Sunday, December 24, 2017

Will imposing import duties on foreign electronic products boost ‘make in India’ campaign?

Recently the government of India raised import duty on electronic items including cellphones and TVs to allegedly boost its Swadeshi campaign of Make in India as well as government revenues (sic).

Let us analyze this protectionist policy of government using sound economic laws and see if it is capable of achieving its stated goals.

Economics and Psychology of Protectionism
In the immediate aftermath of this hike in import duties the price of the imported electronic goods will go up choking some of the demand. This price rise will though not choke all of the demand. Those people whose price elasticity of demand is inelastic, e.g., a diehard iPhone fan, will continue to purchase these now costly imported goods. The price rise will reduce the purchasing power of their money e.g., if the iPhone was selling at 100 rupees before the 10% duty hike then it will now sell at 110 rupees. This means consumer will have to now spend more on iPhone leaving that much less income in his pocket to be spend on other items e.g., suppose his nominal income was 200 rupees before import duty hike and he was spending 100 rupees on an iPhone so his remaining income, which he can spend on, let’s say, other Indian manufactured items, was 100 rupees; but after the hike that income has come down to 90 rupees, which means he has 10 rupees less left to spend on other make in India items! This means the demand for make in India items, in the non-electronic market, will actually go down because of this import duty hike; and lower demand means higher unemployment. This policy will help only few sellers of electronics market while hurting consumers and sellers from all other sectors! This is zero sum outcome of this policy which is antithetical to the make in India goal.

Another problem is with the make in India products itself.  The reason why Indian consumers buy imported products is because they are not satisfied with the price and quality of the make in India products! Forcing them to buy make in India product via protectionist measure of import duty hike is not going to solve this original problem of low quality and higher price of make in India products! Here there is no incentive for the Indian manufacturers to compete in the market for customers by implementing innovations and improving quality of their products and reducing their prices to the lowest possible level. In fact, the protectionist measure erects exactly opposite incentive structure for the make in India manufacturers. Import duty hike eliminates the competition coming from the foreign manufacturers. In the absence of this pressure of competition, the Indian manufacturers will relax and not improve either quality of their product or its price. They will continue to fleece the Indian consumers by providing them low quality high price products as has always happened in past!

Not only this, this policy will indirectly result into higher smuggling and creation of another vast underground economy in the electronic market. As I explained above, the import duty hike is not addressing the problem of why Indian consumers don’t want to voluntarily buy make in India products. Import duty hike might deter some demand of imported electronic goods in the short run, but in the long run it will remain ineffective because the underlying cause of imported item’s demand will be still present. In the absence of high quality low price local electronic goods, consumers will still want to buy imported items. This continuous demand will give rise to new entrepreneurs, in vulgar language they are known as smugglers, who will now take risk of providing these contraband items to the needy customers. In this way huge underground market of smuggled imported electronic items will come into existence as it used to exist during the Nehruvian era of import substitution policies. This underground economy will also create more corrupt customs officials increasing corruption in India! And this underground economy and corruption are the two things that Modi government is supposedly trying to eliminate.  As usual, governments never learn from their past mistakes. Modi is creating the same monster that he is trying to eliminate!

The import duty hike will not boost make in India campaign. It will, in fact, reduce the demand of make in India products! Also, protectionism will give rise to an underground economy in the electronic goods market in India resulting into loss of revenue (sic) for the government.

Sunday, December 17, 2017

Supreme Court wants to Regulate the Legal Profession

Last Tuesday the supreme court of India expressing concern over growing commercialization of the legal profession with lawyers demanding “astronomical” fees from litigants, which made it difficult for the poor to access justice, the Supreme Court asked the Centre on Tuesday to bring a law to regulate the field and to prescribe “floor and ceiling of advocates’ fees”.

Let us examine supreme court’s demand of regulating the legal profession in India using sound laws of economics.

First, the concern of supreme court re commercialization of the legal profession where lawyers are demanding ‘astronomical’ fees from the litigants is quite legitimate. But after this correct diagnosis of the symptom the treatment offered by the court isn’t sound at all. In fact it is antithetical to the concerns shown by the court as we will see in a while.

To understand the issue reflected in court’s concern one needs to simply ask the question, why the lawyer’s fees are astronomical (astronomical from whose perspective is also an important question, but I will not delve into that issue here)?  The reason of astronomical fees is simple demand and supply condition prevailing in the legal market right now. The legal market (profession) of India is monopolized by the legal professionals (lawyers, judges etc.) using the method of government licensing. Anyone who wants to become a lawyer will have to acquire a law degree (LLB or LLM) and then get a license to practice law from the monopolist Bar Association. Without this license no outsider is allowed to become a lawyer and practice law. This monopoly condition means the supply of lawyers in India is highly restricted. When this low supply of lawyers meets with the high demand of law services, arising because of myriad of governmental regulations and legislation, it results into higher prices (fees) of lawyer’s services. As with any monopoly, this law monopoly also results into high legal prices (fees) and low quality of services provided by the legal profession.

Now, because the root cause of higher lawyer fees is the monopoly practice of that profession, which is legally backed by the government and supreme court itself, the only sound solution is to dismantle this monopoly by dismantling the bar association and allowing free market competition in legal profession. Market competition will ensure lower prices and higher quality (including speedy resolution of all cases with justice being done to victims) of legal services. The moment legal market will be opened for competition more lawyers will start to enter this profession because of its present higher prices (fees) and profit. This entry of lawyers will increase the supply of legal services lowering its price (fees). Market competition will ensure that only top quality honest and just lawyers remain in the market whereas all inefficient unjust lawyers will be weeded out. Gradual lowering of legal fees will make sure that the poorest of the poor Indians can also avail top quality legal services.

But, alas, instead of offering this economically and ethically sound solution of the problems of the legal profession, the supreme court is offering the exact opposite and economically and ethically unsound solution in the form of ‘price controls’. As I said above, the measure of price control will prove to be antithetical to the goals envisaged by the supreme court. When the government will put ceiling and floor on the prices (fees) of legal services it will result into scarcity of lawyers and other legal professionals in the country. Lawyers are also humans and entrepreneurs who need profit to survive and run their live. Selfishness is what drives every life on this earth. Everyone is selfish and there is nothing wrong in being selfish. If people think people like lawyers or teachers are in a noble profession and they don’t require profit then they are making a big mistake. The matter is not whether lawyers and teachers should earn profit; the matter is how much profit they should earn. The answer is: as much as their services are valued by their customers in the free market. When the government will put limit on the maximum fees that lawyers can charge from their customers, as according to the law of supply, it will result into drastic reduction in the supply of lawyers in India. This will increase the prices of legal services even higher than at what astronomical levels it is today! This will make sure that no poor person will ever be able to access legal services! Not only this, it is quite possible that this increased scarcity will start a whole new underground market for legal services in the form of local mafias who will produce their own mafia justice! When people will not be able to get justice from the official legal system, they will resort to other alternatives. Many will take law in their hands. And all these results are exactly opposite to what the supreme court is eying for.

Murray Rothbard once said, “It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”  The supreme court of India is in this state of economic ignorance, and in that state of ignorance it is better that it refrains from advising the government or anyone else on economic matters. In the zeal of doing good the busybody judges will harm (poor) people of India.

Thursday, December 7, 2017

Your Money in Bank is not Safe!

If Narendra Modi and Arun Jaitley get their way then when next time some bank will fail in India they will be legally allowed to confiscate all your hard earned saving, that you have deposited in that bank in the form of savings or term deposit accounts etc., to rescue themselves. Because doing so will be made legal by the government under the new bill that they are drafting, you will not be able to do anything about it once they do it! You will simply have to watch helplessly banks seize your lifetime savings. Modi government is drafting a new bill viz., the Financial Resolution and Deposit Insurance (FRDI) Bill, 2017 which will give these enormous powers to the banks and other financial corporations. In financial market jargon this method (sic) is known as ‘bail-in’. In just legal language this should be called embezzlement on a grand scale. After demonetization and GST this is another big scale confiscation scheme being devised by Modi and his ministers like Jaitley.

If you are thinking that such things cannot happen then think again because such bail-ins are becoming global phenomena and many have already took place in recent past e.g., most famously in Cyprus few years ago.

It seems Modi government is learning from or being advised by foreigners. This bill is just another logical step, after demonetization and digital money drive, in the direction of worldwide war on cash that governments are waging since long. Cash allows individual citizens to escape the clutches of the government. With cash economy it is very hard for the government to control its populace. With cash it is also very hard for them to do their central planning which requires tight control of everyone’s behavior, and that is the reason why governments hate cash and want to abolish it. Narendra Modi is trying to tighten his grip around our necks, and this bill is another sign of that process. And as usual, the government is calling this bill people friendly in that they are trying to protect citizens’ deposits in a better way! Remember when the government says it is coming for your help you better pack your bags and run.

The best thing in this type of environment is to diversify your portfolio and not to rely too much on banks. It is better to keep your cash saving in hard monies like Gold and Silver. Do whatever is possible to keep yourself safe from these coming shocks and prepare for the worst.

Sunday, November 19, 2017

Moody’s and Modi

US based bond credit rating agency Moody’s upgraded Indian government’s bond rating from Baa3 to Baa2. This is one level up from their lowest rating grade. They have changed their outlook of the Indian economy from positive to stable with this upgrade. Modi government ministers and its supporters are terming this upgrade as an endorsement of their policies of demonetization and GST for which they are under intense backlash and criticism of late.

One thing that I vividly remember about Moody’s is that this is the same credit rating agency which failed miserably in seeing the sub-prime credit crisis coming in 2007. Just before the sub-prime bubble busted in 2007, this agency was rating the toxic mortgage backed securities (MBS) with their highest rating level of AAA! After the crisis this rating came down to their lowest level of junk!

Does this upgrade matter so much?
The fundamental theory behind this bond rating upgrade is the flawed Keynesian idea of ‘borrowing and spending’ to boost economic growth. As we have discussed many times in past, economy doesn’t grow when the government or people spend (out of their income or via borrowing) and consume, but when people save, invest and accumulate capital. Government borrowing only siphons off private saving and investment funds which actually slows down economic growth in future. It lowers our standard of living. Most of the government spending is pure consumption in the form of various welfare schemes. This is sheer waste of society’s saved resources. And whatever little so-called investment like building roads, bridges, dams etc., the government carries out fails to pass the market test of profit and loss. All government projects are highly inefficient and very costly. They continue to make losses year after year, but unlike any private firm they never go out of business because they earn their so-called revenue not by satisfying consumers’ most urgent needs by providing them best quality products at the lowest possible price but by coercing and robbing the tax payers. This again is sheer waste.

And, if at all this upgrade will reduce the cost of borrowing for private companies of India that also will not help the Indian economy very much because this borrowed money will be used by the fascist business tycoons to shore up their empires, as has mostly happened in past, instead of serving the poor Indian consumers. Borrowed money will go in the stock or real estate markets where it will be used for speculation instead of any productive purpose.

All in all, borrow and spend policy will fail in the end because it can’t produce real economic growth. The big Indian government with its all out interventions in the economy is the real problem. This upgrade is a bad news for people because it will allow this big government to borrow and spend more and become even bigger!

Thursday, November 16, 2017

Pollution and Property Rights

The capital of India New Delhi is once again engulfed in toxic smog. The usual blame games by politicians have begun about the cause of this pollution. The Delhi chief minister Arvind Kejriwal is blaming the burning of crops in the adjacent states of Haryana and Punjab for this pollution. Other major causes cited by authorities and activists are vehicle exhaust and dust and industrial emissions. Delhi government has tried every measure like spraying water or the famous odd-even scheme for vehicles etc., that it had in its policy portfolio to combat this pollution but failed. Now the authorities are hoping for rains to come and naturally clean this pollution!

Most people discussing this issue are of opinion that only government can tackle this problem of (air) pollution. But is it so? The usual problem with such opinions is that they ignore the alternatives available. For example, in the field of environmental sciences there is a school of thought known as free market environmentalism. No one is looking at the ideas of this school of thought for solving this issue of (air) pollution in New Delhi and elsewhere in India.

What Is Free Market Environmentalism?
The Property and Environment Research Center defines free market environmentalism as an approach to environmental problems that focuses on improving environmental quality using property rights and markets. It emphasizes three important points: 
  • Markets, property rights, and the rule of law are fundamental to economic growth, and economic growth is fundamental to improving environmental quality. There is a strong correlation between treatment of the environment and standards of living.
  • Property rights make the environment an asset rather than a liability by giving owners an incentive for stewardship.
  • Markets and the process of exchange give people who have different ideas and values regarding natural resources a way to cooperate rather than fight. When cooperation supplants conflict, gains from trade emerge.
The causes cited by authorities and activists are only proximate causes of (air) pollution. They are not root causes. The root cause of the problem of pollution is the absence of private property rights and its corollaries free markets and the rule of law in India.
If the absence of private property rights is the root cause of pollution in India then the only solution is to establish the institution of private property rights and enforce it strictly via private judiciary system. There is no other better solution of this problem. Hacking at the proximate causes like the burning of crops or vehicle exhaust and dust will never permanently solve the pollution problem.

How Private Property Rights will work?
What precise solution private property free market system will find for the problem of pollution is impossible to know in advance, but we can elaborate few things using theory and history. One thing is for sure that entrepreneurs guided by the price and profit & loss system of the free market capitalist system will find more efficient and ethical solutions compared to the present statist inefficient and unethical solutions. In the case of New Delhi, authorities and activists are citing three major proximate causes of air pollution: 1) burning of crops in the adjacent state villages 2) vehicle exhaust and dust and 3) industrial emissions. Private property right regime means an individual is the owner of his bodily property and all other physical property that he/she has appropriated legitimately using that body. No one, not even the state (aka government), is allowed to aggress upon these properties and violate them. Any violation of these properties is a crime and punishable appropriately. Right now, because private property rights regime is absent, the villagers are burning their crop in the open and harming others via air pollution. In the regime of private property such harmful actions will strictly be banned and that ban will be properly enforced by private institutions like private police and courts. Same is true for industrial emissions too. Industries will not be allowed to violate others’ property rights. They will have to take private city owners’ permission first to locate nearby or amidst them and pollute environment, and such permission will simply be not coming. In such situation they will have to locate their factories in some remote area where their activities do not affect the lives of private property owners. What is happening today is the exact opposite of this. In the name of “development” government itself is giving licenses to these industries to operate within or nearby cities and pollute environment! Also, in the absence of government taxes entrepreneurs will have extra funds available to invest in R&D activities and invent better anti-pollution clean technologies. In the present statist system, even if entrepreneurs want, government’s restrictive policies prevent them from investing and inventing such clean technologies.

And, one big cause of vehicle emission is the cheap money policy followed by the Indian central bank, RBI. In the absence of low interest cheap loan availability, there would be fewer cars running on Indian roads, which will reduce air pollution drastically. Most of the people who buy cars buy by using bank provided artificial cheap credit. Governments, via RBI, by providing cheap money to Indian buyers artificially increases demand for cars in India, which results into more vehicles on Indian roads and more air pollution. This also leads to problems of traffic congestion and high frequency of road accidents. A truly free market in banking sector will have no central bank and the credit will be regulated naturally by the consumption and saving habits of people. Also, private road companies will simply not allow high pollution cars on their roads, which will cut vehicle exhausts drastically. And as in the case of industries discussed above, private car companies too will have every incentive to invent new low or zero pollution technologies.

The real cause of air pollution in Delhi (or India or elsewhere) is not crop burning or vehicle or industrial emissions. It is the absence of private property rights regime in India. As long as this regime is not established, New Delhi or Ahmadabad or any other city of India will continue to get engulfed in toxic smog. Any measure like odd-even scheme or spraying water will simply not work.

Wednesday, November 1, 2017

(BOOK REVIEW) GDP: A Brief but Affectionate History

GDP: A Brief but Affectionate History by Diane Coyle (Revised and Updated Edition 2014, Princeton University Press, pp. 167 )

Diane Coyle’s little book GDP: A Brief but Affectionate History tells a very mainstream history of the statistics of GDP (Gross Domestic Product) in brief 145 pages. The book is divided into six chapters not including the introduction. The introduction discusses what GDP actually means. Coyle throws light on this often confused statistic:
GDP is the way we measure and compare how well or badly countries are doing. But this is not a question of measuring a natural phenomenon like land mass or average temperature to varying degrees of accuracy. GDP is a made-up entity. The concept dates back only to the 1940s.
As Coyle clearly states, when looking at GDP numbers published by the newspapers, journal articles or uttered by the politicians from their bully pulpit in election rallies, we must keep this fact in mind that GDP is purely a made-up entity. It has nothing inherently natural in it. It is a device of some economists, bureaucrats and politicians designed for some specific purpose in past. What that specific purpose was we come to know in the first chapter.

The first chapter covers the history of GDP beginning from the eighteenth century to the 1930s. This chapter is important because this is where we get to know the main reason why economists, bureaucrats and politicians devised the statistics of GDP. Before discussing the concept of GDP Coyle takes us on the brief tour of the history of national income account statistics, which were the predecessors of the concept of GDP, starting from William Petty in the 17th century. This history is covered to reveal the fact that the early definition of the concept of national income was not precise and fixed. Here is Coyle:
The quick dip into the early history of national income accounts and the forerunners of GDP shows that the definition of “national income” was not precise or fixed. How it was interpreted depended on the intellectual climate and on the political or military needs of the moment, and so the definition changed over time.   
In the following discussion of how the concept of GDP came into being in the 20th century the emphasized words of Coyle above should be kept in mind as the same political and military needs played fundamental part in the birth of the concept of GDP.

Now Coyle discusses the main reason behind the birth of GDP. And here is Coyle again:
The definitions we use now date back to two seismic events in modern history, the Great Depression of the 1930s and World War II (1939-1945).

During the depression years the Roosevelt government was interested in knowing how the economy was doing overall so they can plan their anti-depression policies properly. This work of providing the overall picture of the US economy was carried out by the National Bureau of Economic Research and their economist Simon Kuznets who later won the Nobel Prize in economic science for the same work. The crucial fact to keep in mind in this history is that the US government was only interested in knowing the total amount of output in the economy while Simon Kuznet was mainly interested in working out how to measure national economic welfare rather than just output. Before this modern exercise of measuring national income of the economy in the 20th century, the old pre-depression pre-war methods of measuring national income will show government war expenditure as negative in the national income accounts and consequently it will reduce the private output available for consumption in the economy. In short, government expenditure on war will reduce the national income. This was unacceptable to the Roosevelt government, who wanted to increase their warfare and welfare expenditure to boost the economy, and they devised the new concept of GDP to overcome this hurdle. Simon Kuznet was ignored and the bureaucrats and politicians got what they wanted in the new concept of GDP. And why the Roosevelt government thought that they can boost the economy by increasing government spending on warfare and welfare? Because they were following the advice of the British economist John Maynard Keyes whose just published book The General Theory of Employment, Interest and Money swept the profession of economics and became a new policy dogma. As Coyle puts it, at the heart of this classic economic text lies a theory about the relationship between different economic variables, including, in addition to national income, personal consumption, investment and employment, interest rates, and the level of government spending. The theory set out links between the tools the government had available and the size of the economy. It became the basis for a more interventionist approach to government economic policy from the 1940s onward, using both fiscal policy (the level of tax and spending) and monetary policy (the level of interest rates and availability of credit) to target a higher and less volatile rate of growth for the economy.

This means, the concept of GDP was solely devised by government friendly economists, bureaucrats and politicians to justify their macro and micromanagement of economy via central planning as ordered by Mr. John Maynard Keynes. In this way the whole history of GDP is also the history of the so-called science of macroeconomics. GDP is the main concept used by central planners in their macroeconomic centrally planned management of the economy even today. And as the theory and history is evident, this central planning is the main cause of our economic, social and political miseries.

After discussing the birth of GDP, Coyle goes on to discuss the various ways in which macroeconomists measure GDP today. I will not go into these technical details here. Rather I want to focus on her important discussion of various conceptual problems of GDP, which almost render the whole statistics useless. The first thing Coyle warns us about is not to mistake GDP as a measurement of welfare. She clearly says that, GDP is not a measure of welfare; it does not measure well-being. It only measures economy’s output that also in highly dissatisfactory and misleading ways. The major conceptual problems with GDP are:
  • Calculating real GDP: GDP is a total of variety of goods lumped together and expressed at their market prices. This means, higher price inflation can increase GDP without increasing the actual output. To counter this problem economists convert nominal GDP to read GDP by adjusting it for price inflation using various methods. These methods are highly flawed. As discussed by Coyle, so, although we definitely want to make this adjustment for inflation to measure real economic growth, the choice of technique can lead to strikingly different “real” conclusions.
  • Hedonic price adjustments: GDP also doesn’t measure the quality improvements taking place in the goods. To tackle this issue economists have devised a technique of hedonic price adjustments, but this technique is highly problematic and involves lot of guess work and arbitrary decisions by the statisticians.
  • Seasonal adjustments: Most of the data massaging in the calculation of GDP is done while adjusting it for seasonal fluctuations.
  • Adjusting GDP for exchange rate: Comparing GDP across countries is also highly problematic looking at the various techniques of adjusting GDP for price levels in different countries via exchange rates. Any altering of techniques by one country will make big impacts on comparisons.
  • Changing base years: GDP will also change drastically if some country changes the base year used to calculate GDP.
  • Production boundaries: production boundaries mean what counts as economic output? As Coyle puts it, much of GDP is private sector output or expenditure measured at the prices charged in the market…but large portions of output are not marketed – everything done by the government for one thing. This has to be valued in a variety of other ways, such as the wages paid to government employees. This is surely highly flawed method. Wages paid to government employees in no way passes the market test of how much consumers are actually valuing these employee produced goods and services e.g., I know many teachers in my government run university whose contribution in students’ learning is not only zero but negative and still they get seven figure salaries! Counting this as positive contribution in GDP is surely nonsensical.
  • Household production: GDP also doesn’t take into account all those valuable activities that are taking place outside the market e.g., all unpaid household work. As Coyle puts it, a widower who marries his housekeeper and stops paying her a wage reduces GDP!
  • Innovation exclusion: GDP also ignores the impact of innovation on output and prices.
  • Inclusion of financial industry in GDP: After the 2007 financial crisis and the role played by the finance industry in making that crisis many people, including Coyle, has started questioning inclusion of financial industry contribution in GDP calculation. If financial sector is damaging the economy by carrying out risky and morally bankrupt activities then its inclusion in GDP is surely questionable.
All these flaws in GDP has forced economists to look for alternative measures of welfare like the Human Development Index (HDI), Happiness Index, Net National Product, OECD’s Better Life Index, Economic Well Being or “dashboard” of indicators etc., instead of just looking at economy’s output.

In the beginning I called this book a very mainstream history of GDP. The reason why I am calling it a mainstream history of GDP is because it fails to take account of other schools of economic thought like the Austrian School when analyzing this history. If Coyle used the theories expounded by the Austrian economists then the whole history would have looked very different from what she has presented in her book. For example, in recanting the 20th century history of growth, stagflation and boom-bust business cycles she completely ignores the role played by central banks in generating those business cycles and stagflation. This is a huge omission. Instead of taking a critical look at the role of central banks, she looks at them very favorably and thinks that central banks played a role in stabilizing markets. In doing so she completely ignores the very important work of Prof. Ludwig von Mises and his student and Nobel Prize winning Austrian economist F A. Hayek.
In the end, despite discussing at length so many flaws of GDP, she still favors using it and ends her book by saying, GDP, after all its flaws, is still a bright light shining through the mist. This is very contradictory.

The real question Coyle never asks and answers is what is the need of gathering all these statistics like GDP in the first place? As we saw GDP’s history, the only reason for gathering GDP and other statistics is because they are needed and used by the politicians and bureaucrats to centrally plan their economies. Not looking at this side of history reveals Coyle’s ideological biases towards Socialist central planning; she takes this mainstream point of view of centrally planning our economies for granted. As theory and history has shown us, this very same statist socialist central planning and macro and micromanaging of economy is the root cause of our economic, social and political miseries. Statistics like GDP or GNP or HDI etc., enables governments’ dangerous socialist central planning. Without it governments cannot do their central planning, which means our economic, social and political problems will be solved if governments are deprived of these statistics. As Murray Rothbard brilliantly put years ago, statistics is the Achilles’ heels of governments:
Surely, the absence of statistics would absolutely and immediately wreck any attempt at socialistic planning. It is difficult to see what, for example, the central planners at the Kremlin could do to plan the lives of Soviet citizens if the planners were deprived of all information, of all statistical data, about these citizens. The government would not even know to whom to give orders, much less how to try to plan an intricate economy.

Thus, in all the host of measures that have been proposed over the years to check and limit government or to repeal its interventions, the simple and unspectacular abolition of government statistics would probably be the most thorough and most effective. Statistics, so vital to statism, its namesake, is also the State’s Achilles’ heel.
Notwithstanding the support of Coyle for GDP, instead of collecting the data of GDP and other statistics what we need to do is what the unsung hero of Hong Kong’s growth story, its financial secretary John James Cowperthwaite, did. When Marian Tupy asked Mr. Cowperthwaite to name the one reform that he was most proud of, “I abolished the collection of statistics,” he replied. Sir John believed that statistics are dangerous, because they enable social engineers of all stripes to justify state intervention in the economy.

Overall, Coyle’s book is a good read for students and laymen who want to understand the intricacies of GDP and know its brief history. But its mainstream treatment doesn’t make it very useful beyond that purpose.

Saturday, October 14, 2017

Is Sex with an underage wife Rape?

The Supreme Court of India on Wednesday ruled that a man is committing rape if he engages in sexual intercourse with his wife who is aged between 15 and 18. How logically sound this Supreme Court ruling is? To know the answer of this question we must first understand what ‘rape’ is. An online dictionary of law defines rape as the crime of sexual intercourse (with actual penetration of a woman’s vagina with the man’s penis) without consent and accomplished through force, threat of violence or intimidation (such as a threat to harm a woman’s child, husband or boyfriend). This means, a rape basically is a violation of others’ bodily property right. It is an initiation of aggression against others’ private (bodily) property. Any case of such initiation of aggression re sexual intercourse is a rape no matter what the age of the person whose bodily property is violated is. The age factor is irrelevant here.

The ruling of Supreme Court is purely arbitrary and illogical having no basis in any sound legal principle. Why only wife between 15 and 18 years old? What if the wife is 18 years and 1 day old? What if she is 19 years or 20 years old? In any case of rape the only thing the court has to decide is whether any kind of sexual aggression has took place or not without looking at the age of the victim or aggressor. A rape is a rape. A sexual aggression against an 80 year old wife is also a rape and 16 year wife is also a rape. The Supreme Court is unduly complicating the matter and the law. By doing this, they are inviting all kinds of troubles for people who will get falsely accused of rapes in future.
The fact of the matter is, in India the judiciary system lacks any basis of sound legal principle. Whatever principles they are using are all arbitrary subjective values of the judicial body members.

The state judiciary system functions like this only everywhere. Their goal is not of producing ‘Justice’ for the victims, but to endlessly complicate matters so that the institution of state and its organs like the justice system can be perpetuated indefinitely. As long as the state is in charge of the judiciary system, there is no hope for the victims of getting ‘Justice’.

Monday, October 2, 2017

Coalition Governments and Economic Growth in India

Former RBI governor Y V Reddy said that Coalition governments in India have produced better economic growth rates in the last three decades than a strong majority government… Interestingly, the highest growth in India from 1990 to 2014 was really during coalition governments… So, in a way it’s consensus based… in Indian situation, a coalition probably produces better economic results than a strong government.

Mr. Reddy is committing a logical fallacy of Cum Hoc, Ergo Propter Hoc. Just because two things are occurring simultaneously and are closely connected with each other doesn’t mean one is causing the other. Better economic growth has nothing directly to do with what kind of governments, either coalition or majority, India has. What matters for growth is what kind of economic policies these governments are going to follow. If the government is small and less meddling in the free market enterprise system then it will produce stronger economic growth like what happened after 1990 economic crisis and following Rao-Manmohan liberalization reforms. And if the government is totalitarian and imposes its controls on the free market enterprise system then it will strangle the growth like what is happening under present Modi government.

The only reason Mr. Reddy sees this correlation is because India is a typical Wittfogel style oriental despotic country where demagogue despots are lurking in the background to seize the power and impose their will on people whenever opportunity allows them. The coalition government restrains such demagogues so they have to listen to others’ wishes and stay away from totalitarian controls. Coalition government works under restrains because it is working constantly under threat of losing power if they ignore others’ wishes. Such government also results into more political log-jam in parliament so they can’t pass draconian controlling bills easily. But majority government doesn’t face such restraints. Whenever one party is successful in getting full power via full majority, like what Narendra Modi got in 2014, they impose their totalitarian controls on everyone resulting into dismal economic performance.

Tuesday, September 19, 2017

Narendra Modi Government Faces Economic Reality

The full impact of Narendra Modi government’s economically unsound policies of demonetization, GST as well as lose money policy of RBI in the form of lending cheap artificial credits to insolvent borrowers via commercial banks resulting in huge load of unproductive debt has started to show on the Indian economy.

Finance ministry officials are now saying that India could be forced to cut spending on key infrastructure such as railways and highways as lower-than-expected tax collections and sluggish growth have upset the government’s budget calculations. This was well expected. As we have said in past here on Mises India, when the government gets bigger and totalitarian, the economy tanks rapidly. When the business environment becomes extremely uncertain, entrepreneurs will halt their business plans and stop any further present or future investments, and this will hit the economy hard because only production, saving, investment and capital accumulation can increase economy’s future growth. As Thomas Sowell famously said, the first principle of economics is that there is scarcity of everything, and the first principle of politics is to disregard the first principle of economics! Politicians like Narendra Modi think that they can disregard the laws of economics, which are absolute a priori laws of human action, forgetting the consequences of ignoring them. They forget that the forces of market are much more powerful than any politician and his political power. Market forces are always working in the background, and in the end they will force politicians like Modi to stop wasting society’s resources, and that is what is now happening in India. The report throws light on this fact:
The main problem has been the introduction of the GST, billed as India’s biggest tax reform in 70 years.
Ambiguous rules, an onerous return filing system and glitches with its IT back-end have made doing business far more complicated for many companies. Frequent changes in tax rates after the GST’s launch have heightened business uncertainty, resulting in many firms failing to register for the new tax.
India’s GDP growth itself has slowed to 5.7 percent in the April-June quarter from 7.9 percent a year earlier, a slowdown also partly blamed on the introduction of the GST, adding to the pressure on the state coffers.
Dividends from state-run companies are expected to fall and a $11 billion share sale programme is slowing down.
Complicating the finance ministry’s budget arithmetic further, the Reserve Bank of India announced last month that its annual surplus, a dividend transferred by the central bank to the government each year, would be only $4.9 billion, less than half the initial estimate, largely due to costs of Modi’s shock “demonetisation” initiative last year.
If Narendra Modi is not going to learn any lesson out of his momentous mistakes then the Indian economy is just going to go in a total free fall in future. If he continues his binge spending programs and RBI keeps on cutting interest rates to boost growth artificially then the economic woes of Indians are just going to become astronomical in future. Government spending and RBI manipulation of interest rates can’t create or boost growth. Government spending is always inimical to progress because what government spends on A, it has always took that forcefully from B; spending on A is always wasteful because it ignores the individual’s subjective preferences embedded in price signals, and so it lacks the market test of profit & loss. Progress requires government spending of 0 rupees.  As long as that is not happening, do not expect any real growth in India. The disaster in India continues to unfold.

Monday, September 4, 2017

The Demonetization Disaster

The exercise of demonetizing around 87% of all circulating currency note supply taken by Narendra Modi and RBI last November has resulted into nothing but overall disaster for the economy. In his televised speech on 8th November, 2016 Narendra Modi talked about three main goals of the whole demonetization exercise, and they were:
  1. Curbing financing of  terrorism through  the proceeds of Fake  Indian Currency Notes (FICN)   and use of such funds  for subversive activities such  as espionage, smuggling of arms , drugs and other contrabands into India; and
  2. For eliminating Black Money which  casts a  long shadow of parallel economy on our  real economy
At that time Modi government was expecting that the substantial amount of black money that people were hoarding will never return in the banking system and that will become a windfall gain for RBI which it can then transfer in the government account. Now that 10 months have passed and data are coming in, what is the outcome of this exercise? Did this exercise bring back any windfall gain to RBI which it transferred to the Modi government? Did a substantial amount of black money never returned to the RBI vaults? Did the fake currency notes stopped circulating in the economy? Did the terrorism financing stopped and so terrorism stopped?

Even after 10 months of this exercise the Indian central bank RBI has yet to release full figures, but in their annual report, released few days ago, the RBI said that total 99% of all banned notes have returned in the system: India received a total of Rs 15.28 lakh crore in banned 500 and 1,000-rupee currency bills, the RBI said, which means 99 per cent of the banned cash has been legally returned in the eight months since demonetisation. The one per cent that has not returned to the RBI adds up to around Rs 16,000 crore. This means the demonetization exercise failed in unearthing any black money. In fact, people were able to convert their black money into white using the demonetization exercise itself! After this news came out, the finance minister Arun Jaitley was seen changing objectives of this whole exercise to hide his government’s failure by saying that, that was not the objective of demonetization…it was not an exercise to confiscate money but to nudge India towards digitization, ending anonymity of cash. Basically the government is now saying that the whole aim of demonetization was making India a ‘cashless digital economy’ and not curbing corruption and black money as originally stated by them.

Did RBI receive any windfall gain which it then transferred to the Modi government? Not at all. In fact, the recent data released by RBI show that instead of getting any windfall gain, RBI has made losses and it is only transferring Rs 30,659 crore, less than half the amount Rs 65,876 crore it transferred last year, dividend to the government this year implying lesser non-tax revenues to the government. This means, demonetization exercise turned out to be very costly for the government! It cost more money to RBI to print new currency notes and bring back old notes in the system than any so-called benefit of demonetization exercise!

Demonetization has also failed in curbing terrorism as can be seen in the on-going almost daily insurgent attacks on Indian nation state forces in places like Kashmir, North-East etc. The data released by the South Asia Terrorism Portal shows that, after demonetization exercise in year 2017 132 security personnel and 139 civilians have died in Jammy and Kashmir region itself. The three years of Modi government has turned out to be more deadly for the security forces compared to past years of Manmohan Singh government.

And, the fake currencies of even the new currencies introduced by the government started circulating in the economy during the demonetization exercise itself.

Not only this, the latest GDP data released by the Central Statistics Office (CSO) show that the first quarter GDP growth rate of the Indian economy has hit the lowest in last 3 years of 5.7% only, which is the slowest pace of growth under the Modi government. The demonetization exercise and then implementation of GST last July has hit the Indian economy hard. This was expected because when government fiddles with 87% of economy’s money supply, increases taxes on its people incessantly and also makes tax compliance so complicated that no one knows what is going on, the economy is going to tumble. Businesses survive and thrive in an environment of secure property rights and lower future uncertainty. When the economy gets one shock policy move after another in the form of demonetization and GST, it creates an environment of extreme suspicion and uncertainty among the business community. They start expecting more such shock policy moves from the government and stop any big present or future investment plans, which results into economy almost halting.

All in all, demonetization has resulted into total disaster for the Indians and their economy. The former RBI governor Dr. Raghuram Rajan warned about the dangers of demonetization and told Modi government about its heavy short term cost which will far outstripped its any presumed long-term benefits (sic), but Modi didn't listen to him and removed him from his position. The present BJP government is not ready to accept its failures and make corrections, but is busy making excuses. In such an environment expecting anything positive in future is going to result into disappointment only. We must brace-up for even worst situation in future because the world itself hasn’t got out of the deep depression that started in 2007.

Friday, August 25, 2017

Is Privacy a Human Right?

Yesterday a 9 judge bench of the Supreme Court of India gave a so-called historic decision of declaring privacy a fundamental human right now enshrined in the article 21 of the Indian constitution. Many are saying that this for the first time that some verdict is given unanimously by the bench 9 judges. This verdict now includes privacy also as a part of fundamental rights in article 21 of the Indian constitution, which wasn’t the case previously. Most people of the country and intellectuals have cheerfully welcomed this verdict hoping that this will stop the ruling BJP government from becoming totalitarian. The legal experts have hailed this verdict as historic, a watershed moment and a victory for common citizens by saying that it has far reaching implications for the matters like the beef ban, forceful use of Aadhaar card, government telling people what to wear and eat, abortion, LGBT rights, government surveillance in the form of reading peoples’ emails, text messages, listening to phone calls (wiretapping), and married women will have the right not to get raped in marriage etc. etc.

Most freedom loving people of India are also cheering this verdict because they think this is a blow to the Modi government who was arguing that people don’t have a right to privacy.

I think this is a moment which needs a calm reflection without any kind of such euphoria. I can understand that people are happy because the way Modi and his government are trying to control the body and mind of people this verdict seems like putting a break on those efforts. Notwithstanding this perception, the fundamental issue involved here is, should we give so much of importance to the issue of right to privacy and think it is a fundamental human right? What if the fundamental human right is something else and Supreme Court is not talking about it at all? In that case all hope of this verdict stopping Modi and his government from trampling on human rights turns out to be delusional. A careful logical analysis of ‘privacy as a human right’ issue will make this clear.

Is Privacy a Human Right?
Before answering this question of whether privacy is a human right or not we have to understand what human right actually is. To show that something is right for the humans we have to understand the basic human nature. Anything that is in accordance with this human nature is right and if it is not then it is wrong. The basic human nature is that nature has given all of us life. The basic life form is our own body. This life we can all sustain and enjoy only if we are free to use our bodies without any kind of restrictions from outside. Our body is thus our own i.e., we are the ultimate owners of our body, and ownership means this body is our property. For sustaining and enjoying our lives to its fullest potential we also need other resources like food, water, clothes, home, cars, computers etc. etc. We can acquire and own these prior unowned physical scarce resources via use of our bodies by appropriating them first. By this way we can make these resources our property too. Thus, as long as we are free to use our bodies and resources appropriated by using that body, together called our private property, we fulfill our nature. Anyone who infringes on the use of our private properties is violating our right. This proves that human right is nothing else but property right. This also proves that human right is basically a negative right i.e., others cannot stop me from using my property and similarly I cannot stop others from using their properties. As Prof. Murray Rothbard, the great 20th century philosopher of ethics, said:
And yet, on the contrary the concept of “rights” only makes sense as property rights. For not only are there no human rights which are not also property rights, but the former rights lose their absoluteness and clarity and become fuzzy and vulnerable when property rights are not used as the standard.
In the first place, there are two senses in which property rights are identical with human rights: one, that property can only accrue to humans, so that their rights to property are rights that belong to human beings; and two, that the person’s right to his own body, his personal liberty, is a property right in his own person as well as a “human right.” But more importantly for our discussion, human rights, when not put in terms of property rights, turn out to be vague and contradictory.
After elucidating what human right is, we are ready to tackle the question of privacy as a human right. As Murray Rothbard above said, when human rights are not defined based on the bedrock standard of property rights they lose their absoluteness and clarity and become fuzzy and vulnerable to misuse. The case of privacy as a fundamental human right, as declared by the Supreme Court, falls in this category of defining human right without the firm base of property right. As Prof. Walter Block said, privacy is a benefit and not a right. To understand this fact let us take an example involving the issue of privacy. In this regard I am going to quote Prof. Murray Rothbard. Rothbard is using an example:
Does Smith, for example, have the right to print and disseminate the statement that “Jones is a liar” or that “Jones is a convicted thief” or that “Jones is a homosexual”? There are three logical possibilities about the truth of such a statement: (a) that the statement about Jones is true; (b) that it is false and Smith knows it is false; or (c) most realistically that the truth or falsity of the statement is a fuzzy zone, not certainly and precisely knowable (e.g., in the above cases, whether or not someone is a “liar” depends on how many and how intense the pattern of lies a person has told and is adjudged to add up to the category of “liar – an area where individual judgments can and will properly differ).
Suppose that Smith’s statement is definitely true. It seems clear, then, that Smith has a perfect right to print and disseminate the statement. For it is within his property right to do so. It is also, of course, within the property right of Jones to try to rebut the statement in his turn. The current libel laws make Smith’s action illegal if done with “malicious” intent, even though the information be true. And yet, surely legality or illegality should depend not on the motivation of the actor, but on the objective nature of the act. If an action is objectively non-invasive, then it should be legal regardless of the benevolent or malicious intentions of the actor (though the latter may well be relevant to the morality of the action). And this is aside from the obvious difficulties in legally determining an individual’s subjective motivations for any action.
It might, however, be charged that Smith does not have the right to print such a statement, because Jones has a “right to privacy” (his “human” right) which Smith does not have the right to violate. But is there really such a right to privacy? How can there be? How can there be a right to prevent Smith by force from disseminating knowledge which he possesses? Surely there can be no such right. Smith owns his own body and therefore has the property right to own the knowledge he has inside his head, including his knowledge about Jones. And therefore he has the corollary right to print and disseminate that knowledge. In short, as in the case of the “human right” to free speech, there is no such thing as a right to privacy except the right to protect one’s property from invasion. The only right “to privacy” is the right to protect one’s property from being invaded by someone else. In brief, no one has the right to burgle someone else’s home, or to wiretap someone’s phone lines. Wiretapping is properly a crime not because of some vague and woolly “invasion of a ‘right to privacy’,” but because it is an invasion of the property right of the person being wiretapped.
Similarly, the reason why government cannot stop us from eating whatever we want (beef) or force us to use Aadhaar card by making it compulsory everywhere is not because these actions of government violates our ‘privacy right’ but it violates our ‘property right’. The government cannot invade our privacy not because we have such ‘right to privacy’ but because the government itself has no rights at all. The government itself is an illegitimate illegal institution because it violates property rights of everyone, by initiating violence against all of us in the form of taxation etc., for its existence! Because of this reason, the government has no right to do anything.

As we have seen above, privacy is not a human right let alone a fundamental one. The only fundamental human right is property right. The Supreme Court ruling never ever mentioned this property right. In fact, the Indian constitution nowhere mentions property right as a fundamental human right. In fact, the Indian constitution is replete with rights like right to education, right to be not discriminated against etc., which are not rights at all but violation of (property) right! The fact remains that there is no concept of property right in India!

The danger of cheering for Supreme Court’s decision of including privacy as a fundamental human right in article 21 of the Indian constitution is the implicit acceptance of whatever the Indian constitution is saying. This constitution is a flawed document designed, prepared and signed by few people six decades ago. That document cannot bind billions of Indians in some imaginary implicit social contract with the Indian nation state (aka government). In this regard the great American legal theorist Lysander Spooner said:
The Constitution has no inherent authority or obligation. It has no authority or obligation at all, unless as a contract between man and man. And it does not so much as even purport to be a contract between persons now existing. It purports, at most, to be only a contract between persons living eighty years ago. And it can be supposed to have been a contract then only between persons who had already come to years of discretion, so as to be competent to make reasonable and obligatory contracts. Furthermore, we know, historically, that only a small portion even of the people then existing were consulted on the subject, or asked, or permitted to express either their consent or dissent in any formal manner. Those persons, if any, who did give their consent formally, are all dead now. Most of them have been dead forty, fifty, sixty, or seventy years. And the constitution, so far as it was their contract, died with them. They had no natural power or right to make it obligatory upon their children. It is not only plainly impossible, in the nature of things, that they could bind their posterity, but they did not even attempt to bind them. That is to say, the instrument does not purport to be an agreement between any body but “the people” then existing; nor does it, either expressly or impliedly, assert any right, power, or disposition, on their part, to bind anybody but themselves.
The Indian constitution has no authority over us. It is a ruse used by the state officials to rule and control us for centuries. As long as Indians continue to be ruled by these state officials, by using the document that they designed, Indians can never be free to enjoy their lives, property or even privacy.

Thursday, August 24, 2017

Is Artificial Intelligence Threatening India Inc. Jobs?

A recent news report said that in India The IT services industry alone is set to lose 6.4 lakh low-skilled positions to automation by 2021.

Is this true? Let us scrutinize.

What is Artificial Intelligence?
As Jerry Kaplan, the author of Artificial Intelligence: What Everyone Needs to Know, has said, there is no one all agreeable definition of Artificial Intelligence in the computer community today. Roughly speaking, Artificial Intelligence means, as its founding father John McCarthy said, a process “that of a making a machine behave in ways that would be called intelligent if a human were so behaving.” Artificial Intelligence is an all encompassing name given to different automation technologies that is coming in the market since last couple of decades. From the economic perspective AI is nothing but just another type of capital good (machine) that is going to make the life of humans more comfortable because it increases human labor productivity. It is a form of technology that is part of the fourth industrial technological revolution, and is nothing very different from the three technological revolutions that preceded it. It is true, as Thomas Davenport and Julia Kirby, the authors of Only Humans Need Apply, have argued that these AI technologies are not only going to complement the labor, as previous technologies have done, but they will also substitute and replace them because they can do exactly the same type of work that the human workers are doing. But we should not overly worry about this fact because by doing so they will only free up more labor force to work on fulfilling other endless wants of the people. A world without work is impossible simply because of the fact that human wants are unlimited as Milton Friedman famously observed, you could reach a point where you pay a personal psychiatrist to follow you around!

Yes, during the transition period there will be some dislocation of jobs; some workers will lose jobs but they will get new ones soon as have always happened in past. The Indian laborers will have to learn new set of skills that are going to be in demand in the coming automation AI economy. As Geoff Colvin, the author of Humans are Underrated, has argued, in the age of machines consumers and thus employers are demanding more human like skills from the employees. Deep down in our nature we humans are social animals and ultimately we prefer to interact with other humans rather than with robots. He lists down some of these social skills as follows: 1) Empathy 2) Team work 3) Storytelling 4) Innovation and creativity etc. Thomas Davenport and Julia Kirby also have presented an alternative strategy both for the human workers and their employers for tackling the machine age changes. Their suggestion is to augment instead of automate. The meaning of augmentation is that instead of simply replacing a human worker with machine, it is better to augment the productivity of that worker by allowing him to work with an automation technology i.e., laborers working in partnership with the machines. They also present five other pathways of career for humans to adapt to the changes that are coming in the labor market, and they are: 1) Step up 2) Step aside 3) Step in 4) Step narrowly, and 5) Step forward. Briefly, step up means you step up to the cognitively higher ground where the rational decision making work is not yet conquered by the computers.  Stepping aside means moving to a type of non-decision-oriented work that computers aren’t good at, such as selling, motivating people, or describing in straightforward terms the decisions that computers have made. Stepping in means engaging with the computer system’s automated decisions to understand, monitor, and improve them. Stepping narrowly means finding a specialty area within your profession that is so narrow that no one is attempting to automate it-and it might never be economically to do so. And, stepping forward means developing new systems and technology that support intelligent decisions and actions in a particular domain i.e., inventing new AI technologies.

Once workers make these adjustments and learn how to work with the machines, jobs will no longer pose a problem.

How The Indian Government Is Destroying Jobs?
The AI technologies are not really threatening the India Inc. jobs. The entity that actually threatens jobs of India Inc. is the welfare-warfare Indian nation state (aka government) itself. By interfering in the workings of the freely functioning market, especially the labor market, the Indian government either directly destroys jobs or hinders job growth. To understand this I will work with an example. We all know about Government’s minimum wage laws and how they are deployed to benefit the poor unskilled workers, who mostly work in the unorganized sector, whose wages are low. Although everyone knows that minimum wage laws are suppose to help poor unskilled workers by raising their wages, but the actual impact of these laws is to make these very same poor unskilled workers unemployed! We now see how minimum wage laws destroy jobs. It is a well known economic fact that no private sector company can survive in the business without making profit. Profit is calculated by subtracting total cost out of total revenue. Now, total revenue is determined in the market by the marginal revenue product of every individual labor i.e., the marginal contribution of every laborer in company’s revenues via their marginal productivity. Every individual laborer receives his wages according to this marginal contribution in company’s revenues. And labor wage bill forms the significant part of any company’s total cost. Suppose before the passage of the minimum wage law, a company is employing 100 laborers and paying each laborer 1000 rupees per month wage then their monthly wage bill will be 100,000 rupees. If non-wage bill of that company is 50,000 rupees then their total cost is 150,000 rupees. On the other side if their total revenue per month is 200,000 rupees then their total profit is 50,000 rupees. Now the government imposes a minimum wage law on them and forces them to pay 1600 rupees to their laborers. In this case now their total cost will go up to 210,000 (160,000 wage bill plus 50,000 non-wage bill) rupees while the revenue remaining the same because revenue will not increase automatically after the imposition of minimum wage law. We can now see that the profit of this company has disappeared and it is actually making 10,000 rupees losses. This situation cannot go on for long for this firm, and to survive in the market it will have to fire some workers to lower its wage-bill and total cost. If it cannot fire workers because of the provisions in the law then in the situation of continuously mounting losses it will be forced to shut down in the long run unemploying its whole labor force! In both conditions the end result of imposition of the minimum wage law is unemployment for the workers. This unemployment is structural one in-built in the design of the system because minimum wage laws are here to stay for a long period of time, and so they cause very long term permanent unemployment.

Like minimum wage laws myriad of other laws of the government like work condition laws, labor union laws, payroll tax laws, anti-hawking laws, license raj laws, job security laws, unemployment insurance laws, equal pay laws etc., etc., causes long term unemployment. Also, government’s direct and indirect taxes siphon off the productive saving resources from the private sector, where they can be used to start new businesses or expand old businesses and generate new employment opportunities, and divert them to wasteful unproductive consumption activities of the government and their welfare schemes. Government’s central bank RBI also generated business cycles in the economy which also destroys jobs.

So India Inc. jobs are under threat not from the AI technologies, which are only making our lives better, but from the very Indian government which promises to secure these jobs! It is better for the Indians to stop worrying too much about the artificial intelligence machines and start worrying about their big intrusive government which wants to control everything. If India Inc. wants to save jobs of people then they must pressurize the government to remove their regulations and controls and free the economy for market competition, which will not only generate more jobs but also improve everyone’s standard of living too.

Wednesday, August 16, 2017

Can Monetary Easing Increase India’s Economic Growth?

The second volume of government’s Economic Survey recently flagged a great risk of faltering economic growth in India, and demanded a loose monetary policy stance from the RBI in the form of further easing of the interest rate to combat this downside risk. The report said, Forecasting “greater downside risks” to economic growth, the Survey, tabled in Parliament Friday, argues that the “scope for monetary policy easing is considerable” and could go up to 75 basis points.

The underlying theoretical basis of this recommendation of monetary policy easing is that a loose monetary policy in the form of lowering of interest rate will revive the economic growth. This means, this policy of loose money will only work if that underlying economic theory is correct. In this article we will analyze this theory and its implications. Is it true that a loose monetary policy can revive economic growth? To understand the answer of this question we need a quick short lesson of sound economic theory, which I present below.

What is the real Wealth of Nation?
As most economic thinkers like Adam Smith, John Stuart Mill, J B Say or Frederic Bastiat etc., of the past age said, the wealth of a country is nothing else but the amount of economic goods that it produces in a given time frame. It is measured by the supply of things like food, potable water, clothes, homes, shoes, cars, computers etc., etc., myriad of endless products. The modern way of measuring wealth, what the mainstream economists call GDP (Gross Domestic Product), by combining these goods and then multiplying them by market price is faulty (see here and here).

What is Economic Growth?
Economic growth is nothing but yearly growth in the above defined wealth of nation e.g., if the Indian economy last year produced 5 homes, 10 pairs of clothes, 15 pairs of shoes and next year it produces 10 homes, 20 pairs of clothes, 25 pairs of shoes then we say that the economy is growing; the economic growth rate can be calculated by above given YoY (year over year) numbers of homes, clothes and shoes.

What Determines Economic Growth?
After understanding what wealth and its growth is, we can now understand what determines the economic growth of an economy.  We all know that to produce wealth any economy requires different factors of production. The original factors of production that nature has endowed us with are land and labor. But by using just land and labor the production process is less productive. What makes land and labor both more productive is the use of capital goods like an axe or a spade or a shovel or modern day automatons like factory robots etc.  For example, if I ask you to dig a 10 feet deep and wide hole in a ground with your hands then you might take 10 hours to do that job, but if I give you a hand shovel then you will be able to do that job just in an hour. The problem that primitive humans faced was that like land and labor capital goods are not readily available in nature. What makes the capital good a unique factor of production is that we have to produce it first before we use to produce goods meant for final consumption. Only the use of these capital goods will help any economy grow in future. But the problem for any economy is to produce these capital goods in the first place before they can be used to increase the future production of final consumption goods. This means, to understand what determines an economy’s economic growth we have to understand the whole process of producing capital goods first and I now discuss that process. We use the method of Crusoe economics for this purpose. Suppose Robinson Crusoe is stuck on an island and now he needs to survive. He is catching 10 fish with his bare hands everyday working for 10 hours, and he consumes all 10 fish daily for survival. In this condition his life and production method is primitive like our ancestors. He knows that this type of hand to mouth survival is dangerous because if he gets injured or sick for some days then he has nothing in spare for survival; he may die. He decides to better his condition in future. For increasing his chances of survival and standard of living he needs a buffer stock of fish i.e., saving and for that he will have to produce more fish than he is consuming right now i.e., he will have to produce more than 10 fish daily. In our modern day language Crusoe will have to increase economic growth of his economy. What should he do to catch more fish daily? He will need fishing net, of course. Only the use of capital good (fishing net) can increase his labor’s productivity. The problem here is, fishing net is not available ready in nature; he will have to produce it first. Crusoe decides to make the fishing net. Now, suppose making a net requires 10 hours a day work. This means, when Crusoe is making this net he cannot catch fish on that day. This is the economic cost of making the net. He will have to make provision of food for that day when he will make the fishing net so he decides to eat only 5 fish out of his total 10 fish catch today and save 5 fish for the next day consumption when he will sit down to make the net. We can see that he will have to sacrifice some of his present consumption (5 fish) in order to make his future better and secure. The next day now he will invest 5 fish that he has saved yesterday in making the fishing net (basically Crusoe will give wages to himself in the form of 5 fish out of his saving, and he will use this wage for consumption). This way the next day the fishing net (the capital good) is ready and now Crusoe can catch 30 fish using that net working 10 hours a day; he can now consume his daily quota of 10 fish and save 20 for any kind of future unforeseen contingencies. We say that Crusoe’s economy has experienced economic growth; his economy is growing making his life safe and standard of living higher.

We can break down the whole process presented in above analysis in simple economic principles, and I quote Robert Murphy, in the jargon of economics, we can step back and describe what Crusoe has done. By consuming less than his daily income—by living below his means—Crusoe saved fishes in order to build up a fund to guard against sudden disruptions in his future income. Moreover, Crusoe then invested his resources into the creation of a capital good that greatly augmented his labor productivity. (I have replaced coconut, the original example used by Murphy, with fish in this quote).

Now we know what determines any economy’s economic growth. The citizens of an economy first must produce more than what they are consuming, then they must save the surplus production and invest it in producing physical (and human) capital goods. Only this accumulation of physical and human capital will then increase the future wealth (income) of the economy and the economy will grow. There is no escape for any economy from this process. There are no other short cuts.

What is monetary policy? Can it increase economic growth?
After seeing the whole process of generating economic growth above now we can answer our original question, but before that we briefly need to understand what monetary policy is. Monetary policy is nothing but the decision by central bankers to either increase or decrease the supply of fiat paper currency (what they call money) in the economy. We have to understand that money is just a common medium of exchange and nothing else. Injection of more money, via lowering interest rates, will not do anything to increase production of economic goods in future. As long as real pool of saving (i.e., savings of formerly produced goods) and investment is not increasing, economy cannot grow. Injecting more money in an economy will only increase prices of various producer and consumer goods. It will only distort the production structure of the economy by transferring available limited resources, without augmenting them, from productive desirable sectors to unproductive undesirable sectors i.e., it will only generated business cycles further damaging the economy and economic growth.

Here I cannot elaborate all the complex processes involved in above analysis, but those who are interested in understanding can read Peter Schiff’s book, How an Economy Grows and Why It Crashes.

As we saw above, only production, saving, investment and accumulation of physical and human capital can increase economic growth of the Indian economy. Any manipulation of the market interest rates by manipulating the supply of paper currency rupee by RBI will not increase economic growth. In fact, it will only damage the economy by generating inflation and business cycles. This means, RBI and government’s actions will decrease economic growth of the Indian economy.

Tuesday, August 1, 2017

The Myth of Political Opposition

We are witnessing an age old fact about the State playing out in front of our eyes in India today. This fact is that of, as Murray Rothbard said, the state as an apparatus of parasitism which uses, as Franz Oppenheimer said, political means for its survival. The state is an institute which represent political power which its officials like politicians and bureaucrats use to parasitically live-off productive people on whom they forcefully and clandestinely rule by use of propaganda. One of such propaganda is that there are opposition parties in politics. Of late opposition party politicians are joining the ruling BJP party en-masse in India e.g., many Congress politicians switched over to BJP in the state of Gujarat, The Bihar chief minister Nitish Kumar broke-off his alliance with Congress and other so-called anti-BJP parties like Lalu Yadav’s RJD to form a new government with its enemy BJP party, quite a few MLAs from the SP and BSP parites also joined BJP etc. These events illustrate the above mentioned fact that the whole concept of political opposition is a myth. This myth is perpetrated by the politicians themselves to misguide the public to rule over them. The fact of the matter is exactly the opposite. All political parties only represent political power over people, which they use for the parasitical survival whether they are in government or outside it for a while. There is no actual battle between BJP and Congress and other political parties when it comes to fleecing the productive tax payers for their parasitical survival. They all agree on that common purpose. The only disagreement is about the speed or manner of fleecing. None of these parties represent the real opposition against the coercive state power. That opposition remains with individuals and institutions that are fighting the state power root and branch. The real political battle is always between the people vs. the state (aka government).

Tuesday, July 25, 2017

Indian Nation State is Shooting in its Own Foot

In the zeal of controlling everything that either walks or doesn’t walk, the present Narendra Modi government of India is shooting in its own foot. It is giving one shock after another to the society and economy in the form of mob lynching of innocent people in the name of “cow protection”, beef and myriad of other bans, attacks on minority communities, compulsory use of Aadhar card, demonetization of 86% of total currency supply, GST etc.

Why am I terming these policies as government shooting in its own feet? The reason can be understood with the aid of the laws of human action. Any individual needs freedom to achieve his full potential and flourish e.g., if I chain you in one room or throttle you then you cannot act to do something progressive and you will most probably die. The same is true for the body economy and society. Freedom is the precondition of any growth or development process. If people and businesses are strangulated by myriad of controls and regulations by the government, they cannot flourish and progress. On the other hand, an economy without the government interference will flourish to its full potential e.g., a free market enterprise economy, where there are zero taxes and controls and regulations of the government, will thrive due to market process of competition among entrepreneurs who will be competing to win over the businesses of their customers by providing them best quality goods and services at the cheapest possible prices. Competition will fuel the innovation process which will continuously improve the quality of products while lowering their cost of production and price. A society free of controls, both physical and importantly mental, can experiment with different social, cultural, political and religious ideas and can launch itself on the path of the civilization process. A place where dissent is not suppressed can quickly go on the path of renaissance and enlightenment. A society with a close and static mind will stagnate and decay sooner or later.  Only a dynamic society can become civilized.

In light of the above mentioned facts it is easy to see that the policies of the present Indian government is reversing all the progress that this country has achieved after 1947, especially after 1990 economic reforms of leaning more in the direction of market and private sector. Under the weight of these myriad of controls the economy is crumbling. Indians are becoming poor. The middle class is slowly vanishing. And here remember, a poor nation state can never defend itself from anyone either internally or externally! The way Modi government is locking its horn with the Chinese nation state right now a conventional war cannot be ruled out. And, if tomorrow there is a war the Indian nation state only has resources enough to fight a war for 10 days! The controls that the present government is putting on physical lives and minds of people and the way one after another community is targeted for hatred and violence, the day is not far enough when the Indian nation state, which is a forcefully put together artificial entity, itself will stop existing.

Thursday, July 20, 2017

Should Indians Boycott Chinese Goods?

The on-going stand-off between the armies of the Indian and Chinese nation states on the Sikkim border has created quite a bit of ruckus in the, now very nationalistic, Indian public. People in India are calling for a total boycott of Chinese goods. This demand for boycott of Chinese goods is nothing new.

Economics of Boycott
The relevant question here is that, what consequences will follow if India’s nationalistic public actually decide to boycott Chinese goods? Without going into the details of numbers of what is the volume of trade between India and China etc., let us carry out a theoretical analysis of the consequences that will necessarily follow this action of boycott.

What will happen in India after the boycott?
The first thing that will happen in India is that the consumers will be at a loss immediately because they will not be able buy and consume the cheap Chinese goods now. They will have to spend more on acquiring the same product because similar Indian good will be of high price. This means their standard of living will now be lower compared to the situation of no boycott.
Second, now because consumers are forced to spend more of their limited income on costly Indian goods, they will be left with less income to spend on other Indian goods being produced by other Indian industries. This in turn will lower the demand and employment in these Indian industries. For example, if before the boycott I was spending 50 rupees on buying a Chinese bulb out of my total 100 rupee income and 50 rupees on buying Indian pen then now after the boycott I will be forced to spend 70 rupees on an Indian bulb leaving me with spare income of only 30 rupees which will not be enough to buy the 50 rupee Indian pen; this means the pen industry suffers losses and they either shutdown or downsize and fire some of their workers unemploying them. This in turn will result in pen producers and laborers spending less on other Indian goods in turn lowering income of other producers too. This will be a cascading effect engulfing the whole economy. A boycott basically will make everyone poor in India compared to the scenario of ‘no boycott’. This poverty will kill many in India; surely more will die compared to deaths right now in Sikkim border confrontation!
Third, investment activities in India will also slowdown because now saving will reduce due to the fact that the boycott forced the consumers to spend more on costly Indian goods. This lowered saving in turn will lower investment which in turn will lower the future income of Indians again making them poor!
Fourth, Indian producers will also suffer the same fate as consumers. They will also have to spend more on buying costly Indian capital goods for their businesses. This high cost will lower their efficiency and production. It is very much possible that some businesses will simply shutdown because they totally depend on imported cheap Chinese technology. This will again make Indians unemployed and poor. Again like consumers, because producers will be forced to spend more of their limited income on costly Indian capital goods, their saving and investment activities will suffer. This will again make Indians poor.
And last but not the least, as the French economist Frederic Bastiat said, when goods will not cross borders, armies will!   This boycott can actually start a real all out conventional war between the Indian and Chinese nation state. And we all are aware of the fact that war only means ‘death and destruction’. The Indian nation will be destroyed. All the progress that has taken place in last 70 years will turn into rubble in a matter of minute. India will be back in the dark ages.

All in all, if Indians want to be poor, hungry, unemployed and if they want to totally destroy their country then they can happily go ahead and declare a boycott of Chinese goods.