Saturday, November 28, 2015

Bihar Liquor Ban

After a thumping victory against Narendra Modi and his nationalist BJP party, the new CM of Bihar, Nitish Kumar, has announced to fulfill one of his many election campaign promises of banning liquor sell and consumption in Bihar beginning from 1st April next year. After this imposition of ban, Bihar will be one among few of states in India, including Gujarat, my home state, were liquor is totally banned since 1960s, where liquor will be banned by the state government. In this short write-up I will analyze the economics of this liquor ban. People must know what will be the consequences of this ban. Will it become successful in achieving its stated goals?

So why Nitish wants to ban the sell and consumption of liquor in Bihar. Let's hear the stated goals of this policy from his own mouth:
My government is committed to fulfilling promises made to women during the election campaign. There was a surge of complaints from women about male members of the family resorting to drinking and creating nuisance, which also affected the education of their children. (source)
Will the ban achieve this end? If we see theory and history of alcohol ban around the world and in India then the answer is, a definite No (for those who want to know the detailed reasoning for this "no" can refer to Mark Thornton's wonderful book, The Economics of Prohibition).

Let me give a brief analysis of why this prohibition of alcohol sell and consumption in Bihar will fail in achieving its stated goals. First of all, let us remind ourselves that since the beginning the modern man (Homo Sapiens) has resorted to some kind of use of addictive drugs/drinks for religious or spiritual experiences or for simple recreational purposes (for evidence see here). In India itself the ancient Rishi-Munis and other people were known to consume Soma Ras, which was kind of hallucinating drink (see here). This history tells us that consuming such drinks is very natural for human beings, and something that is natural to humans is impossible to remove by such governmental bans. The ancient habits are not going to die quickly or die at all. Government trying to impose its will - or other peoples' will - on others will always fail because of basic human nature. Such bans have never worked in history, and will not work in future too. Actually the issue here is of moral character. Government - or other people who are hiring the government agents to impose their wills on others - has no moral right of stopping people from voluntarily consuming whatever they want to. It is none of government's business to interfere in peoples' lives as long as they are not physically harming others.

Apart from this problem of the ban going against basic human nature, other worst consequences will follow this ban. A basic knowledge of the laws and demand supply will make this point clear.

First, in the aftermath of this ban, the supply of liquor will become less which will increase its price at a given demand. This higher price will make the liquor industry more profitable, which will now attract illegal sellers i.e., bootleggers, liquor barons, mafias etc., into this market because selling prohibited liquor illegally is a very risky business and a crime which can only be carried out by such criminal people. Entry of such mafias will make this once peaceful market into a violent one! Crime will increase. More people will go to jail for a victimless criminal act of consuming liquor. People who are addicted to liquor, which includes everyone who is consuming it in present and many future addicts, will have to now find new sources of income to buy high price costly liquor now, and for that they will resort to petty crimes like theft, robbery etc. If males where creating nuisance in home before this ban, they will create more nuisance after the ban to get more money for consuming liquor. If they were spending 100 rupees on liquor before the ban, now they will have to spend 200 for the same! This means less money will be now left over for their children's education compared to before the ban scenario!!! Not surprisingly, the government policy will, once again, achieve the exact opposite goal compared to its stated goal.

Second, the quality of liquor will also deteriorate once the ban will be imposed. Alcohol prohibition will make the liquor more potent. Because liquor is banned, those who will sell liquor in the underground market will produce low quality liquor e.g., hooch. Many people will die consuming this hooch like we have witnessed time and again in Gujarat where liquor is banned since 1960s (for example see here).

Third, police force will now be busy in imposing this ban leaving aside the important work of apprehending real criminals. This means, those real criminals will have a free play now, which in turn will increase other types of serious crimes in Bihar.

All these means, what is mainly a health issue right now will become a criminal and bigger social issue because of this ban. The Bihar government, instead of making lives better of its people, will make their lives even worst. What more can you expect from the government?

Btw, this proposed ban is just yet another addition in so many bans that Modi's BJP government has already imposed on innocent people of this country (see the growing list here). This new inclusion in this list is coming from Nitish Kumar, whom many are seeing as a new PM of India! This only shows that all these politicians are one and the same. BJP or JDU or Congress, it just doesn't make any difference to the lives of people of India. As I am saying since long, all these political parties don't represent true choice in front of people. True choice is between having a state ruling over us or not! As long as people are trapped in the false choice of voting for the lesser evil, situation is not going to change for better.

Saturday, October 3, 2015

RBI Governor Rajan is Lying

Last Tuesday the central bank of India, RBI, announced its much awaited last quarter monetary policy. The present governor of RBI Dr. Raghuram Rajan was under tremendous pressure of his Delhi masters to reduce the interest rates. Not disappointing his masters, he reduced the repo rate by a big 50 basis point. Raghuram Rajan has an image of an "inflation warrior"; a "monetary-policy hawk"! He is quite famous for his so-called "anti-inflation stance". People think that he was at loggerheads with his Delhi masters, especially the finance minister Arun Jaitley. Many well-known international investors have praised his stubbornness to reduce the interest rate; many even thought of nominating him for a "Nobel Prize" in economic science (it is a different matter that there is no Nobel Prize in economic science; the present prize is given by the Swedish Central Bank in the memory of Alfred Nobel!).

So, is Raghuram Rajan an "inflation warrior" or is he "inflation creator"? Is he really at loggerheads with his Delhi masters or he is complying with them whenever they demand him to? The key to answer all these questions and to understand Raghuram Rajan is to observe his actions, and not his words. Listening to his speeches will make one feel as if Rajan is seriously worried about inflation, but when we look at his action we see something very different. Remember, at the end of the day, it doesn't matter what you say, but it matters what you do.

Is he inflation warrior or creator? 

To understand this answer we must first clearly understand what inflation is. Today's mainstream economists define inflation as a "rise in the general price level". Is this definition correct? Inflation, traditionally, was never defined in this way. Prior to 1980s the true definition of inflation always was a "rise in the supply of money and credit" e.g., read this Wall Street Journal article showing the evolution of definition of inflation. Why did the mainstream economists change the definition? Because they wanted to divert gullible publics' attention from the real cause of inflation, which is the rise in the supply of money and credit, to its effects, one of which is rising prices! Once you change your focus from the real cause of inflation to its effects, it is easy to blame everyone else but the real culprit who is creating inflation. In today's time the central bank - in India RBI - is the monetary central planning institution which has a monopoly over printing rupees. That means, it is the RBI which is solely responsible for creating inflation in the Indian economy. Rising prices is just one of the chief effects of inflation; it itself is not an inflation (please read this one page article on inflation by Henry Hazlitt to understand this phenomena).  

Once clarifying the definition of inflation now we can see that Raghuram Rajan is no "inflation warrior". He, in fact, is the main guy who is creating inflation in the Indian economy just like his predecessor governors. Since assuming the governorship of RBI in September 2013, Rajan has decreased interest rates from peak 8% in January 2014 to 6.75% today (data here)! That is a big cut of 1.25 basis point. RBI reduces interest rates by increasing the money supply in the economy, and that is what IS inflation. The commercial banks will now pyramid their own money supply on this base money provided by RBI and inflate the currency more (to understand the mystery of banking please read Rothbard's brilliant book, The Mystery of Banking). So, Rajan is the one who is creating all the inflation that we see in the Indian economy. To think that he is an "inflation warrior" is a mockery of economic science.

And these continuous reductions in last one an half years' time also shows that Rajan is not at all at loggerheads with his master Delhi government. Whenever they demanded an interest rate cut, he has sooner or later followed their orders notwithstanding his rhetorics against inflation.

This is not everything about Raghuram Rajan. During the recent rate cut press interviews he said few things which will outrage most sane people. In an interview with newspaper The Hindu, Rajan said that, Common man is always benefited by a rate cut. Really? How so? His twisted logic, and I quote, is this:
I think bringing down inflation is the most proper move we have done. Once inflation comes down, keeping rates at a very high level increases the cost for the entire economy. I receive letters periodically from pensioners who say they used to get 10 per cent on their deposits, but now they are getting only eight per cent. However, they don’t realise that they got 10 per cent when the inflation was 11 per cent. Even though they got 10 per cent returns their principal was eroded by a greater amount every year. So, real value of savings were going down. 
Today, if they are getting 8 per cent with inflation at 6 or 5.5 per cent they getting a real return of 2.5 per cent, which is compensating the erosion of their principal so real returns have gone up.
On the surface this arguments looks plausible, but to see why Rajan is wrong we have to only see how the government statisticians measure inflation. Government inflation numbers are based on wholesale prices where prices are always lower than the retail market. Not only that, they only include selected goods in their inflation basket, and the selection of these goods is arbitrary depending on the whims of government politicians and bureaucrats. The highly aggregate macroeconomic inflation numbers hide all the differences in the life styles of individuals in this country. The inflation numbers may go down on government and RBI records, but in ground reality the prices never come down; in fact, they keep on rising year over year e.g., I have never seen prices of most products that I consume go down like many common men of this country (see here). The whole exercise of measuring inflation by taking prices of selected goods in consideration is dubious. It doesn't reflect the ground reality of how people are living and facing real prices rises in their day to day life. Rajan's above arguments are totally disconnected from the ground reality. He is living in his ivory tower with his dubious official numbers. He forgot what the famous phrase about the use of statistics, which is falsely attributed to the British Prime Minister Benjamin Disraeli, says: "There are three kinds of lies: lies, damned lies, and statistics." Rajan is just fooling the pensioners and other hard working saving public of this country with his misleading false arguments. He is not realizing that millions of poor people of this country, who earn their daily bread, never receive any pension! They don't even have any bank account where they get any interest. Their wages are

Above all, as I said above, inflation is not rising prices! It is the increase in the supply of money and credit for which Rajan himself is responsible. Rising prices is only one of the chief effects of inflation. Rising prices definitely do not benefit the common man, but the worst part of inflation is its other effects in the forms of the business cycles and the rising inequality of income where poor gets poor and rich, richer. The manipulation of interest rate results into boom-bust cycle in the economy which hurts the whole economic structure and thus every one of us. The distribution of money by RBI to its favored unproductive debtor class hurts the productive creditors (i.e., savers) of the economy.


So RBI's rate cut policy can never help common men. Rajan is outright lying when he said that. Rajan is not an "inflation warrior". He is the prime creator of inflation in India. Only dismantling RBI and bring the Gold standard back, we can think of doing anything good for the common men of this country.

Sunday, September 13, 2015

BJP/RSS, Sanskrit and Raja Rammohan Roy

Since Narendra Modi and his BJP party's Hindu nationalist government has come to power in Delhi last year, there is a relentless onslaught of Sanskrit language education and India's glorious past's propaganda. Modi government's education minister Smriti Irani has, so far, forced Sanskrit language teaching on the Kendriya Vidyalaya schools displacing the learning of German language (see here, and here) against the wishes of many parents (see here). BJP's home minister Rajnath Singh said that, Sanskrit is most useful for science, technology! (see here) In this speech he can be seen disparaging English language. BJP/RSS Hindu nationalist also hijacked the recent 102nd Indian Science Congress (see here). In a Science Congree, they presented a paper titled ' ‘Ancient Science Through Sanskrit’ with other papers on mythical planes capable of inter-planetary travel and unproven claims of scientific breakthroughs in pre-history!

So, is Sanskrit language and education based on it are very important for India's progress? I am recently reading a book edited by eminent Indologist A L Basham, A Cultural History of India. While reading a chapter on Modern Literature by Krishan Kriplani, I came across a letter written - in 1823 - by Raja Rammohan Roy to the Governor-General Lord Amherst opposing the opening of a Sanskrit college in Calcutta. The fact that a leading social reformer like Raja Rammohan Roy opposed the Sanskrit language education piqued my interest in this letter, and I immediately downloaded it. It is a fascinating read. It totally exposes the present BJP/RSS government's Sanskrit language propaganda. The history behind this letter is also very fascinating and extremely important today. I briefly discuss both this letter and its history below.

I am sure all Indians know the name of Raja Rammohan Roy very well. He is known as the "Father of Modern India". He also carries a title of "The Father of the Indian Renaissance".

So why did the father of modern India, Raja Rammohan Roy, opposed the imposition of Sanskrit language education in India by the British government? The answer lies in the letter written by Roy himself, but before I reporduce that letter, here is the brief history of the circumstances which led Roy to write that letter to Governor-General Lord Amherst. I quote:

The share of Raja Rammohun Roy in inducing the Government to interest itself in the introduction of English education in India is well known. We have already mentioned that in 1813 the Director of the East India Company  decided to set apart a lakh of rupees from the revenues of the  country for educational purposes, when the question of the  utilisation of this amount came up for discussion, there arose  a difference of opinion among the high officials, including  the members of the Council of the Governor-General ; one  party wished to devote the Government grant to giving  stipends to Pandits and Moulvis and scholarships to Arabic  and Sanskrit students and to publishing oriental manuscripts  for the revival of classical learning, and were called the  Orientalists. The other party were for establishing schools and colleges on the model of English public schools for the  spread of western scientific and literary education and were  called the Anglicists. The battle raged for several years, till it was finally settled by the memorable decree of Lord Bentink's Council of the 7th March 1835. Rammohun Roy had a large share in bringing about this momentous decision. At first the Orientalists were in the ascendant and succeeded in securing the Government grant for their purpose. In 1823 Raja Rammohun Roy addressed to Lord Amherst, then Governor General, a long letter which would alone immortalise his name. In it he advocated by unanswerable arguments the introduction of western education after the English model.  The story has been told in full detail by Miss Collet. All we need point out here is that, but for Rammohun Roy's seasonable intervention, the introduction of English education in India might have been indefinitly, at least for a long time, postponed. Though no immediate satisfactory reply was given to his letter, the success of the cause of the Anglicists now become assured ; for when Rammohun Roy wrote on behalf of  the dumb millions of India, demanding modern scientific  education, it was felt that the ultimate triumph of the plea  could not be far off. (source: The Life and Letters of Raja Rammohun Roy). 

Isn't this fascinating? Nobody taught me, or I am sure others too, in the classroom Rammohan Roy's fierce battle against the Sanskrit language indoctrination in favor of English language Western scientific education! Thanks to Rammohan Roy and his struggle against Sanskrit language education that India could progress in the following centuries and catch-up fast with the modern world.

Now I reproduce his letter in entirety below.

The letter is absolutely fascinating and important too just like its history. I quote some important lines from this letter below:
When this Seminary of learning was proposed, we understood that the Government in England had ordered a considerable sum of money to be annually devoted to the instruction of its Indian Subjects. We were filled with sanguine hopes that this sum would be laid out in employing European Gentlemen of talents and education to instruct the natives of India in Mathematics, Natural Philosophy, Chemistry, Anatomy and other useful Sciences, which the Nations of Europe have carried to a degree of perfection that has raised them above the inhabitants of other parts of the world.
This shows that Raja Rammohan Roy very well understood the importance of English language western scientific education for progress. He also understood how Sanskrit language kept the vast Indian populace in darkness for ages! I quote him again:
We now find that the Government are establishing a Sangscrit school under Hindoo Pundits to impart such knowledge as is already current in India. This Seminary (similar in character to those which existed in Europe before the time of Lord Bacon) can only be expected to load the minds of youth with grammatical niceties and metaphysical distinctions of little or no practicable use to the possessors or to society. The pupils will there acquire what was known two thousand years ago, with the addition of vain and empty subtilties [sic] since produced by speculative men, such as is already commonly taught in all parts of India. 
The Sangscrit language, so difficult that almost a life time is necessary for its perfect acquisition, is well known to have been for ages a lamentable check on the diffusion of knowledge; and the learning concealed under this almost impervious veil is far from sufficient to reward the labour of acquiring it.
If it had been intended to keep the British nation in ignorance of real knowledge the Baconian philosophy would not have been allowed to displace the system of the schoolmen, which was the best calculated to perpetuate ignorance. In the same manner the Sangscrit system of education would be the best calculated to keep this country in darkness, if such had been the policy of the British Legislature. But as the improvement of the native population is the object of the Government, it will consequently promote a more liberal and enlightened system of instruction, embracing mathematics, natural philosophy, chemistry and anatomy, with other useful sciences which may be accomplished with the sum proposed by employing a few gentlemen of talents and learning educated in Europe, and providing a college furnished with the necessary books, instruments and other apparatus. (emphasize mine)

 Roy, very rightly, saw that how the Sanskrit language education will be retrogressive for India and its millions of poor citizens. This shows how dangerous the effects can be of present BJP government's efforts of promoting Sanskrit again at the cost of more liberal and enlightened system of education. If allowed to implement their Hindu plans, the present government will sure take India back to Jungle and its Vedic rituals!!! Raja Rammohan Roy saw this danger of Sanskrit monopoly coming and opposed it in his time, which resulted in India progressing under more liberal enlightened system of education. If we will not see this same danger and do something about it then last centuries all progress will be in vain as we will be back in 1500 BC Vedic age!!!

Friday, September 4, 2015

Lessons from Gujarat Patel Riots

The state of Gujarat again, after a lull of few years, erupted in violence in the form of caste related riots last week. The Patels (Patidars, a mainly land owning caste in Gujarat) are agitating for reservation status under the leadership of a young but confused Mr. Hardik Patel. There are many lessons that we can learn from this past week events. I will discuss them one by one below.

Firstly, I above said that Mr. Hardik Patel is confused. I said it because his agitation for reservation status is based on wrong ideas. The real struggle in society is not between Patidars and other OBC caste or SC or ST or Open cateogry caste. The real struggle is not between Hindus or Muslims or Christians etc. The real struggle in not between Rich or Poor. The real struggle is between, the tax paying class of the society and the tax consuming class i.e., The Tax Payers and The Tax Consumers. Nineteenth century American political philosopher John C. Calhoun identified this struggle very clearly. He wrote:
In an extended critique of The Federalist, the pre-Civil War Southern political philosopher John C. Calhoun argued that any system of taxation inevitably divided citizens into two antagonistic groups - the net tax payers and the net tax consumers:
… it must necessarily follow, that some one portion of the community must pay in taxes more than it receives back in disbursements; while another receives in disbursements more than it pays in taxes… The necessary result, then, of the unequal fiscal action of the government is, to divide the community into two great classes; one consisting of those who, in reality, pay the taxes, and, of course, bear exclusively the burthen of supporting the government; and the other, of those who are the recipients of their proceeds, through disbursements, and who are, in fact, supported by the government; or, in fewer words, to divide it into tax-payers and tax-consumers.
And this class division of society is due to the existence of the state (ask government) and its taxation which helps state officials to remain in power via their welfare-warfare state system. We must not forget that government's "reservation policy" is just one tool of its overall welfare state policy which it uses to win votes and gain public support to remain in power (notwithstanding which political party whether BJP or Congress or AAP is using it). If we see carefully then tax paying class of the society includes SCs, STs, OBCs, General category, Hindus, Muslims, Christians, Men, Women, Rich, Middle Class and even Poor people etc. And the tax consuming class also includes people from these very same categories! The government forcefully takes money from the productive tax payers and hands it over as freebies to parasitic tax consuming class.

So actually the tax payers should be revolting against this whole parasitic welfare system of which reservation system is just one sub-system. All Patidar Patel tax payers should be opposing this parasitic system instead of demanding their share of it! As long as the government can tax the tax paying class, it will continue its welfare policies creating conflicts in society, which will lead to many such riots in future. People must realize that their real enemy is not their own fellow human beings, but the parasitic state officials who are using the policy of "divide and rule" to keep them busy in in-fighting when they rule over them without any big problem.

Mr. Hardik Patel, during his Ahmadabad speech, also said that Patidars will only be ruled by that party who will give it freebies in the form of "reservation"! But the real question is, why anyone will want to be ruled by someone? Are Patels so weak and lazy that someone else is required to rule over them? Are Patels some political party's slaves? Why do they want to be ruled? Why not they rule themselves by becoming productive members of the society and becoming free of any kind of government support? The main issue that most people forget here is that the society doesn't depend on the government for survival, but the government depends on the society for its survival. Remember, the state is a parasite which is sucking the blood of host society to survive. The society comes first always and then comes the state, which depends on it!

Secondly, during this riot we again witnessed the fact that the state officials and their police force is in existence only for their own protection and welfare. According to the views of the statist political theorists, e.g., Thomas Hobbes who insisted on the need of the state, the state exists for the protection of the Life, Liberty and Property of its citizens. How wrong these ideas are was again proved during this riot. The state police, instead of protecting peoples' lives, liberty and property, was itself busy destroying all of them. They killed innocent people. They vandalized innocent peoples' property (see here, here and here). Instead of creating peace and order, they spread chaos everywhere. If you still think that the state is necessary for a peaceful organization of human society then you are inviting more such troubles in future.    

Lastly, as I said above, the real struggle here is between the tax payers and the tax consumers. As long as people are "divided and ruled" by the state officials, our society will never become just and peaceful.   

Thursday, August 20, 2015

China's Yuan Devaluation and It's Impact on India

Last week the Chinese central bank PBOC (People's Bank of China) devalued their currency Yuan, which created kind of a earthquake in the international markets. Immediately after that the Indian rupee started weakening against Dollar. In my latest economic report I discuss why Chine decided to devalue their currency, and what impact this move will have on the Indian and World economies.