Pandora's Box - Shut!

Three recent posts have sought to prove that the more a government "works" the greater is the harm caused to society at large. The first of these posts was on the work chacha manmohan s gandhi himself proposed to do - "we will redouble our efforts," he said - and it turns out that we would be much better off if he took a long holiday instead. The second post was on the the odd fact that chacha spends a lot of time and money "producing work" for others - the NREGA. The third such post was on Lord Curzon - a Viceroy who really "worked" - and even here it was seen that had his lordship refrained from doing so, the whole of South Asia, and perhaps the entire world, would have been much better off today. Curious, ain't it? The State as all the gook that came out of Pandora's Box?

The reason for this curious fact is not hard to find - for The State produces "bads," not "goods." This is especially true in our age of inflationism, excessive legislation, intervention and regulation. The Keynesians employ a formula to teach their view of "national income" = C + I + G. Or, Consumption + Investment + Government = National Income. Thus, for them, and all those fatally wounded by their teachings, more government spending is a good thing, and adds to national income. Government spending boosts "aggregate demand."

But do you think tax departments add to national income? What about the customs department - that keeps all the foreign goodies out of our land? Do you think armed forces add to national income? If there is a flood and The State spends a whole lot on rescue efforts and relief, does that add to national income - although, in this case, it is "good work"?

There are other kinds of work that do not add to national income - like the "work" of a burglar, for example. The more the burglar works, the more losses society suffers. This kind of work is neither "productive" nor "unproductive" - rather, it is "misproductive." Much of government work is like that, especially in our age. Bads are produced, not goods.

As for "welfare" - it has nothing to do with either "investment" or "production." It is the same with all measures of "wealth redistribution" - for nothing additional is produced, and there is no addition to national income. Indeed, production may actually decline, because with "welfare" and "redistribution" what really happens is "capital consumption." Thus, the less The State "works," the better. The PSUs are perhaps the best example. Anyone wants Air India to keep on "working"?

Ludwig von Mises nailed all the advocates of socialism when he wrote:

Socialism... is not the pioneer of a better and finer world, but the spoiler of what thousands of years of civilization have created. It does not build; it destroys. For destruction is the essence of it. It produces nothing, it only consumes what the social order based on private ownership in the means of production has created.

Socialism and Keynesianism go together. Because of the domination of Keynesian theories, all the excessive and misproductive work done by The State today is funded using fiat paper money - which is "inflationism." Reducing this "destructive work" drastically is the only way to get "sound money." We must close this Pandora's Box.

We may contrast my view above with that of the Chief Economist of HDFC Bank, published in the ToI today. Looking at the inflationary situation, he says not one word about the fact that it is caused by an increase in the money supply - and nothing else. He writes endlessly on "overheating" - and I have never heard of any such "pressure cooker theory of monetary policy." The Keynesians teach a false "quantity theory of money" as the basis of "monetary policy": MV = PT. This posits a direct relationship between the money supply (M) and the (false) "price level" (P). Since inflation penalises savers - all his depositors - he ought to be asking for cutting State expenditure: shutting down Pandora's Box. Instead, he asks for more and more "work" for The State to do!

This will not help his bank - for millions of savers are already moving out of bank deposits and into gold, silver, land, etc.: the "flight into real values." If we tread the path he wants us to, we are headed for doom - the "crack-up" of the currency.

On the other hand, if we adopt a Gold Standard - private money that The State cannot ever tamper with - inflationism will end and the poor will slowly accumulate Capital. A sound economy is not just a few big "corporates" - rather, it is millions and millions of small businesses. Sound money will allow all these small capitalists to emerge - by preserving the value of their savings. This the way out of poverty - not "welfare," which will surely entrench it forever. And only when poverty ends, will the full depth of the Indian market - one billion consumers - ever be plumbed.

Apart from this Keynesian "funny money," Pandora's Box is wide open also because of Legislation. It is the Narcotics Act that creates a Narcotics Bureau, gives it powers and a vast budget, and thereby unleashes so much "misproductive work." Similarly, the recently enacted "rights" to work, education and food "empower" bureaus - with tonnes of funny money. Legislation leads to "delegated despotism" - severing the link between Freedom and Democracy - as in the case of Mumbai's "dance bars." It also inevitably leads to gross violations of Property.

Legislation leads to another kind of tyranny - regulation. I have recently written against telecom and airline regulation - but there is so much more, at all levels, from building regulations, to bar licensing to what not. I have a recent post on a particularly odious piece of environmental legislation, the Coastal Zone Regulation Act, that condemns all who have traditionally lived by the sea to eternal poverty, while empowering a predatory bureaucracy. Similarly, the Arms Act ought to be called the No Arms Act - for it keeps us all disarmed, and therefore vulnerable to attacks from any lawless brigand, while at the same time empowering baboons.

Legislation is the tool of all interventionism. Rampant interventionism in our age has already destroyed democracy - for it has resulted in a situation by which MPs "represent" various regulated interests, and nothing else. I have another post on this phenomenon. I have also penned a column on the way out - a "private law society."

Thus, there is no need whatsoever to treat Democracy as a "holy cow." Every political theory must face critical examination. And those who render this valuable service do not perforce have to suggest an alternative. I recommend Gordon Tullock's The Vote Motive (PDF here). I also recommend PJ O'Rourke's Parliament of Whores, which you can buy in India here. Hans-Hermann Hoppe's Democracy: The God that Failed is, of course, a must read - and it is available here.

The vote is meaningless without Liberty and Property. The vote is meaningless when The State can fraudulently fund itself endlessly. The vote is also meaningless when all power is centralised - that too, in such a huge, diverse country. Central planning requires a centralised State. The Free Market does not. And the proper management of cities and towns requires "local knowledge" - not a Central ministry of urban development and its JNURRM or whatever.

All solutions lie in The Market - in Liberty. Free trade, free enterprise, free capital flows. We Indians made a huge error in 1947 by looking upon The State as the "means" to a good society; as the "solution" to every perceived ill, from poverty to illiteracy to caste. It is this error that opened Pandora's Box. Now we must close it.