Amit Varma, of India Uncut, has an OpEd up in the Asian WSJ chastising the National Rural Employment Gaurantee Act (NREGA) in India –

Politics is often about grand gestures, and the Congress Party’s 37-year-old new general secretary, Rahul Gandhi, understands this perfectly. Shortly after landing his position last month, Mr. Gandhi demanded that Prime Minister Manmohan Singh extend a massive cash redistribution scheme, the National Rural Employment Guarantee Act (NREGA), to all 593 districts of the country…

As wth most political gestures, the goal of NREGA is certainly well intentioned. In many ways, it’s a more energetic / invasive version of the goal pursued by “living wage” advocates in the US. While our economic interventionalists wish to push incomes higher by raising the cost to employers (invisible unemployment be damned), Indian politicians go many steps further, take the nasty employers out of the question altogether, and directly (attempt to) provide 100 days of government employment a year.

The problem, as Varma dutifully notes, is that a nasty bureaucrat can be far worse than a nasty capitalist –

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The American magazine has been running a series of profiles of the newest crop of bright, young economists. Their latest profilee is Raj Chetty, associate professor of Econ at Berkeley (although now on loan to Stanford’s Hoover Institution).

Raj Chetty

Raj began his promising econ career by proposing and investigating – at a wee age – an intriguing thesis: in some situations, the demand curve for capital might be upward sloping –

Raj Chetty, now 28, was a sophomore at Harvard University when he came up with the theory that higher interest rates sometimes lead to higher investment. It was a counterintuitive idea. Usually, companies invest less when rates rise because the higher rates increase the cost of capital. But Chetty found that some companies, in fact, invest more because they want to get revenue-generating projects off the ground sooner, rather than later, in order to pay down that costly capital more quickly.

Put another way – when money is more expensive, and the time crunch is on, firms actually accelerate investments in certain, less risky, faster time-to-revenue projects. It’s sort of a “Sorry boys, the first bank payment is due next next week, so stop planning a coast to coast franchise, and start building the first, local Bombay Palace right now….” And building costs more (in the short run) than planning…. Continue reading →