Every political leader, a representative of “the people” realizes that nobody in “the people” like to face poverty. Yet, poverty is wide spread. Every government aims its political and ruling program at reducing scarcity and helping the poor. Often the statist argues that government is necessary because if there will not be a government, who will care for the poor, the depraved ones. Politicians often use this “altruistic” propaganda to lure the voters.
The only practical solution to the problem of poverty in masses is to increase the productivity of individuals. In absence of government interventions, for the rational profit motive, free market provides an explainable way to make most efficient way for the usage of resources and to minimize the wastage, thus free market naturally is the solution to poverty. Yet, by means of interventions, government induces irrationality in the market and hence, reduces the productivity while increasing the wastage of resources. Obviously, with reduced productivity and enhanced wastage of resources, the government itself becomes the cause of mass poverty and scarcity.
At the failure of all their agenda to reduce poverty, they further come up with same propaganda of “helping the poor”. Well, the end results of government interventions just come out to be opposite. Does government really want to help poor?
In order to hide the evil result of government interventions, it becomes necessary for the government to play with its own issued “Fiat Currency” to manipulate the illusionary GDP figures. As a result, poor people become further poor while government keep emphasizing on the increased GDP rates. When a common man asks, how is that possible that with increase in GDP, poverty is also increasing? He gets the answer that although GDP is increasing at a fixed positive rate (Indian GDP is supposed to be 7%); the prices are increasing at much higher rate. Government than stress that although Gross Domestic Product is appreciable, but inflation is the cause of concern. When government decides the prices and inflationary rate, why is it increasing? Terms like Gross Domestic Product or National Domestic Product has no meaningful relation with productivity of market. When government introduces new currency either by printing currency, purchasing bonds, manipulating interest rates, or by announcing bailouts and help packages, those who use the money at first (obviously, the rich), may get benefits, but the same money becomes the reason of Inflation (Price Rise) and Poverty. No government takes responsibility of Poverty though.
Minimum wage law is commonly known as the saviour of poor and unskilled minority workers. What are its real effects? Minimum wage law forces employer to pay workers no less than Rs80/- per day. At a higher wage, more workers seek employment, but the employer suffers loss of income and hence desires fewer workers to employ. It is simple, if price of sugar will increase, one will use lesser sugar, if price of labour will increase, one will wish to employ lesser workers. In addition, when one can employ a better and skilled worker at say Rs100, why will he employ an unskilled workers at Rs 80/-? That is, the chances of employment for the poor become further less and he is forced to absurd poverty. On the other hand, because of general decrease in will to employ people, even the skilled labour suffers unemployment. Without employment, unskilled worker never gets a chance to work and improve his skills. Thus, he remains without work with any chance to gain any skills. He may choose to beg or be a robber. Obviously, unemployment increases crime rate too, further causing problems to poor.
Thusly, Minimum wage law is compulsory unemployment, reduction in production and it is an incentive to crimes in society.
Furthermore, employers, knowing demand for employment is more, can afford to discriminate between workers. They may employ only the workers of their own caste or religion, as they will have to give Rs80/- to whosoever they employ. Thus, minimum wage law creates caste and religious tensions, hence further crime in society.
Government Health Care2
Government health care system is another such propaganda that is meant to help the poor. First of all, government controls the medical fraternity and education board of India and does not allow free market to produce medical practitioners in enough quantity to serve the ever increasing number of patients. Than, government makes the medical education so clumsy, time consuming, tough and costly that seldom youth want to be a medical practitioner. Again, government forces those “so less in number” produced medical practitioners (doctors, nurses, medical assistants) to work “involuntarily” in villages at least salaries for first few years, and hence makes the medical sector unattractive. With so less number of medical practitioners, the cost of health care reaches enormous heights. In addition, doctors employed at government hospitals suffer the pressure of extreme work-load and to reduce that, they start discriminating and ignoring the patients. Obviously, the poor suffers. Government try to help poor by subsidizing some common medicines. Thus, the profit of medicine production reduces and hence investment also reduces resulting in scarcity of not only doctors and equipments, but scarcity of most common drugs and medicines too.
Government hospitals cannot be maintained properly because of lack of incentive of profits and the natural competition to provide cheapest, best and trustworthy services to the patients. Hence, although poor may go to government hospitals, they seldom get any proper services and treatment. On the other hand, the richer government officials often enjoys the benefits of government hospitals while the common middle class men prefers to go to private clinics.
Overall, only the people of the poorest section that suffers lack of medical services because of Government intervention.
As explained above, Government has a unique fetish to control the Higher education sector. Universities and higher colleges get massive government funding via tax-payers. Seldom has a poor kid gone to higher education. On the other hand, among the rich, it is customary to graduate, no matter they many of them never learns anything and even if they learn, they never uses it ever. While the poor, because of government intervention in education sector, suffers even a scarcity of good and cheap primary education.
Denial to earn an honest living
Government surely causes poverty through its interventions in market, yet government let the poor to earn a proper living, Government is not stopping any poor person to work hard and make fortunes, is it? Yes, government strictly denies the poor to earn honest living by enforcing various barring laws like permits, licenses, regulations, bureaucratic hurdles, zoning laws etc. A rich person can simply bribe the government official and start making money through his business, a poor man even cannot get enough land to open his tea stall nearby a main road. He will have to bribe the police constable, the municipality officials and many more. Thus, by stamping out potential competition from small business, government serves the big business of rich people. On the other hand, the poor again suffers unemployment, as they can not pertain to self-employment. Thus, they find only two possible ways for them, either to be a beggar, or to be some sort of criminal.
Way to Oligarchy
Government control over market is the reason of all types of corruption. In a free market, if a person want to accomplish a project, he need to pay the exact price that the project will cost, not more, nor less. Under government, the person can simply bribe the politicians and bureaucrats to favour him by employing certain policies to reduce the cost of his project. Thus, government control over market always turns out to be oligarchic in nature where some politicians and rich businessmen makes a cartel to maintain the monopoly and control the poor public.
As one can see, not only the aforementioned government interventions but any form of government intervention in market destroys the natural order and ability of the free market to reduce poverty and create peace and prosperity. By means of cost control3 , government actually increases the prices of necessary commodities while production and supply reduces vastly, hence further causing poverty.
Whenever in whatever way government intervenes with market, it creates chaos resulting in wastage of scarce resources, unemployment, and reduced productivity. As a matter of fact, although politicians propagandize their political motives as to help and serve the public and poor society, the government actually is the worst enemy of poor and whatever way it intervenes with Market, it does so just to hurt and inflict poor further.
Hence, in order to really help the poor and let India progress, government needs to leave the Market Free. As free market will reduce the employment rate to zero, (human labour is scarce resource) productivity will increase and poverty will reduce.
No person able to produce and earn a good honest living will choose to be a criminal or beggar.
That will surely reduce the extremes of poverty and hence will reduce the crime rate too.
- Inhumanity of Minimum Wage law, ReasonforLiberty [↩]
- Abolition of Cost is Cause of Corruption, A discussion about socialized medicines, Reason for Liberty [↩]
- Reason of price Rise and effects of Cost Control, Reason for Liberty [↩]
The inflation rate in Indian economy is sharply decreasing since some weeks and now it is around 0.44%. As some economic pundits have predicted, India may face deflation eventually. Obviously, it is an alarming effect of the deep recession India is facing and will have to face.
Is Deflation good or Harmful?
Today’s Economic Times has the screaming article Indian Economy staring at deflation. Is it good news ? in its front page that claims that, deflation is a threat, which must be tackled with.
The most common belief about deflation is that falling prices constitute deflation and thus must be feared and, if possible, prevented.
As Economic Times explains the belief
“If deflation lasts for some time, as seems possible, it would be a new experience for India. Japan went through a decade-long deflation in the 1990s, termed as the “lost decade” for that country. At present, most major economies are witnessing disinflation — a lowering of the inflation rate — and some have also seen deflation kicking in. Japan and China have already reported negative inflation rates in the latest data and there are signs that the US, too, could be heading the same way.
While a fall in prices may sound like good news to most laymen, economists see this as an ominous sign of a collapse in demand in the economy.1 “
While ET demonstrated, deflation as falling prices, deflation is not falling prices but a decrease in the quantity of money or the measure of spending in the economic system.
Deflation actually is fall in demand. Falling prices are an outcome of deflation, not the deflation itself.
If prices fall even though demand remain steady or may increase, than it is prosperity and profit for the consumer and the producer both, and that happens in a free market with enough options of competitions between producers.
On the other hand, if demand decreases, (that is, deflation occurs) the prices falls as a result of decrease in demand.
Deflation is obviously harmful, yet the falling price is not harmful, in fact, falling prices is the actual and only possible cure for the deflation.
Falling prices are that cure to the economy, which is suffering from deflation that makes it possible for the economy to recover from the situation of deflation and start enjoying the economic progress again.
Let me explain this again. Deflation is decrease in Demand, or decrease in willingness to spend, it is a dangerous situation as it causes unemployment and chaos, the solution is Falling prices, that is, the falling prices indicates that the economy is at the path of recovery from deflation, how is it possible?
Let us consider that before any deflation Mr. Ramesh used to go once a week to buy flour from the shop, he could afford to spend Rs20 for the flour per week, at a price of Rs2 per Kg, he used to buy 10 Kgs of flour. Suddenly the economy suffers deflation and victimizes Mr Ramesh too. Now he is not willing to spend Rs20 for flour and at most, he can spend only Rs10.
If the prices will not fall, Mr Ramesh will be able to buy only 5 Kgs of flour, while his weekly need is of 10 kgs, that is, he will suffer a loss of 5 Kgs of flour, and He may starve. On the other hand, if prices fall from Rs 2 per Kg of flour to Rs 1 per Kg of flour, Mr. Ramesh will be able to buy 10 Kgs of flour for a week at his affordable spending of Rs10.
If one look for the situation properly, they will understand that deflation was Mr. Ramesh’s lack of will to spend Rs 20 to buy 10 Kgs of flour, his demand for flour was forcibly reduced, but as the prices fell down, he again bought 10 Kgs of flour, that is, his demand reached the proper need and that is the cure of deflation.
What is Mr Ramesh deny buying a commodity even at reduced prices, will it help economy?
Let us say Mr Ramesh used to buy 2 Litres of milk every day before deflation at a price of Rs8 per Kg, that is, he was ready to spend Rs16 per day for milk before deflation. Due to deflation, that is, due to lack of money, he reduced his demand to 1 litre per day as he wished to spend only Rs 8 for milk per day. To counter the deflation, the prices of milk fell down to Rs 4 per litre, that is, now he can buy 2 litres of milk for Rs 8. Yet, if Mr Ramesh decide not to buy extra milk, which will save his Rs4 from the amount he decided to spend on milk. Obviously, he will be able to spend that extra Rs 4 on some other commodity, say he will buy a packet of Biscuit Parle G. Overall; the fall in prices will help in reducing and eventually completely curing the effect of deflation.
Thus, although deflation is a sickness to an economy and hence it is harmful, yet the falling prices is the only possible solution for deflation and the current scenario in India where the deflation will soon signify its consequences in form of falling prices, the things will better by themselves.
What is the cause of Deflation; can government intervention solve the situation?
India is facing liquidity crunch since last November. Finance ministry and RBI issued three stimulus packages to solve out the credit crisis, yet it provided no betterment in situation, the bail out of economy in form of economic stimulus absolutely failed. It was obvious as any governmental intervention can never help any market, it may cause havoc though. We explained it here and we discussed why economic stimulus is nothing but robbery of common citizen.2
The liquidity crunch in India is because of the bad assets of the government and private banks and the lost money in failed credits. Government and the centralized bank RBI control the repo rates, credit and lending policies in India. In order to increase GDP and profits, government and RBI always try to stimulate government and private banks to lend credit as easily as possible, and that often causes bad assets.
Some times, for the cause of making greater profits, the private banks also make risky adventures and fails miserably, and that all causes credit crunch. As the money in market decreases, the demand starts decreasing and hence the deflation.
The reason for such failure is the obvious monopoly of the government and RBI over currency supply in market, and the flaw in the system is because of the Fiat Currency system. The fiat currency often forces high inflationary rates, which may reach the hyperinflation rates and the forced bad risk dealings in the environment of economic bubbles often leads to a situation causing deflation.
Thus, initially, the fiat currency system, government monopoly and interventionism in market and bad decisions based on fake profits due to economic bubbles causes the cycles of Inflation, hyperinflation and deflation.
As demonstrated earlier, the falling prices cure this sickness of the regulated mixed economies.
The falling prices not only cures the problem of deflation, it also cures the mystery of economic bubbles and provides a clear picture of actual market growth by eliminating almost all the non-productive and non-profitable activities in the market.
As the enforced policies of regulatory government and institutions like RBI causes the cycles of inflation, hyperinflation and deflation in a market by misleadingly regulating the supply of currency in market, we cannot expect further supply of currency by government to solve out the liquidity crisis. That is the reason why the economic stimulus plans of various countries including USA, India and China are actually providing no results.
Will the government interference in form of economic stimulus change the situation?
Government talk of providing economic stimulus to counter the falling prices.
As falling prices are, the solution to deflation, by trying to avoid falling of prices, governments actually increases the tenure of economic crisis. It happens because the stimulus leads people to postpone buying even in situations where they have ability to buy, the consumer prefer to wait for falling of prices. On the other hand, the falling prices stimulate the consumer to buy the commodities.
Thus, whatever interventionism a government adopts to provide economic stimulus, further increases the mess in the economy.
Also, considering the fact that Indian government suffers one of the highest fiscal deficits everyday, we know that Indian government does not have potential to provide any economic stimulus, yet the government already have provided three economic stimulus of amount Rs2000 crores each, and now, the upcoming elections will further cause Rs10,000 crore of spending.
When government is already going in fiscal deficit, how will the government manage these extreme spending?
Government have three ways to support these already provided stimulus packages, the election expenses and further Rs30,000 crores of stimulus government have promised by any of the following ways
1. Higher government taxes
2. More government borrowing
3. More, freshly printed Reserve Bank notes.
Any of these moves will further deteriorate the economy by giving birth to a new cycle of economic boom and burst.
Taxation is a failed measure of revenue projection that is why Indian government always remains in fiscal deficit. Besides, higher tax rates discourage people from saving and investing, especially when such taxes target the rich.
Increasing taxes on middle or poor class makes no sense, and increased tax on rich deprives the economy of the funds necessary to grow production, income, and employment.
Thus, the first option is failure by default.
Indian government already have asked for economic help from World Bank and IMF, thus we can expect that Indian government may take further loans and debts. We know that foreign aids never helps an economy, we discussed how foreign aid actually harms a nation’s economy.3
The government monopoly over the currency is the ill-power, by which government can create money from thin air any time, but printing more currency does not help any body, it causes further extreme problems though which we discussed here.4
Thus, no matter what way government adopts to fight against the falling prices, the way will lead to further deterioration, not only that, countering the falling prices itself means strengthening the deflation.
We have already seen how economic stimulus proved a big failure in USA, Indian government should take lesson from the failure of Obama stimulus packages and should keep away from market, adopting the policy of free market, no interventionism.
- Deflation, is it good news?, Economic Times [↩]
- economic stimulus is not cure, it is venom, Reason for Liberty [↩]
- Foreign Aid Versus Foreign Investment, Reason for Liberty [↩]
- The story of Money, What causes Inflation, Reason for Liberty [↩]
“Paradox of Savings” has been one of the major offerings of Keynesian “economics” to economic policy-making. Not many other policies have contributed a solid assault on savings as a genuine way to economic growth. I will now try to explain the gist of Keynes’ (alleged) paradox and follow it up with a short rebuttal. This article will be longer than what I usually write, but bear with me.
Keynesian economics basically considers two major economic aggregates while checking the health of an economy: the income-output scale, and the savings-investment scale of the economy. The total income must necessarily equal total output, but savings need not always equal investments unless the economy is in a equilibrium. When people decide to save too much for any reason, Keynes argues, the economy would dive into a recession because businesses would have unsold inventories (which in turn induces them to cut jobs and halt expansion). The government could actually play an important role in this situation by encouraging people to spend, or even take the initiative itself and start disposing huge public public spending–all this to get rid off the lack of demand and make businesses sell their products.
This reasoning forms the policy advise of journalists and economists who advise government spending to remedy recessions. Some even go further and say while savings of an individual could mean that she has an essential safety buffer to sustain herself through a gloomy future, on the larger scale however, as in the case of an entire economy savings have unfavorable effects since the economy is spending based. This was called by Keynes as the “Paradox of thrift” or the “Paradox
Keynes’ proposition could be right if we are to consider ourselves to live in an extremely simple economy, where consumers like us can get our products ready in a very short span of time. Like for example, how we could order water from the stream and the workers would get it for us in no time at all. In such a simple economy where ends are met in a very short span of time with very little complications involved in the process Keynes’ proposition that spending keeps our economies running could work. (It would pay here to notice that we have not accounted capital goods in this very simple example. This will turn out to be the key point when we enter into a complex economy.)
There is fundamentally everything wrong with Keynes’ proposition when we place ourselves in a complex economy. Keynes’ fallacious argument roots from the basic lack of understanding of the `structure of production’ which is very complex in a division-of-labor society. Any product we use in today’s extremely complex economy is provided after complex levels of processes which happen at different points of time, and at different pace. This is called the economy’s `inter-temporal
structure of production’. So there is essentially a time lag involved in the production process. This basic understanding can travel us long forward in understanding the economy and refuting arguments of economists like Keynes.
Now we consider ourselves to be in a complex economy, and so, we have extensive division of labor using capital goods to produce products which serve as inputs to subsequent levels of production before arriving at the consumer market as finished consumer goods. The introduction of capital goods into our economy also brings to our purview the importance of savings. The most important function of savings is that they render capital construction, as the following example will explain.
Lets consider a fisherman who is accustomed to catching fishes with bare hands decides to have a net for himself to boost production. He could fish 10 fishes working 8 hours a day with his bare hands. When he decides to have a net to catch fishes he dedicates 3 hours of his normal work schedule towards building a fish net, thus lowering his time spent on catching fishes and thereby essentially cutting down on his present yield of fishes to say 6. What the fisherman actually
does, from an economic point of view, is to annul 4 fishes from his present consumption to save the time equivalent of catching 4 fishes to concentrate on building a net which could boost his future catch of fishes. In simple words, the fisherman forgoes present consumption to fund his future. He simply saves.
Anybody who hears this example should now be able to understand the importance of savings to genuine growth of any economy. But it is this very foundational principle which most economists have done away with.
Now getting back to the issue in hand, excessive savings can actually in no way, as Keynes fears, affect the economy. When people decide to save more of their income, that is when people decide to cut down on their present consumption, they effectively provide a signal (through low interest rates) that they do it to fund their hefty future needs (perhaps a boost in production). This requires investment in capital equipments construction. The entrepreneurs in the economy are those who receive this signal (again the low interest rates). Sensing the availability of loans at low rates entrepreneurs would decide to invest in capital equipments construction projects which essentially require a lot of time lag before the final product reaches the consumer.
The reader must now be able to guess what would happen if people don’t want to save. It essentially means that people don’t wish to cut down their present consumption to fund their hefty future needs. So that would mean higher interest rates, and discourage entrepreneurs to take up loans for capital equipments construction. The economy would essentially, however, keep producing consumer goods with the present amount of capital equipments available at its’ disposal, without any boost in production.
What we see here essentially, and that’s exactly what is pertinent to the issue in hand, is that high savings by people only lengthens the `inter-temporal structure of production’. It would not lead the economy into recession as Keynes fears. It is not that people never spend, only that they decide to save now to spend it at a future date. The bonus consumers get is a boosted future production because of investment in capital goods.
The next question that arises is how then does this model explain recessions that happen so often in modern economies? I will deal with it in the next article I write. Till then people could try to guess it from the alleged mismatch between savings and investments in the economy.
“Hindi-Cheeni Bhai Bhai” (Indian and Chinese are brothers).
Now again after years, China and India are together on a plane to project their political protest against the socialist USA and its protectionist policies and moves.
Chinese Ambassador Zhang Yan stressed that China along with India is strongly against trade socialism in form of protectionism. He stressed that such move is harmful for the recovery and growth of world economy. India and China now are against any form of protectionism and socialism and want to establish and stand by the principles of Free Market capitalism.1
The Indian and Chinese policy maker realizes that socialism in form of protectionism is detrimental to the world economy and I second that.
Now when the most ardent supporters of communism and socialism are pleading for Free Market principles, and opposing any protectionist move of USA, I feel that things may go in right way.
Yet, do we realize our own hypocrisy?
When protectionism is dangerous and harmful for world economy, how can protectionism be purposeful for Indian or Chinese economy?
When Indian government is ready to fight against USA socialist protectionism in World Trade Organization, why do not Indian politicians fight against Indian internal protectionist policies like reservation, subsidies, government interventionism and enforcement, taxes, bans, government promotions, and economic stimulus and bailouts?
When India and China both understand and agree that the protectionist moves of USA will harm not only India and China but whole world including USA, why do not these countries should start removing the wrong and mending their own ways first?
Indian Minister Kamalnath and P Chidambaram strongly expressed their stern opposition for Obama tax plans and confirmed that they will contest against US policies in IMF and WTO, will congress leaders express same truth in India too and oppose Indian own policies of protectionism? Will they call for free market and capitalism in India and China too?
Or do they want India and China to remain socialist and enslaved yet they assume USA should remain capitalist and promoter of free market?
If free market is detrimental for whole world, how it can be favorable for India or China?
Indians should learn to accept that truth does not turn it face with nations, if socialist protectionism is going to harm whole world, than reservations, bailouts, free education, subsidies and taxation is harming India too.
What is necessary for progress, happiness, affluence and good life is Liberty, All the stimulus we need is “No taxation without deliberation.”
Socialist protectionism will hurt whole world in the same way in which Indian government’s interventionism hurt Indian agriculture. The government’s policy to promote GM seeds2 caused the genocide forcing Indian farmers committing suicide, even now 46 farmers on average commit suicide daily in India, do government realize that before opposing USA’s policies of socialist protectionism, Indian government should take positive step to free Indian agriculture, announcing it a industrial sector and let free market principles help the farmers lead their life make their own destiny and riches?
In next G-20 meet, India, Brazil, China, South Africa, all nations will oppose protectionism and will support free market principles, why should not Indian government announce to support free market principle in water resources management, water distribution, electricity production, maintenance and distribution?
We all know all Indian rivers are suffering from extreme pollution and India is suffering water scarcity which will take a giant shape within decades, we and all politicians know and realize that government intervention is the cause of this and if free market principles are applied, Indian problem of water scarcity and pollution, electricity and power problems will be reduced to bare minimum.3
When Indian politicians are ready to oppose American socialist moves and protectionism, why should not they strengthen Indian commitment for Liberty, freedom and free market principles?
Indian major problem is poverty, we know poverty cannot be removed by worthless free-education program, poverty can be reduced only by increasing the productivity of the poor, and that can be done only by free market, redistribution of wealth through taxes and subsidies causes wastage and misuse of resources alone and that increases poverty and suffering. Why should not Indian government and politicians should stand together and vow to establish free market principles within India first to reduce poverty? Government cannot create job, government cannot create wealth, government, and by its interventionism, can waste resources, wealth and human efforts in non-productive-activities alone, which becomes the reason of all corruption, poverty, frauds and mismanagement.4
Since last 60 years, India is trying to spread literacy, and it failed because of government interventionism, (The myth of complete education,Reason for Liberty)) let the free market principle project education so that even the poorest can get proper useful education not dependent on some fuzzy governmental certification system but on the basic objective principle of education and that is to provide a way to earn a honest, proud, and self-worthy earning, to learn the right way to think rationalize and project a good life based on proper positive moral standard of self-respect, happiness, independence and liberty, liberty of man from men.
Indian health care system is one of the worst whole around the world. Government is just unable to provide good health care opportunities, after all it takes wealth, resources and human endeavour to provide health service, why should not free market, education and free market health care system be allowed to help Indian poor to fight against any ailment and earn their own right for comparably good health care procedures? Just like free market forces alleviate Indian IT and engineering sector, just like now we have immensely large number of technicians, engineers and diploma holders in all branches and sectors of engineering and technology, why should not free market be allowed to produce doctors and simplify medical education system and then let the doctors earn their ways by helping the poor?
Health care is expensive because of government interventions, free market will ensure the increase in number of specialist doctors to fulfill the demand, and that will reduce the cost too and will provide millions of new jobs in health care.5
It is a high time when Indian public, the common man, Indian politicians, the rulers and Indian bureaucrats should accept this simple fact, that since they realize protectionism is going to harm whole world, they should realize that their own governmental intervention in Indian market and productive life harms whole India, causes wastage, increase poverty, suffering, corruption and crime.
Just like India as a nation deserve free market capitalism and globalization opportunities in world market, Indian citizen deserve Liberty in India.
- China joins India against Protectionism, Times of India [↩]
- GM Genocide, Reason for Liberty [↩]
- Water Scarcity in India, Reason for Liberty [↩]
- Population, Poverty and Production, Reason for Liberty [↩]
- Indian Health care requirements, Reason for Liberty [↩]
America used to be the prime destination of the best and brightest immigrants from whole round the world, but with its stride to adopt for socialism in form of protectionism, and announcements to cull tax reliefs to the companies employing foreigners working on H1B visa and other issues, now America is loosing its shine.1
What the dangerous threatening groups like KKK could not do in years, is being done by US government and its protectionist policies within months. Such is the nature of poison of socialism and US is hell bent to take its gulp now.
US enjoyed the luxury of being the strongest magnet for the immigrants for long time, and those immigrants actually made USA the world’s most innovative and technically sound nation, now the lustrous history is about to be faded. India and even so-called communist China are gradually picking up race for being the strong magnet to catch the best minds ready to innovate and deliver ways, techniques and procedures to produce wealth. Immigrants actually can be the major engine of productions, knowledge, technology, economical success and pride and none other than Americans no this reality.
Yet for their newly acquired colors of socialism in form of protectionism, they are at the brisk of loosing that extra edge.
Around 1 lakh Indians are about to return to India in the next 3 to 5 years span, and according to a new American study, this is going to harm US as deeper as the current economic crisis is harming.2
We used to discuss about the harms of brain drain which the native countries of the immigrants suffers, and now the same immigrants when will return to their native countries with much acquired skills, knowledge, technological know-how, new innovative ideas and practices which they learned and skilled well in US, the native countries whole round the world will gain their services and hence the consequential wealth production gains. Obviously, it would be a loss from all sides for the USA.
On the other hand, other nations like India can gain from the opportunity.
Immigrants used to love US because of the environment of individual freedom and support for talent irrespective of the caste, economic class, colour, and religion or creed bias. Yet, when now US government is hell bent to provide reservation and special treatment for the US citizens and workers, things are going to change.3
The immigrants are returning to India because of better environment India has provided since 1991 with its spree for liberalization.
As the private sector in India now is the main source of wealth production, and it is not as murky and intervened by Indian government as it was before 1991 periods, the highly skilled professionals feel they can get their rewards for their talent and hard work in Indian private sector.
Yet, all this can go in vain too. India is not so free of socialist plots and illusions even now.
The same Indian government, which is strongly opposing US socialist moves in form of protectionism, giving reason for globalization and free market principles, is very much used to the ways of reservations, price control, labour control and even salary control.4
Even now, Indians believe the myths of population explosion and consider that with such huge population, distribution and redistribution of wealth is necessary otherwise, many will suffer poverty. Even now, Indian politicians and majority electorate still believe that reservations, quotas, economic stimulus and direct money vouchers for poor can really help in eradicating poverty. People in India still believe that by enforcing compulsory and free education for all, they will solve the problem of poverty of masses. Even now, the Indian electorate believes that by dividing people on name of caste, creed, religion, and sex and hence making profitable vote banks to win majority votes, politicians actually help Indian public.5
With such political environment, what will happen if tomorrow Indian government enforces reservations in private sector?
India is already suffering with high unemployment rates, and with the economic downturn, the number of jobs is vanishing day by day. With this new crop of talent coming back to India, the competition will obviously increase and the private sector will gain more opportunity to garner the best amongst the better.
Will it strangle Indian and make them further poor?
No, actually, competition and freedom never make anybody poor; government policies, interventions, quotas and reservation do spread poverty though.
With better professionals and innovative minds, the investors will gain more opportunities and ways to produce more, more production will provide more and varied jobs, self-employment and earning opportunities. The more the private sector will remain free from governmental interventionism, the more it will produce wealth and reduce poverty. India is already a bug hub for R&D services, with the strength of these returning immigrants; India will gain in many other sectors too.
To utilize this opportunity, Indian government need to keep off from trying to intervene in private sector and let it thrive on its own.
Now when we have an opportunity to let all live free and earn their life with their respective talents, we can create a work ethic based on freedom, peace and equality.
Yet the problem is, with the politics of vote bank,6 can we let the private sector free to explore chose, liberate and procreate the talent in India or just like USA, Indian government will also start intervening in private sector on the name of protecting the vote banks? Indian government is already preparing to provide economic stimulus for the immigrants returning to India after loosing their jobs, now if government tried to intervene in private sector and production house, obviously instead of helping India to be the next strongest magnet for innovative brains and the topmost wealth production house, this returning crowd of talent will end as a burden on India and nothing else.
We should realize that the problem of poverty cannot be solved by reservations or bailouts or economic helps, poverty can be solved out only by means of productions, wealth creation and job creation, as government cannot create productive jobs, only private sector, investors, and the common individual citizens like you me and us can, the more government allow us to be free, the more able we find ourselves to create jobs for others. We should understand this fact too, that by providing reservation or special packages for some sects to gain vote banks, politicians actually hurt the thread of creating jobs and producing wealth and that causes further poverty, discontent and depletion and the consequences of such scenario often turn out to be dark.
Let us hope we Indian will learn from our mistakes soon and will not allow politicians to divide us on the name of caste gender and religion and let us thrive in our live based on our own hard work talent to make our own destiny earned by our own self.
Let us hope we will gain from this reverse brain drain by promoting liberalization and individual freedom rather than making it a further burden on our socialistic frame.
- The threat of Protectionism, Reason for Liberty [↩]
- USA will suffer the cost of loosing the best talent, Times of India [↩]
- Obama the new Robin Hood, gargid [↩]
- Obama the new Robin Hood, gargid [↩]
- Population, Poverty and Production, Reason for Liberty [↩]
- Story of socialism, welfare and brain drain, Reason for Liberty [↩]
Globalization not only has raised a stage of cultural sharing and expansions, it has provided a wider scope in every aspect of common life whole round the world.
National politics is also not unscathed of the global effects. Out national politics and economics, so much depends on the various global international groups, organizations, planning commissions, treaties and protocols.
One of the most important of them is the Kyoto Protocol and Environmentalism is the new political mantra at the helm.
Almost every other country is now whirling around to cut the carbon emission rates.
Now when there are enough evidences that global warming is nothing but a fake idea, the environmentalist politicians have a new way to rush upon their emotional tactics based on the call to “save mother earth”.
US president Obama has promised to invigorate the green energy industry as the new engine for the economic growth. The current economic crisis is providing enough chances to raise his sticks and implement his plans to create the new bubble of green economy providing millions of new jobs and to achieve that, he is going to implement some governmental “incentives” to promote green energy.
These incentives include carbon taxes and huge subsidies for innovation and development of “renewable” non-carbon energy resources.
India is also not very far behind, and as India is a signatory member of Kyoto protocol, Indian government promised it would introduce new norms that would involve tax concessions, incentive schemes including legislative framework to motivate Indian Inc. to effectively undertake carbon emissions reduction program.1
India is already facing an electricity crisis and we really do not produce enough electricity to provide electricity in every household. A big portion of rural India still remains in dark at nights. Yet our politicians can promise to reduce carbon emission within a scheduled period.
Obviously, politicians never promise to fulfill their commitments.
On reality grounds, the “green energy” drive is fake and failure because, the environmentalists not only oppose the coal thermal electric plants, they also oppose nuclear plants too, and what they support for is the “renewable energy resources” like wind, solar and sea energy and that makes it a conundrum.
The governments, by providing huge subsidies to the innovation in green energy market can make it some heavy deal, but it will not be helping anyone.
The renewable energy resources cannot fulfil our requirements of energy not because we lack technology, but because it is not viable nor it is economic.
Around 76% of Indian energy comes through coal thermal plants, 21 % by hydroelectric plants and 3 % by nuclear plants. With the new nuclear energy deal, India will try to look for options to increase the percentage of nuclear energy.2
The “renewable” resources play almost no role. We cannot rely on wind mills because of intermittent nature of winds; also, wind mills require huge grounds. We cannot rely on solar cells, because of extremely low efficiencies of solar cells; also, it is not economically viable idea. The latest and most efficient solar cells use Lead selenide (PbSe) in their making. Just like PbSe, almost all heavy metal salts necessary for a solar cell are toxic in nature and can cause much greater harms to environment than what CO2 can cause. That is, the renewable resources can harm nature much more. In addition, heavy metals are rare, hence expensive, and thus not economically viable.
No matter how huge subsidies government provide, we cannot afford it.
Furthermore, such endeavours have already proven their failure.3
Many European countries are again returning towards coal thermal plants because their earlier initiatives to bring upon carbon taxes, investment, and subsidies in green energy are making electricity too much costly and hence common people are suffering, also, no plans are working to decrease any carbon emission.4
The conundrum of energy is because, fossil fuels are finite, we cannot remain dependent on them forever, renewable energy resources are not sufficient to fulfill our requirements, and nuclear energy is also not a very viable option.
Although fossil fuels may end earlier, yet the charcoal and coal tar beds will keep providing enough fuel and hence power to the world for longer periods.
The example of European failure clearly explains why taxes never work. Because of increased carbon taxes, the price of coal increased sharply and that was what government wanted to fight against global warming. Yet the result of all this is the huge increase in power rates needed for everyday usage.
India is already facing huge inflation rates. The rich can buy costly power and electricity too, the green energy steps will stress more burdens over the poor and no carbon tax can actually reduce that burden.
Carbon tax is also not a good economic move and it will increase poverty. We know that to reduce and ultimately remove poverty, production is the only way. By slapping carbon taxes on production houses, government will reduce the production and that will increase poverty.
The overall situation is government can provide no viable solution for electricity crisis and the environmental cause simultaneously. Government interference in market in support of environmentalism will not only make people poor, it will hurt the environment more. We cannot opt for hydroelectric plants because of the other side damages hydroelectric plants can cause (Earthquakes). With the limitations of wind and sea energy, and the economic failure of solar cells, we can not rely on them; furthermore, the making of solar cells can prove to be bigger danger to environment and human life. Not only Lead Selenide but polysilicons also left a huge toxic residual, which harms human life and nature much more than coal and we cannot rely on nuclear energy production too. Even in US nuclear power plants provide only 17% required energy and government are in opposition to nuclear plants because of the dangers of nuclear waste and the consequences. There is no safe way to dump nuclear wastes.
Overall, coal is the best option for our energy requirements and as we know that coal will keep serving us for many centuries more, we have enough time to innovate, invent and discover new ways, yet for that too, government interference is not viable.
In fact, the more we provide freedom to market, the more close we reach towards the solution for the energy conundrum.5
The current electricity losses in India during transmission and distribution are around 45%. It is huge and if we privatize the production, transmission and distribution of energy, the private owners will reduce this huge loss because of their profit incentives and that not only will bring electricity within reach or poor, it will make many dark villages bright.
The privatization of electric distribution is already an ongoing process and it is helping in reducing the wastage, yet we need a free market in electricity sector as that would induce the private investment in the innovation and development of energy production techniques and that will include nuclear techniques too.
Furthermore, if government stop interfering in oil, coal market, and stop providing subsidies, the common users will also get incentives to reduce wastage and over usage.
Thus, the real green initiative will be the reduction of government interference in market and provision of property rights as that will reduce any chances of exploitation of common man through government supported corporatism. We need to understand the difference between corporatism or crony capitalism and free market laissez-faire capitalism, and we need to adopt the later one.
The current slapping of carbon taxes on Industries and dumping of collected tax in non-viable energy resources is not going to help either environment or the economy.
Basically, the US government and other governments also, aim to slap carbon taxes just to decrease the fiscal deficits, as government know that industries cannot work without carbon. Such moves are never taken for helping environmental cause; they are rather more Keynesian economic steps to increase taxes, which ultimately hurt the economy as production reduces.
The promises of huge governmental investments and subsidies in green energy are also nothing but similar Keynesian steps to increase government spending.
Yet, it is highly improbable to help any economy with such spending in non-productive activities; they will cause further economic downturn.
Taxation and subsidies never brings any good.
- Indian government to Introduce new Carbon emission norms, Commodityonline news [↩]
- Electricity in India, Wikipedia [↩]
- Failure of European Green Initiatives, Reuters news [↩]
- Failure of European Green Initiatives, Reuters news [↩]
- Electricity in India, Wikipedia [↩]
A very famous economic fallacy that has won a huge number of supporters has been the belief that machines cause unemployment. Such preposterous beliefs which have neither rational justification, nor any empirical validity have been the roots of growth of primitive ideologies, which have called for mankind’s return to it’s “glorious” past.
For centuries men have believed that machines, or technological changes in general, destroy jobs on a large scale, and that they’d have to stay home jobless the next day on. It is true that technological changes destroy particular jobs, at least partially if not completely, but it should also be understood that these technological changes create new avenues of growth which will create new jobs.
The improvement of production techniques and the resultant mass displacement of jobs from agriculture a century ago, might seem like an unacceptable act of cruelty against the masses. But it’s quite the exact opposite, that is, the technological changes have benefited the masses.
More than half of the labor force of North America and Europe was employed in production of food stuffs during the early twentieth century. But today, less than 3 percent of the labor force is required to feed a population that has grown many times more. In fact, in the last century, the population of North America has increased four times, and Europe’s population has roughly doubled, while the percentage labor force required to feed the increased population has shrunk by about 15 times.
It makes sense to track the fate of those displaced workers. The technological change has in fact helped mankind, by releasing labor from agriculture to be used for production in other sectors of the economy. The advantage of technological changes is that it increases the marginal productivity of labor, that is, the quantity of goods a laborer can produce has been increased by the use of machines. This is the only way the living standards of the masses could be improved.
The dislike for technological change could be seen pronounced in the writings of economists of the modern era as well. Their concern is about the Information Technology revolution that has made economies knowledge intensive, and the disparity in wages among the members of the labor force.
But this could be no reason to stop technological growth, since even though there may be differences in relative wages, which in fact is an unavoidable character of economic competition, the real wages of laborers increases due to increase in the total wealth of the particular society. That is the real purchasing power of a laborer’s wage money increases as wealth of the society increases.
This sort of faulty reasoning of economists is the product of undue emphasis on the immediate effects of technological changes, with no heed to their tremendous beneficial effects in the long run.
As Austrian economist Henry Hazlitt says:
“Economics is a science of recognizing secondary consequences. It is the science of tracing the effects of some proposed or existing policy not only on some special interest in the short run, but on the general interest in the long run”.
US President Barack Obama has announced his intent at withdrawing tax-cuts to American companies that outsource work to foreign countries. This announcement comes in as one of the many ingredients, of a slew of populist measures that Obama has been churning out since assuming office last month. Policy-makers claim that heaping the tax burden on American companies that outsource jobs to foreign countries could save American jobs.
This sort of an economic policy could be disastrous to general efficiency of the economy and slacken creation of new jobs. One must take care of the fact that work is always there to be performed in any economy, since human needs are without boundaries. We essentially live in a world of scarcity, and any level of increase in the productivity of labor will never suffice to satisfy the immeasurable needs of the society. So the basic point is, labor is scarce, and will always remain the same.
But what are those statistical figures we get as unemployment numbers in government reports? Nobody could deny unemployment does exist. But such unemployment in today’s world is usually a result of government policies which adversely affect job prospects, and in turn efficiency of the economy in the long run. In a truly free market, the only two kinds of unemployment that could exist are frictional unemployment (that is, the temporary unemployment during the period when people search for new jobs) and voluntary unemployment (where people make a voluntary choice not to work).
Talking about outsourcing of jobs and it’s impact on domestic unemployment, it should serve us better first to imprint in our mind that labor is scarce, as already mentioned. The next important step is to understand and trace the consequences of discouraging outsourcing of jobs to foreign countries.
There are three important points to be considered here:
1) The basic reason why companies from developed countries outsource jobs is the availability of cheap labor from developing countries. So this means the products that these companies produce to serve mainly the American consumers become cheaper considerably. This implies that the real purchasing power of an American dollar should increase.
2) The funds that American companies save by employing cheaper foreign labor while compared with high salaries previously paid towards Americans, could be used as investment in other sectors of the economy, or to increase the size of existing industries which would create new jobs for Americans. In the absence of the outsourcing option, the American companies would be forced to spend comparatively more in the already existing industries (that is when compared with costs incurred when foreign labor could be employed), without having a chance to invest in new industries (or expand existing industries) which could create new jobs.
3) The availability of cheap labor also means American companies become more competitive and efficient than their counterparts in other countries. It also makes Americans compete and become more efficient. More than anything it makes specialization of jobs, which is the reason for the riches of today’s industrial civilization.
The only thing that policy-makers need to understand is that businesses need to be given the complete economic freedom worldwide to create new jobs at home, and increase living standards of Americans. Any short-sighted measure to save current jobs, will definitely halt growth in the long-run.