Monday, September 30, 2013

Lalu's Fodder Scam Verdict

Lalu Prasad Yadav, the comic Indian politician, was finally convicted in the long running Fodder Scam. He, and his clique, was found guilty of siphoning off millions of rupees (950 crore) from the government treasury. His specific punishments will be announced on 3rd October, 2013. He mostly will get a jail time, and lose his political seat in Assembly.

Many in mainstream media are describing this verdict as a harbinger of the end of political corruption in India. But, is it so?

First, let's discuss whether this verdict serves justice or not. Lalu Yadav was accused - and now convicted - of gobbling up millions of tax payers' rupees in this Fodder scam. Justice demands that he returns this money to its lawful owners i.e., the tax payers. Is he and other convicted politicians/bureaucrats are going to do that? Did court order them to work in the market, earn those millions of rupee and pay it back to tax payers? No. Then, how can we say that this verdict serves justice? We can't say any such thing. In fact, what will happen now is going to add insult to injury. If Lalu Yadav is sent to jail, then, his jail term will be financed by, lo and behold, the same tax payers whose money Lalu gobbled up in the first place!!! Are we really going to call this justice? Justice would've been served if the court ordered Lalu and his clique to, for example, work in tax payers' homes - they can do laundry, clean toilet or do mopping and dusting - to repay their money! This way Lalu and his thug buddies will spend whole of their lives working in tax payers' home repaying their debt. This will be real retribution. This punishment will truly give justice to the victim tax payers whose money Lalu and his gang looted.

Second, is this verdict really going to stop political corruption? Not really. There are many such corruption incidents in India which simply go unpunished. Even in this case, Lalu will be out of jail in couple of years, and he surely will run again for ministership once out of jail. The fundamental issue is, that as long as the State apparatus, with its bureaucracies and ministries, is in place, political corruption cannot end. As long as these thugs have a chance of stealing public money, they will steal it without worrying too much about the consequences. As long as they have power to exploit hapless citizens, they will exploit them. Only ending the State and its bureaucracies and ministries can uproot political corruption.

Saturday, September 28, 2013

A Response to RBI Governor Raghuram Rajan's Question

Recently while appearing at Frankfurt’s Goethe University to accept the Deutsche Bank prize in financial economics, RBI's new governor Raghuram Rajan asked an important question to the monetary authorities around the world. He questioned the merit of the unconventional monetary policy of ultra low interest rates to spur economic growth. Rajan said: We should wonder whether lower and lower interest rates are in fact part of the problem, I say I don't know. He also said:
"We seem to be in a situation where we are doomed to inflate bubbles elsewhere"

"In general, central bank stimulus risks letting governments off the hook...warning against central bankers seeing themselves as the ones who can solve all economic problems"

"We need to think of the dangers of over stimulation. We need to think of the sustainability of growth created by stimulus measures"

"It (interest rate tool) is very, very blunt ... targeted fiscal policy may be better" 
Before I go onto discuss this whole matter, I must, at least, congratulate Dr. Rajan for asking this important fundamental question. Compared to Rajan, other central bankers are not even bothering to entertain this question of efficacy of their lunatic monetary policies. Notwithstanding his questioning of low interest rate policy, RBI governor remains ignorant and confused about the whole matter as reflected in his short answer: I say I don't know! His ignorance and confusion coupled with fault lines in his economic reasoning are dangerous for the health of the Indian economy. If he is not sure about the role of monetary policy in spurring economic growth, then, he should immediately resign from his governor's post. To design monetary policy in the state of ignorance is fatal; fatal not for him, but for common man who will face the full force of these wrongheaded policies.

Now, Dr. Rajan doesn't know the answer of his question, that whether low interest rate policy is a solution or in fact part of the problem, but the answer of his question is very much available. He only needs to look at that answer, understand it and put it in practice. The Austrian School of Economics has the answer of Dr. Rajan's question. Dr. Rajan is hailed by the mainstream media as someone who predicted the on-going financial crisis, but Austrian Economists were, before Dr. Rajan, warning about the impending financial and economic crisis of 2007, and for right reasons. (see here for evidences). The Austrian Business Cycle theory (ABCT) provides the answer of Dr. Rajan's question. And the answer is, not only the low interest rate policy is part of the problem, but it is THE root cause of all the economic problems being faced by the Indian and world economy at present. I discuss ABCT in very brief below. For a detailed analysis please refer to, (Hayek, 1967; Mises, 2009; Rothbard, 2000; Soto, 2006).

First, we have to understand that the market rate of interest is not just one monetary variable which RBI governor can arbitrarily determine at his own whims. Interest rate is one of the most important price phenomena. It is a price of time. It is determined by the societal time preference - the ratio of consumption to saving - at a given point of time. It guides entrepreneurs in determining whether they should allocate more resources in producing present consumption goods i.e., consumer goods sector or in future consumption goods i.e., in capital goods sector (for more see, Herbener, 2011). The money interest rate is determined by the market forces of demand for loanable funds and supply of those funds. This demand and supply in turn are determined by consumption and saving preferences - satisfaction in present or future - of societal members i.e., societal time preference rate. Any interference by the monetary authority, i.e., the central bank, in this market process will create distortions in the consumption and production goods industries e.g., if the central bankers keep the market interest rate lower - by creating artificial credit via money printing - than its natural level as determined by societal time preference rate, then, it will generate a boom mostly in the capital goods industry. This boom will be unsustainable because it is not backed by genuine real savings. It is a product of central bank's cheap phony credit. As the boom progresses, it generates price inflation. Because consumer goods production is taking place slowly due to more resource allocation in the capital goods industry, increased income and demand for consumer goods by workers will lift prices. This price inflation will accelerate as the central bank pumps more money to keep the artificial boom going. When the price inflation goes out of hand and becomes unbearable for people and government, central bankers will have to stop their money spigot. Central bank will start raising the money interest rates to arrest the rising prices, and the moment they will start raising interest rates, it will bust the prior artificial boom; economy enters recession. Recession starts to liquidate prior malinvestments. As it liquidates the malinvestments, formerly employed people in the capital goods industry will lose their jobs temporarily when the economy is adjusting. We have to understand, that recession is the cure of prior artificial boom, and not a problem as mainstream economists tell us. If there is no further intervention by the monetary authorities, then, recession will end soon and the economy will resume its normal path of progress again.

So, as we have seen above, low interest rate policy is the root cause which generates inflation, boom-bust cycles, unemployment etc. Dr. Rajan's skepticism about the low interest rate policy is certainly valid. But only skepticism is not enough. Dr. Rajan must digest the teachings of the Austrian School and act accordingly. His diagnosis of the bubble activities is right, but he must see the root cause of those bubble activities in RBI, the institution which he is heading right now!

His assertion that fiscal policy, may be, can better spur economic growth is also wrong. Neither monetary policy nor fiscal policy can spur economic growth. Economic growth comes from real savings and investment neither of which can be stimulated by monetary or fiscal policy. In fact, both monetary and fiscal policy adversely affect savings and investment. Both of them lower economic growth! Only real free market capitalist system can ensure economic progress. Any interference with free market will create troubles.

In the end I will request Dr. Rajan to leave the free market alone and stop his monetary policy juggling with the interest rate. Dismantle RBI, Dr. Rajan, and then you resign. And if you can't do that, then, at least don't lower the interest rates further. And please don't print even one paisa of new currency as long as you are the governor.     

Wednesday, September 25, 2013

The Indian State is Literally a Gang of Criminals

Mr. Libertarian, Murray Rothbard, described the true nature of the State - aka government - in his monumental work The Ethics of Liberty in this way: "The State is nothing more nor less than a bandit gang writ large". St. Augustine of Hippo, before Rothbard, said similar things about the State officials in his The City of God: “What are kingdoms without justice? They're just gangs of bandits". Famous abolitionist Henry Clarke Wright wrote this:
States and nations are to be regarded as we regard combinations of men to pick pockets, to steal sheep, to rob on the road, to steal men, to range over seas as pirates - only on a larger and more imposing scale. When men steal, rob and murder as states and nations, it gives respectability to crime - the enormity of their crimes is lost sight of, amid the imposing number that commit them, and amid the glitter and pomp of equipage. (taken from, Carl Watner, The Criminal Metaphor in the Libertarian Tradition, JLS, Vol. V, No. 3 (Summer 1981).
Lysander Spooner, the famous Individual Anarchist constitutional lawyer, said it more clearly:
All the great governments of the world - those now existing as well as those that have passed away - have been of this character. They have been mere bands of robbers, who have associated for purpose of plunder, conquest, and the enslavement of their own fellow men. And their laws, as they have called them, have only been such agreements as they have found it necessary to enter into, in order to maintain their organizations, and act together in plundering and enslaving others, and in securing to each his agreed share of the spoils.

All these laws have had no more real obligation than have the agreements which brigands, bandits, and pirates find it necessary to enter into with each other, for the more successful accomplishment of their crimes, and the more peaceable division of their spoils. (op. cit). 
All these, and especially the last quote of Spooner, perfectly describe the nature of the Indian government who recently cleared an ordinance to protect convicted MPs and MLAs from immediate disqualification — a move that seeks to nullify an order by the Supreme Court.  Only a criminal government will create a law to protect convicted MPs and MLAs! Instead of protecting the life, liberty and property of its citizens, the Indian government is busy protecting its own criminal gang members! This is not at all surprising.

Few months back, the Indian supreme court ruled that MPs and MLAs will be immediately disqualified if they are convicted in a criminal case by a trial court. The court struck down Section 8 (4) of the Representation of the People Act, 1951, which protects convicted MPs and MLAs from disqualification if they appeal before a higher court within three months. The Indian government overturned this verdict yesterday by clearing The Representation of the People (Amendment and Validation) Ordinance, 2013.

Presently there are total 30% of all politicians in state and central assemblies have criminal charges against them! In the Lok Sabha, 162 of 542 MPs, and in state assemblies 1258 of 4032 politicians have pending criminal cases against them. This means, the Indian government is, as always, made of literal criminals.

Notwithstanding the recent political gimmicks of BJP to distance itself from this ordinance, this ordinance was supported by all the political parties of India when the present government proposed the amendments (see here, here). This should remove all the doubts from peoples' mind that there is any difference between Congress or BJP or any other political party. They all are bunch of robbers and murderers. The State is a gang of criminals writ large. And this is literally true in India where the thug government is busy protecting its gang members so that they can easily participate in the public loot.

As I am saying since long, the only way in which we can save this country and our humanity is by banishing these criminals and their legal exploitation system, the State, once and for all. Delegitimization of the State is what is only going to make our future better. Understanding the true criminal nature of the State and then withdrawing our consent from that criminal state is only going to make our lives better.

UPDATE: I wrote this post in September 2013, and today on 20th November 2013, the kangaroo court of the Indian state - i.e., the supreme court - has declared that jailed politicians can contest elections (see here) because the parliament already amended the law itself! No surprise. The state IS a gang of criminals writ large.

Monday, September 23, 2013

Confused RBI Governor, Raghuram Rajan

The new RBI governor, Raghuram Rajan, came with lot of fan fare in his new position as a central banker of this country. People, especially the industry,  had huge hopes from him that he will lower the interest rate and help revive the sagging economy, but he disappointed them by announcing an increase in the repo rate by 25 bps. After his policy announcement many media people are hailing him as an independent central banker who is not getting under the pressure of Indian government. But, is it true? Also, during the session with news reporters, after his policy announcement, Rajan said that his RBI is an "anti-inflation" institution! But, is this also true?

First, the idea of an independent central bank is a joke. The Indian central bank RBI was nationalized in 1949 itself. This quote from the RBI's website will help dispel the myth of autonomous Indian central bank: Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India (see here). RBI is fully owned by the Indian government! How in a world then Raguram Rajan can set monetary policy independently without heeding the needs of his governmental masters? He has increased the repo rate to allegedly fight inflation because inflation is getting out of hand, and the UPA government surely wants to bring it down because they want to capture the huge poor people vote bank. They can afford to anger the wealthy Industry people for a while, but can't afford to alienate their poor people vote bank.

Second, Rajan is flat out wrong when he says, that RBI is, of course, anti-inflation. The irony is, that RBI itself is the sole cause of inflation in the first place. Rajan's confused statements are due to his confused understanding of inflation phenomenon itself. For the mainstream economists like Rajan, inflation is the rise in the general price level, but this definition is wrong because it only focuses on one of the consequences of inflation i.e., rising prices, while neglecting its root cause i.e., increase in the supply of money and credit out of thin air. Whenever RBI prints and creates rupees out of thin air, it creates inflation. It is the root cause of inflation. So to say that it is anti-inflation is a contradiction in terms. If Rajan really wants to stop inflation, then, he should immediately stop creating money out of thin air. Is he doing that? No. Even in his first policy announcement, while waging a war on inflation, he created more inflation by simultaneously lowering the daily CRR to 95% from previous 99%, and lowering the MSF (Marginal Standing Facility) rate by 75 bps to 9.50%. This measures will inject more money in the market, which is nothing but inflation.

What Rajan was doing was running a PR campaign for the government. He is giving lip service to inflation battle, while simultaneously trying (falsely) to look after economic growth by injecting more money in the market. Such balancing act will never work because one guy can not know what the true market rate of interest should be! Trying to play God with the market will always fail. Pinning your hope on one guy will always disappoint whether that guy is Raghuram Rajan in economics or Narendra Modi in politics.

As long as RBI exists, inflation will continue unabated. As long as the State exists, it will continue to exploit us.    

Saturday, September 14, 2013

On Nirbhaya - Delhi Gang Rape - Verdict

Last week the Delhi court delivered its verdict on the famous 'Delhi gang rape' case, which is also known as the Nirbhaya case. This verdict and the statement of judge as well as the sentiment of Indian crowd show how botched and wrong headed the Indian State judiciary system is. Delivering justice, judge Yogesh Khanna said, This has shocked the collective conscience of society...These are the times when gruesome crimes against women have become rampant, and courts cannot turn a blind eye to the need to send a strong deterrent message to the perpetrators of such crimes...This crime in every way falls within the rarest of rare category warranting a death sentence...The increasing trend of crimes against women can be arrested only once the society realise that there will be no tolerance (of) any form of deviance against women (emphasize mine). 

Not only this, after the announcement of the verdict, the news items report that, Cheers went up from a crowd inside and outside the Delhi courthouse when lawyers rushed out to announce the sentence.

What's wrong with this verdict? What is wrong are several things. Let's see them one by one.

First, this verdict is right because those rapists deserved death penalty, but the problem is that it is not based on any sound legal theory as Judge Khanna's statement reveals above. The judiciary system's function is to produce justice for the victims and nothing else. But here it is seen that instead of, primarily, producing justice for the victims, the judge and the judiciary system is more interested in deterring the crime! Crime deterrence can not be a prime objective of any judiciary system. At the most, it can be a by product of the justice system. Justice in this case required that those rapists' life be taken away from them - i.e., death penalty - because they took away that girl's life. They violated private property rights - and property rights are human rights - of that girl by attacking her body and killing her, and justice demanded that they be punished for this violent crime. The legal principle of lex talionis is the guide here (but also see this brilliant article of Murray Rothbard on Libertarian punishment theory, Punishment and Proportionality). Whether this punishment is going to deter other people from committing this crime in future is not a botheration of the judiciary system. Those people who are favoring a death penalty (see here) to deter crime are all wrong. 

Second, the verdict statement clearly shows that judge Khanna, and with him the Indian State judiciary system, is more interested in appeasing the crowd i.e., the so-called collective conscience of the Indian society to which he frequently refers. This again is wrong. As I said above, judiciary system's job is to produce justice only. What the crowd is thinking about any case can never drive judge's verdict. The whole concept of "collective conscience of the society" is erroneous to begin with. There is no existence of any such collective conscience. Sound legal theory shows, that the case can only be between the victim and the alleged criminal. The non-existent societal conscience can never be a consideration in delivering justice to the victim. Appeasing crowd is a dangerous phenomenon. 

Lastly, judge Khanna also said, that he is giving capital punishment because this is one rarest of rare case of brutality! And this legal tradition  of "R-R Test" is begun by the Indian Supreme Court itself! So, according to this logic, a rape and murder which is not brutal is different from a rape and murder which is! If someone rapes and murders a girl coolly and calmly than his rape and murder is different than those Delhi gang rapists' rape and murder!? There cannot be any more twisted logic than this so-called "R-R Test" of Indian supreme court. No matter what, a rape and murder is a rape and a murder. There cannot be any exceptions in the legal principles. If a punishment for a rape and murder is a death penalty, then, all other rapists and murderers must also be hanged till death. Such exceptions are all arbitrary, and law can not be arbitrary. We can not leave justice at the mercy of arbitrary decisions of lawyers, judges, crowd or the State officials. 

This whole incident reveals that the State judiciary system has no sense of justice. Judges are unaware of their prime function. Their decisions are all arbitrary, and so dangerous. The State judiciary system can not produce justice because the judiciary officials are not interested in it. This system is used by the State officials - politicians, bureaucrats etc., - mainly to protect their own lives, liberty and property! The idea of independent judiciary as a check on governmental powers is a joke because the judiciary system itself is part of the State apparatus. 

In Nirbhaya case also, the final execution of this verdict is still in far future. Those rapists' lawyers will now appeal this case in upper levels of courts. Finally president will come into picture, and only after that we will come to know whether the deceased girl is going to get any justice or not. Nirbhaya might get an indirect justice, but other similar victims of rape and murder in this country will never get it because their case was, is or will not be a rarest of rare case!!!   

Sunday, September 8, 2013

Can Food Security Bill Remove Hunger?

Both houses of Indian government - Lok Sabha and Rajya Sabha - passed the Food Security Bill last week. It will become law after the President signs it. Incumbent UPA government is hailing it as a 'game changer' program which is going to remove hunger in India [sic]. This program covers 67% of India's population (75% rural and 50% urban). It is going to provide 5 kg rice, wheat and coarse grain per person per month at the price of Rs. 3, 2 and 1 respectively. This bill is going to cost 1.24 lakh crore to the poor tax payers. Opposition parties like BJP were opposing this bill, but they also didn't vote against it! The real question people, especially the tax payers, should be asking is, can this bill really remove hunger? In my latest economic report I answer this question. In brief, if it was that easy to remove hunger by passing such legislation bills, then, our world would've removed hunger ages ago!