Monday, April 25, 2011

Broken Promises: How RBI and Indian Central Government is Cheating Upon its Citizens

Indian central bank RBI (Reserve Bank of India) and the Indian Central Government is cheating upon its citizens by breaking their promises. What promises the RBI and Indian government have made to their citizens which they are breaking? To get the answer of this question we need to analyze the currency note printed by RBI and guaranteed by the Central government. Below is a scanned picture of 100 rupee note. The orange circle contains the text of the promise made by the RBI governor to the bearer of that note. The text reads: I promise to pay the bearer the sum of one hundred rupees. Below the text there is a signature of RBI governor D. Subbarao.

100 Rupee note printed by RBI and backed by Indian Central Government
The yellow circle contains the text of the government backing of this note. It reads: Guaranteed by the Central Government. As is evident in the RBI currency note, RBI and the government have made a promise to pay the said sum (in this case 100 rupees) to the bearer. Now the question is, have they kept their promise or they have broken their promise? The evidence which I will present now will prove that they have broke their promises and thus have cheated their citizens.

The Broken Promises 
How did they break their promises? They broke the promises by paying less than the printed promised amount on the note to the citizens. RBI and Central government are paying less to their citizens by reducing the purchasing power of their rupee note. This they do through Inflation. Let me give you a concrete example to drive home the point. Let us take the case of currency note on one side and commodity 'onion' on other side. Table 1 below presents the 10 year price of 100 kg onion in the Vadodara market.  As you can see, in 2001 it took 375 rupees to buy 100 kg of Onion. While it took 2,250 rupees to buy that same 100 kg onion in 2010. What has happened during this 10 years? Have onion became more dearer? No. RBI currency notes have become more cheaper. It takes more notes now to buy the same weight of onion i.e., 100 kg. Because I am using an example of 100 rupee note so let me convert this prices on 100 rupee scale. Suppose in 2001 the price of 100 kg onion was 100 rupees i.e., it took 100 rupee to buy 100 kg of onion. But in 2010 to buy that same 100 kg onion you will require to pay 600 rupees. That means, in 2001 one 100 rupee note was buying 100 kg onion, but in 2010 it requires six 100 rupee notes to buy that same 100 kg onion! That means RBI's 100 rupee note has lost 83% of its purchasing power in 10 years time. 100 rupee note is worth only 17 rupees in 2010. RBI is promising that they are giving us 100 rupee but actually they are giving us only 17 rupees!!!  Now that is one big broken promise.
Table 1: Onion Price


RBI broke its promise and central government is not guaranteeing anything to see that RBI keeps it promise to pay its citizen the printed amount of money. So they are also cheating upon Indian citizens. Actually it is a partnership between the government and banks to rip its citizens off of their hard earned money through inflation.  

Every citizen of India should punish the RBI and Indian government for this heinous crime of diluting the purchasing power of peoples' income. By reducing the real income of its citizens they are lowering the standard of living of its hard working citizens; they are making most of its citizens poor and helpless. They are killing many poor people who are living on the margin. Banksters and Indian government are murderers of its own people. This is their crime against the humanity and they should not go without punishment for this cruel crime.

Instead of wasting their time in movements like Lokpal bill, Indians need to bring RBI and Government in the people's court for their crime of inflation. Citizens need to vote against the State (i.e., against all political parties because they all are same) to dismantle it while simultaneously dismantling the RBI. History tells us that no government and banks have kept their promises. Giving all the powers in the hand of government (printing money through RBI) and banks (money deposits) and then expecting that they will not abuse that power is naivety. We need to take that power back in our hand by removing the State and saving and investing our money in hard assets like gold, silver, home, land, consumer durable goods, our and our family's lives etc. Unless and until Indians do this they are going to be ripped off by their government and banks.   

Monday, April 11, 2011

On Anna Hazare and his Jan Lokpal Bill

Since last time when I wrote my blog on India's political corruption, there has begun a huge new anti-corruption movement under the leadership of Gandhian Socialist Anna Hazare. Since many of my students asked me about my opinion on this issue, here I am presenting my thoughts on this whole Anna Hazare movement and its Jan Lokpal Bill.
  1. As I said in my blog on how to kill corruption, without removing the system of State with its politicians/bureaucRats it is impossible to remove the corruption from this or any other country. If people think that by introducing the Lokpal bill they are going to see the back of corruption monster then they all are day dreaming. Such naive thinking is a result of years of pro-State brainwashing in State controlled schools. 
  2. I also wonder how many people have actually read the Jan Lokpal Bill before joining Anna Hazare and his movement. If they have not then I strongly advise them to do that first. The bill is suppose to give immense powers to the anti-corruption bureau of Lokpal. Now one is only reminded of Lord Acton's warning that, 'all power tends to corrupt and absolute power corrupts absolutely'. When such great powers are delegated to one person (or a group of persons) then it is sooner or later going to be abused. In near future, Indian people will be seen complaining about the corruption of anti-corruption Lokpal officers!!!
  3. This bill will also create one more bureaucracy - The Lokpal office. This means additional burden on the tax payers to fund the salaries of these useless parasitic bureaucRats. 
  4. I strongly think that, in the revised Lokpal bill, clause 31 will be seriously abused by the authorities. This clause is about 'penalty for false complaint'. I quote the clause, "Notwithstanding anything contained in this Act, if someone makes any false or frivolous complaint under this Act, Lokpal may impose such fines on that complainant as it deems fit.
    Provided that no fine can be imposed without giving a reasonable opportunity of being heard.
    (2) Such fines shall be recoverable as dues under Land Revenue Act.
    (3) A complaint or allegation once made under this Act shall not be allowed to be withdrawn.
    This is a sign of danger for the ordinary citizens. I can see that in future, if this bill is passed, the authorities will severely punish few citizens using this clause to let people know that who is the master and who is the slave. After couple of such incidents no citizen will ever dare to file a complaint against any government bureaucRat or politician. People need to understand that they don't have any power in this whole game. Authorities will decide which complaint is false and which is not. Citizens are only going to get a reasonable opportunity of being heard!!! My advise to people: Think thousand times before complaining about the authorities otherwise you will face the wrath of your master government!
  5. I also worry about the youth of this country because they are so gullible and easily misguided by the politician's rhetoric. State schooling has wonderfully done its job of brainwashing the future generation of this country.
  6. This bill also aims at making the Indian government financially strong by boosting government revenue through the recovery of graft money! First, I wonder why in the whole world people will want to make their murderous governments strong? By participating in this movement Indians are only stabbing their own backs. And second, what recovery of Government's revenue? It is not government's money; it is tax payer's money. If someone is really serious about removing corruption then why not REMOVE THE TAXES and the central bank RBI first! Tax is a robbery and no Anna Hazare is talking about eliminating this open day light robbery of government thugs. Why not start 'Abolish Taxation' and 'Remove the RBI' movement?
In the end I repeat what I have said many times. The root cause of corruption is the system of murderous State. So, if anyone is serious about removing corruption then they will have to remove the State. And individual citizens will have to help themselves in this whole struggle. Relying on others will sooner or later result in betrayal. People need to start ruling their own life by peacefully distancing themselves from the government. In stead of wasting time in such political gimmicks, everyone should start 'Remove the Government out of my life forever' movement!

Monday, April 4, 2011

Economic Absurdities of Joseph Stiglitz

Joseph Stiglitz, the 2001 Economics Nobel laureate professor from Columbia university recently addressed the students of University of Michigan at the 2011 Critical Issue Forum. The excerpts of his speech are available here. During the Q&A session with the students and other luncheon participants Stiglitz addressed the critical issues which USA and world is facing today. During his address Stiglitz dished out as many as possible economic absurdities. Regardless of his economic accolades of world's renowned economist, a Nobel prize winner, former world bank chief economist, chief of Clinton's economic advisory team, he demonstrated the shallow depth of his economic knowledge. Below I expose his absurd economics, which is hallmark of most of the mainstream economics, especially the Keynesian brand.

Absurdity no 1: It is well known fact that the US economy is right now bankrupt and is facing a huge budget deficit of US$ 14.2 trillion. When asked by audience about how to reverse this budget deficit Stiglitz gave a stunning answer. He said, "one of the main ways to reverse this deficit is through increase of government spending in worthwhile programs."

Analysis: Anyone who has taken the class of public finance knows that, budget deficit is a result of government spending more than their incoming tax revenues. Now, how in the world one can reverse the deficit, which is result of government spending more than their revenues, by SPENDING MORE, as Stiglitz says!!! How increasing government spending in worthwhile programs is going to decrease the deficit? And who will decide which are the worthwhile programs? Central planners? Or Stiglitz himself? Sure he will be glad to take that powerful role of savior of this world like many of his socialist predecessors.

Economic law tells us that only market process can properly allocate the scarce resources in an economy. The system of 'profit and loss' guides the entrepreneur in allocating his resources in such a way so that he can satisfy the most urgent needs of consumers. Any intervention by the central planning authority will result in mis-allocation of resources and misery for the consumers and entrepreneurs.

Only market process can determine which are the worthwhile projects. For example, if consumers will want to eat more banana compared to apple then they will demand more banana which will increase profit of banana farmers and reduce profit of apple farmers, resulting in some apple farmers reallocating their resources now in producing banana.

Increasing government expenditure to reduce the budget deficit is an absurd idea.

Government deficits can only be eliminated by eliminating government expenditure.

Absurdity no 2: Then Stiglitz, like a true Keynesian, cursed Saving. He said, "It used to be thought that saving was a virtue, but the world needs more investment, smarter investments."

Analysis: This statement of Stiglitz proves beyond doubt that he doesn't understand how an economy works. In his Keynesian world saving is not a virtue. He is only praising investment. Now one has to ask an important logical question that, from where does investment comes from? How is investment possible? And the answer is, from and through Savings!!! Investment is only possible with prior saving. Without saving investment is not possible. And saving is only possible when people work and produce resources which are over and above what they are consuming. So for saving, production is must i.e., if an economy wants to progress then that is only possible through production => saving => investment => capital accumulation => more production => more saving, and so on.

And remember, government don't produce, save and invest anything. Government officials are pure consumers of resources. They rob hard working citizens of their savings through tax and consume and spend those resources on things which can win them votes in next election. Government only transfer resources from the productive private sector of economy to the unproductive government sector.

Absurdity no 3: In the end, Stiglitz offered some (ill) advice for students of econom­ics. He said, "Our society can only function if we get away from the focus on self-interest," Stiglitz said. "I hope that in whatever job they do there's a sense of social responsibility and sustainability. The problem we're in is because too many people focused on just their own benefit and not the society impact."

Analysis: Self interest is not the problem, as Stiglitz wants us to believe. Humans are selfish at the gene level and nobody can change this human nature. What society need to do is to evolve such institutions which can use the beneficial side of this selfish nature. And societies have evolved such institution in the form of free market capitalism, the system which Stiglitz abhors. In the free market, selfish human nature result into benefits for everyone. Adam Smith through his parable of 'invisible hand' demonstrated this fact brilliantly. In the free market, individuals guided by their selfish nature brings about the very social welfare which Stiglitz wants. Suppose person A is very selfish and he wants to amass lot of wealth. In a free market capitalism this is only possible if he serves his fellow citizens first. For example, to be wealthy he can start a business of producing and selling those goods and services which many consumers are demanding. That business can be, let's say, of computers. He will first have to produce computers of highest quality at a lowest possible price. Because consumers like his product they will purchase it from him giving him their money. This way person A can make huge profit. And this profit is his lot of wealth. As is clear, before person A becomes rich he will have to serve his fellow citizens increasing their standard of living by providing their desired computers to them! Like person A, everyone else who want to follow their selfish interest will have to serve others. Capitalism turns the self interest into altruism in the form of societal welfare!

Milton Friedman and Hayek discussed this apodictic truth of market very nicely in their interviews here and here.

Contrary to free market capitalism, in the State official run centrally planned society selfish nature of human being shows its ugly head. The fundamental basis of State's survival is the robbery of its citizens' hard earned resources in the form of coercive taxation. Without taxes (visible and hidden in the form of inflation) State cannot survive. Government officials become rich without serving anyone of us common man simply by looting all of us! In a State run society businessman also become super rich by working in cahoots with the State officials, and not by serving their consumers. They don't need to serve their consumers because they get bailed out by their government buddies whenever they screw up their businesses. They use government system to create monopolies. They kill market competition with the help of government officials. People who work with government also don't need to serve their fellow citizen because their income comes from government loot in the form of taxes.

In Franz Oppenheimer's language, under the State official run centrally planned societies people who are all selfish will use the 'political means' of survival rather than the 'economic means'. They will become parasites for the society and will rob and kill hard working people.

Stiglitz needs to understand both, the two sides of selfish human nature and the system which can harness the beneficial side of this nature. If he is really worried about serving the society at large then he should be advocating the free market capitalism. But he dislikes market and advocates a large government! And this surely is an absurd idea.