My heartfelt commiseration to the unfortunate soul who complimented Dilip D’Souza on his “sound economic training”. It has been said in the Mahabharata that a lie that achieves a good purpose will save you from hell. But this false compliment not only did not do any good to society, it has also not made the recipient happy. The unfortunate soul has now been blamed for not keeping track of and complimenting Dilip for every instance in which he allegedly displayed his sound economic training.
Incidentally, if you wish to know the right answer to the problem in Dilip’s post, here it is:
Yes, Dilip is right that it is wrong to use interest rates in the case. If the government had taken away your land in 1962 and delayed paying your compensation till 1992, then the government would owe you not only the value of the land in 1962 adjusted for inflation, but also what you would have made off your land over the 30-year period. This value can be approximated by applying compound interest on the compensation they would have paid in 1962 – though to be really fair, a court would have imposed penal interest, not the interest you would have received on government bonds.
But that is not what happened. The question is whether the 200 bucks paid in 1962 is equivalent to the 7000 paid in 1992. Using the inflation figure is correct, but you shouldn’t use the general inflation figure. You should look at the inflation in the value of land in that area. I don’t know the value of land in 1962 or in 1992, but I can make a guess that in an area that is undergoing development, land prices will increase quite rapidly. So, it is entirely possible for the “fair value” of the compensation to increase so much over 30 years.
At this point we run into competing ideas of fairness. If the folks being evicted in 1992 were holdouts, then they are, in effect, being rewarded for not cooperating with the government for the “general good”. Perhaps we shouldn’t do that – though Dilip does think that those who encroached on land in Mumbai and refused to vacate should be rewarded for their intransigence.
Anyway, I am not interested in arguing one side of the case or the other. I am a libertarian, which means that I believe that folks shouldn’t be evicted from land they legally own, regardless of how much the government is willing to pay as compensation, but no one will listen to me. The point is to argue that you can use economics to clarify your thinking when you use it properly. If your point is to use the jargon to bolster your premeditated conclusion, you are free to do so, just as you are free to fish for compliments about your sound economic training.