Wednesday, May 29, 2013

the economics of justice

This May, i returned to India for a two week holiday. Interestingly, my responses to similar circumstances on this occasion were markedly different than they were the last time i returned from Europe. More specifically, my appreciation of economics had changed.

In 2011, i had to take an auto-rickshaw from the Metro station to a friend’s apartment, where i temporarily lived. The distance might have been about five kilometers. It was a rule for auto-rickshaw drivers not to charge by the legally prescribed fares, but charge a large premium. Having lived in Europe, where a five kilometer ride in a taxi would cost me €12, I would quickly convert ₹100 to imply a mere €1,5 and promptly agree to pay, thinking of myself as being only fair in giving liberally to those in need. Both driver and i were happy.

Despite being parched due to the immense heat, this year i found myself refusing to pay ₹50 (~€0,70) for a 1 liter of bottled water while waiting for a friend at the airport, while it bore a sticker price of ₹18 (~€0,25). This, i found puzzling, because in Europe, i would not think twice before spending €1 for a 0,50 liter water bottle, if parched.

Why was i being so inconsistent in my behaviour, not only in the space of a year, but just seven days? Did i have my reasons, or was i being irrational?

Let me use a hypothetical illustration to explain. Ganesh enjoys eating three-quarters of a loaf of bread for breakfast. His parents are affluent and have ₹10 of daily disposable income for his breakfast. On the other hand, Harpreet, Iqbal, and Rita’s parents are poor, and have only ₹1 of daily disposable income for each child’s breakfast, and these children are used to breaking fast with only 1/12th of a loaf. On finding that the optimal bread consumption for children in the age group of Ganesh, Harpreet, Iqbal and Rita, is a quarter of a loaf, the price of a loaf of bread is fixed at ₹4, so that all four children could be afforded optimal nutrition. Is it now just for Ganesh’s parents to offer to the bakery a 100% premium to acquire his desired three-quarters of the loaf for ₹6?

It may be considered a corrupt practice to pay more money – tantamount to bribery if you will – to have access to additional resources in this hypothetical illustration. However, would it be just for Ganesh’s parents to purchase his desired quantity of bread at the sticker price of ₹1 per quarter of a loaf?

Basic resources like dignified human transportation and potable water in countries like India are scarcer than the loaf of bread in the hypothetical illustration above. Must the wealthy few steal away the opportunity to lead a dignified life from the less fortunate multitudes, just because they can afford opulence? Trickle-down theorists like to argue that the poor earn greater incomes on account of greater spending by the affluent. However, it is evident that while nominal incomes (cash/bank balances) of the poor may increase, their real incomes (what income can afford) continue to dwindle, given the great scarcity of resources, and the ever increasing demands of opulence by the affluent.

It seems not enough to follow the law and tender the exact price for resources one wants, but rather limit oneself to what one needs. We may achieve a booming economy (global and/or domestic), but unless we learn to conscientiously decouple happiness and consumption, i am afraid we might not achieve a just economy.

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