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IN A FREE FALL
What the article is about?
- Talks about the economics and politics of freebies and concerns associated.
Syllabus: GS-II Government schemes and policies
Culture of Freebies:
- There is a need to distinguish between the concept of merit goods and public goods on which expenditure outlays have overall benefits.
- Examples of this are the strengthening and deepening of the public distribution system, employment guarantee schemes, support to education and enhanced outlays for health, particularly during the pandemic.
- All over the world, these are considered to be desirable expenditures.
- Therefore, it’s not about how cheap the freebies are but how expensive they are for the economy, life quality and social cohesion in the long run.
Need to dread the culture of competitive freebie politics:
- First, freebies undercut the basic framework of macroeconomic stability.
- The politics of freebies distorts expenditure priorities. Outlays are being concentrated on subsidies of one kind or the other.
- Second is the issue of the distortion of expenditure priority.
- Take, for instance, the change to the new contributory pension scheme from the old scheme, which had a fixed return.
- Third, the issue of intergenerational equity leads to greater social inequalities because of expenditure priorities being distorted away from growth-enhancing items.
- Fourth, movement away from the environment.
- When we talk of freebies, it is in the context of providing, for example, free power, or a certain quantum of free power, water and other kinds of consumption goods.
- This distracts outlays from environmental and sustainable growth, renewable energy and more efficient public transport systems.
- Fifth, the distortion of agricultural priorities.
- This affects agricultural practices which do not depend on extensive use of water and fertilisers.
- The depleting supply of groundwater is an important issue to consider when speaking of freebies pertaining to free consumption goods and resources.
- Sixth, its debilitating effect on the future of manufacturing.
- Freebies lower the quality and competitiveness of the manufacturing sector by detracting from efficient and competitive infrastructure enabling high-factor efficiencies in the manufacturing sector.
- Seventh, this raises the question of whether the time has come to consider recourse mechanisms like subnational bankruptcy.
- Freebies bring into question market differentiation between profligate and non-profligate states and whether we can have a recourse mechanism for subnational bankruptcy.
Conclusion
- In this case, it has been promptly found out that both the economics and politics of freebies are deeply flawed.
- It is a race to the bottom. Indeed, it is not the road to efficiency or prosperity, but a quick passport to fiscal disaster.
