Monday, July 28, 2014

Are Speculative Hoarders Responsible for Inflation?

The price of various vegetables, fruits, grains etc., is rising fast in India e.g., the price of tomato has gone up from around 20 Rs/kg to 100 Rs/kg! New Narendra Modi government, who promised to battle inflation during his election campaign, is blaming speculative hoarders for this price rise (see this and this). This same lame excuse was also given by the former UPA government finance minister P Chidambaram (see here). So, is there any grain of truth in what UPA and NDA finance ministers are alleging? Are speculative hoarders responsible for inflation (defined as a rise in the general price level)? I answer this question in my following economic analysis. In short, the government's fiscal policies and central bank RBI's monetary policy are responsible for inflation, but the politicians, whether that be Narendra Modi or Manmohan Singh, will never put the blame on themselves! As always, they will blame people - like speculators and hoarders - for their own follies.

For a more detailed analysis of speculators and hoarders I would advise everyone to read Walter Block's fantastic book, Defending the Undefendable.