 crore is 1 billion.)

I had, in that post, and a subsequent one, critiqued the massive borrowing, as entailing “capital consumption.” I had advised the citizenry against buying government bonds.

In this post I will focus on the “flagship” NREGA, on which Rs40,100 crore are to be spent, more than double that on roads. This, too, represents “capital consumption.” Indeed, all “welfare” expenditure by the State is such, for it has nothing to do with “production” or “investment” – areas where capital ought to go. But the NREGA is worse, much worse.

In truth, NREGA is nonsense raised to the level of a principle. The very idea that the State can somehow create “employment” is false, for the money spent is taken from us, and if we spent that money, we would create employment much better.

This was first demonstrated by Frédéric Bastiat in his classic essay – an essay that truly reveals his genius – titled “What Is Seen And What Is Note Seen.” This essay can, of course, be found in my The Essential Frédéric Bastiat (free download here).

This essay is also the inspiration behind Henry Hazlitt’s classic Economics In One Lesson (PDF here), which, although over 50 years old, places Bastiat’s arguments in a modern context. This great book is highly recommended to students as well as the general reader.

The core of Bastiat’s argument in “What Is Seen And What Is Not Seen” is what has come to be known as the “broken window fallacy.” The argument goes as follows:

A hoodlum smashes a shop window. The townspeople gather and discuss the unfortunate incident, but conclude happily that the shopkeeper’s loss is the glazier’s gain, for otherwise, how would glaziers survive? Bastiat says that this is “what is seen.”

Now for “what is not seen”: Bastiat points to the fact that the unfortunate shopkeeper who has to shell out $100 for repairing his window had saved the sum for a new suit, which he will now have to forego. Thus, the glazier’s gain is the tailor’s loss. The town has not gained anything at all. Rather, the town has lost, for Property has been destroyed.

The most common example of the broken window fallacy is, of course, war, for do we not so often hear learned views asserting that rebuilding shattered cities is one of the “economic benefits” of war.

In exactly the same way, with the NREGA, “what is seen” is the district collector spending money. “What is not seen” is the tax payer, and what he would have spent that same money on.

NREGA is just a Broken Window.

India needs roads. Urgently. If the NREGA is scrapped, Rs 60,000 crore could immediately be allocated for roads and highways. This is what the citizenry must demand, and call upon all their MPs to oppose the passing of this year’s Finance Bill.

Of course, then, Chacha would fall.

But that, I am confident, will be a very good thing.