Last week, in a banquet speech in Stockholm, this year’s economics Nobel Prize winner, Thomas Sargent, had some words of wisdom to offer his audience. His words should be heeded by important people in a city 5,500 km away --- New Delhi.
Sargent listed seven points.
A file photo of Nobel Prize winner Thomas Sargent.
1. Many things that are desirable are not feasible.
2. There are tradeoffs between equality and efficiency.
3. Other people have more information about their abilities, their efforts, and their preferences than you do.
4. Everyone responds to incentives, including people you want to help. That is why social safety nets don’t always work as intended.
5. When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation and defaults on debts.
6. Most people want other people to pay for public goods and government transfers (especially transfers to themselves).
7. It is feasible for one generation to shift costs to subsequent ones. National government debts and the U.S. social security system do that (but not the social security system of Singapore).
Each of these points is relevant for India.
The present Union government has systematically violated the first six points. It believes (under the influence of non-government organizations, or NGOs) that whatever is desirable is also feasible. Cheap food, abundant public employment and a generous welfare state can be created simply because one believes it can be. It does not seem to matter if the resources to do so are nowhere in sight.
His fourth point—about social safety nets—is very relevant today. Already individuals—officials, politicians and “beneficiaries”—are trying to game various social security schemes from employment guarantee to subsidized healthcare and even cheap oil (witness the rising popularity of diesel run cars).
Point number seven should certainly ring alarm bells: today’s generous spending will have costs for those who are young now. They will have to bear the burden of the party that’s been going on for the past five years.