Sunday. Lazy afternoon. And ethanol.
Perfect conditions for armchair philosophy. Free from the daily grind, our mind wanders into the realm of inquiry. Today was one such day for a good friend of mine. Prodded by a poignant short story about a little girl working as a housemaid and unable to attend school, he was forced to think of the widely discussed idea of income inequality.
The thought that struck him was rather an obvious, and old, one. It was that the relative importance of money is different for the rich and the poor. A hundred rupee note has an entirely different value for a poor man than for a rich. The only source of food vs. a bottle of beer.
It is a fact that the poor spend a large share, sometimes almost all, of their daily income on essentials like food and shelter. The same is not true for the rich, who spend a very small fraction of their income on essentials. Their spending habits primarily include discretionary spending towards non-essentials.
It is also a fact that close to 200 million Indians live under the world bank poverty line – $1.25 a day. That’s about 15% of the country’s population living with less than 100 rupees a day. This should tell you the importance of that 100 rupee note.
Once you hop on this train of thought, it leads you to question the ways you spend your money. It’s only normal for anyone with a conscience to do so. Only a completely immoral person would reject something so conspicuous. Furthermore, India just doesn’t let you forget this fact. Poverty in India is not something you can ignore. It stares you right in the face. Every single day.
Anyway, there are scores of excellent books written on income inequality – on its origins, its effects, and the ideas to reduce it. Thomas Piketty’s Capital in Twenty-First Century is the latest in the series of seminal works on inequality. Amartya Sen’s The Idea of Justice is a good and comprehensive introduction. The reason I am listing these books and authors is to say that there is little to be added to the discussion, at least by the likes of me.
But, there is something I wish to talk about in this post. Something that struck me as odd in an otherwise perfectly justified line of inquiry by my friend. I found the tone of his questions rather peculiar. It was as if he felt somewhat guilty of spending money on ‘frivolous’ things. Things like an expensive meal or an electronic gadget or a holiday trip. All his questions were along these lines – wouldn’t it be better to give the money to a poor than to spend it on unnecessary things? Is it immoral to spend the money on such things? When there are many people dying of hunger how can we spend money for an expensive meal?
There is guilt written all over those questions. Isn’t it?
I find it peculiar that this feeling of guilt somehow always creeps in every discussion about inequality. Kind of a bummer, right? Guilt and self-doubt are not the most conducive of feelings when trying to objectively analyze an issue. And, on the issue of inequality, I believe, they are also highly unwarranted. Frankly, I don’t see any point in feeling guilty while spending your hard-earned money on things that make you happy. Even on the so-called non-essential things.
Don’t get me wrong. I am all for philanthropy. I think very highly of people like Azim Premji and Bill Gates. Good guys, they are. More people should follow their lead and donate their vast wealth for the public good. cc: Mukesh Ambani.
But I also think that it’s important to differentiate between indulgence and extravagance. Indulgence is good. Extravagance is bad. Simple. Now, I get that these terms are kind of subjective and would vary person to person. But even then, I think that it is not very hard to differentiate between the two. For instance, Antilia is an extravagance. You can’t define it as an indulgence, no matter how hard you try. Human beings, at least the rational ones, should be able to differentiate between the two. And it is my proposition that once you make this distinction, it is perfectly alright to indulge in things that allow you to maintain a certain standard of living.
To support this, let me give you three good reasons.
One, rich don’t get rich at the expense of poor. Well, not always. This rich vs. poor is an old communist construct. And a rather bad one, I must say. It would have been a justified construct if the amount of money in an economy was limited. For a limited resource, you will always have two or more groups pitched against each other. But money in an economy is not a limited resource. It increases with increased economic activity- the reason you need central banks to print more money. The economy is not a zero-sum game. There can be multiple winners. Everybody can win. We are not playing ‘against’ each other. So, if you in any way feel that you are earning money at the expense of others, just let that depressing feeling go.
Two, it’s not your job to ensure that everybody is happy and well fed. You might choose to do so, but in no way is it an obligation. It’s the job of the state to ensure the well-being of citizens. Your responsibility is to follow the rules of the system which allow the state to function efficiently. Pay your taxes. Don’t pay bribes. Follow the traffic rules. And so on and so forth. You get a general idea. All you need to do to fulfill your ‘moral’ responsibility is to abide by these rules. Don’t cheat on them. If you cheat the system then you make it harder for the state to do its job. Your act of cheating directly affects someone else’s life. For instance, you not paying your taxes leads to some poor being short-changed on his state-support. If you follow the rules, you don’t owe anything to anyone.
And lastly, spending money in a market, even on frivolous things, is, economically speaking, good for the poor. For all we know, the market is still the most efficient way to redistribute wealth. Much more efficient than the state. An efficient market would redirect your discretionary spending on ‘non-essential’ goods towards the poor. Moreover, a well-functioning and growing market create opportunities for the poor (and rich as well). In the long run, these opportunities created by the market would do much more good for a poor than you giving money directly to a beggar. Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime. Clichéd. But true.
I agree that there are cases where this is simply not true. Undoubtedly, there are many people who are very far removed from the dynamics of the market that no amount of GDP growth will help them. But barring such cases, the market opportunities, in general, are the best bet for the poor to get out the poverty trap. The distribution of money through the market is perhaps the most sustainable way to counter global poverty.
And with that, I shall conclude. I hope this post convinced you to not feel guilty while spending your money on things that make you happy. Remember, your ‘wants’ are as important as your ‘needs’. Any psychologist will tell you the same. So, Indulge away! Go buy that PS4 now. Go, make that trip to Iceland.
PS: If interested, I highly recommend Abhijit Banerjee and Esther Duflo’s Poor Economics. You won’t find a more accessible book on poverty economics.