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The article titled "The adverse effects of free electricity" published by the French newspaper Le Monde, highlights yet another massive mis-allocation of resources, to be thanked to the usual suspect: the government.

Summary: up to the 70's India was not self-sufficient in terms of farm products. During the 70's local governments subventioned electricity in the name of development (i.e. political gains). Effect? Most farmers bought electric water pumps to extract underground water to water large extensions of farmland which resulted in Indian self-sufficiency in agricultural products. Cost? Massive soil degradation, irreversible depletion of water, metering hitting hard poorest farmers and favoring richest, massive increased in suicide rate.

In other words, the government stole (i.e. taxed) money from citizens and used this money to indiscriminately provide a free or almost free resource to people. This generated a domino effect whereby agricultural practices that were not financially viable were suddenly possible. This brought as a consequence a self-sufficiency in terms of agricultural needs, although not a sustainable one. The price that was paid and continue to be paid for this practice was the massive and irreversible degradation of farmland, irreversible depletion of ground water, Hood Robin effect shifting wealth to the richer farm owners, massive increase in suicide rate and large crop inefficiency (in terms of watering techniques as well as crop types).

Let's analyze this. Before the 70's India had to import a percentage of the agricultural products it needed. After the 70's these products were produced locally but at the cost of a practice that is not sustainable. And so, Indian people have gotten accustomed to products and prices that won't be available in 20 years, while at the same time all the farmland that was used will be spent for the foreseeable future (including the impossibility of irrigation).

In summary: bread today, die tomorrow.

But why did this happen? Politicians.

Did India absolutely had to become self-sufficient in agricultural products? No. They could continue to import the deficit as before. But of course, this is not politically correct nor politically expedient for vote buying. And so politicians made a gigantic mistake… as usual.

Now they are stuck. If they implement programs to ration electricity (and hence water), they will become widely unpopular; on the other hand, if they continue to allow for this practice, a lot of people will be dead in the near future.

To make matters worse, what is the sound advice from the experts at the "French Development Agency"? The "state must play a more important role".

Right!

So the very same incompetents that created this massive problem in the first place must now be part of the solution. Got it. If at first you don't succeed, involve more government and try again. Repeat…and repeat…and repeat… and… you get the idea.

How crazy is this?

No company in their right mind would invest large amounts of money in a farming operation knowing full well that they will deplete the water and soil in 20 years and lose all their investment. This is only possible if the government provides "free" electricity and hence suddenly makes investment in farming financially viable where it would not be otherwise. Furthermore, the presence of the government guarantees that somehow water will keep flowing regardless of its real cost since it will be subsidized by the government for political reasons.

Yet, this is exactly what politicians do and the exact consequences of their doing.

THE SOLUTION

As usual, the solution does not come from governments but from private sectors. In a world where governmental barriers do not exist, capitals naturally flow where conditions are more favorable. There is no artificial push to achieve artificial self-sufficiency. If a region of the world if extremely favorable for agriculture, there is where capitals would concentrate. This concentration will enable economies of scale which will produce massive amounts of agricultural products at the lowest possible price. These products would then be shipped throughout the world hence benefiting everybody.

When local conditions are not so favorable, agriculture would either be limited in quantity or to produce that is better suited for those conditions.

Both outcomes guarantee lowest prices. Both outcomes are self-sustainable economically and ecologically speaking. Both outcomes are balanced.

Furthermore, necessity is the mother of invention. Eventually, somebody would figure out what to do with those lands. Perhaps new GE crops or perhaps something completely different such as solar energy farms. Who knows. What we do know is that in a free market economy there are always people looking to put existing resources to work. These new uses will in turn generate profits that can be used to purchase agricultural products. In this manner, each geographic area is being utilized to its maximum considering their suitability. There is no mis-allocation of resources.

In addition, as people are free to move wherever they want, they are not trapped in a geographic location with high agricultural prices and insufficient quantities.

To this, we need to add that although transportation costs are rising because of the irreversible depletion of fossil fuels, this will only add to the necessity to find new energy sources. And again, necessity is the mother of solutions. And for those skeptical about new energy sources, you should know that it is extremely likely that they had already been invented, but they were silenced. No, this is not a theory, it is a fact. Google "Invention Secrecy Act" to get a long list of bad news, including some of the patents in the energy generation area that were silenced by… you guessed it… the usual suspect: the US government.

Lastly, for those of you who remain unconvinced and look at the generalized poverty reigning in India, it must be pointed out that in a free market two things happen:

  1. Standards of living rise all the time
  2. Wages tend to equalize throughout the world

So, no. The chances that in a free market poverty in India would continue is very small indeed.

And then again, it is the presence of governments that create these kinds of problems. Remove the governments and the solution arises by itself.

CONCLUSION

Water wars in India had only begun. As more incompetent governmental measures are being taken and political considerations override business and economic sense, people will continue to pay for the consequences. But then again, this is nothing more than Standard Operating Procedure for governments. Nothing new to see here…keep moving…keep moving… or not. Your choice.

Note: please see the Glossary if you are unfamiliar with certain words.

 

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