Monday, July 28, 2014

Are Speculative Hoarders Responsible for Inflation?

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

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

Monday, June 23, 2014

Narendra Modi's Railway Fare Hike

Recently Narendra Modi government increased Railway passenger and freight fare by whopping 14.2% and 6% respectively. Modi government and his fans are giving reasons that it is necessary to raise prices for providing better services and safety in Indian Railways! Is it true? Is it necessary to raise price to provide better services? Or is there a better alternative available? Also, recently the inflation numbers came out and the WPI jumped to 6.01% in the month of May. Immediately Modi and his finance minister Jaitley started blaming 'speculative hoarders' for this price rise. Again, is this true? Are 'speculative hoarders' responsible for price rise? I tackle these two questions in this week's economic report below.

Sunday, June 8, 2014

Narendra Modi and His Economic Policies

In my latest economic report I discuss the slowly unfolding economic policies of Narendra Modi and his BJP government. RBI, mostly under the pressure from the Modi government, recently reduced its SLR by 50 basis point releasing 40,000 crore new credit in the market. This is nothing but inflation. I discuss this and other important matters below.

) -
Estimated Time:

Global Preferences
) -
Estimated Time:
Global Preferences

Sunday, May 25, 2014

A Note on Arvind Panagaria's - the likely chief economic advisor of PM Narendra Modi - Economic Views

Arvind Panagaria is a, as newspapers are describing him, renowned economist from the Columbia university. He and his senior professor colleague Jagdish Bhagwati are famous for supporting and favoring Narendra Modi's so-called market oriented economic model of Gujarat. Panagaria recently gave an interview to TOI where he outlined his main economic views for the Modi government if he becomes PM's chief economic adviser. One look at his views makes it clear that if Panagaria gets his way and becomes PM Modi's adviser, then, we are surely heading for more economic troubles. Below I present Panagaria's views immediately followed by my comments.

1. Upon asked what should be the three priority areas of Modi government, Panagaria said:
End the paralysis in decision-making in the Central government, end the policy uncertainty for investors including retrospective taxation and other surprises visited upon entrepreneurs by the authorities, and replace the current draconian land acquisition act by a more pragmatic one.
Except the second policy of removing the policy uncertainty (he should better focus on removing the much broader problem of 'regime uncertainty' (as first discussed by Prof. Robert Higgs) which is quite different from the narrow idea of policy uncertainty), both measures of ending paralysis of decision-making and replacing current draconian land acquisition act by a more pragmatic one will be a big danger for the common man. Ending paralysis of decision-making can be good for people only when those decisions are in the direction of ending government intervention in economy or in peoples' lives; only when the government is rolling itself back, people can be free to pursue their ends of living a happy life. If decisions are made for more interventions and more crony capitalist fascist policies where businesses will loot the public, then, it is better that such decision making process remains paralyzed.

And, the only interpretation of land acquisition act is that many more land owners - mainly poor farmers - are going to lose their land to the State in the name of phony development and growth. Arvind Panagaria or Narendra Modi or general voters who voted for Modi have no idea of 'Justice' in their mind. The thought that you can not take away someone's property against his wish never crosses their mind. People won't bother for property rights issues as long as they are not losing their land.

2. He was asked about the possibility of lowering the rate of interest to kick start the lack luster economy, and the following was his answer:
The real issue is whether we are willing to tolerate 8-10% inflation or insist on bringing inflation below 5%. If the latter, the answer has to be in the negative. On the other hand, if we show more tolerance for inflation, it is possible to ease up on monetary policy and let the interest rates fall.
In simple words, get ready for more inflation. The whole idea that people are tolerating even 5% inflation is insane. No one tolerates even 0.1% inflation willingly. Will you tolerate government stealing 5% of your annual income every year? And who are these "We"? "We" here only means common man. Inflation benefits government officials and other people who are well connected with the government (people like Panagaria himself), so they are never going to bother about inflation. It is only the common man who gets crushed beneath the weight of creeping inflation. If Modi government is going to go and print more money to fund these mammoth infrastructure projects, then, that will surely kill the Indian economy because printing and spending money is not real growth.

3. On Welfare programs like MGNREGA, Panagaria has this to say:
Definitely. In the current form, both Public Distribution System (PDS) and MNREGA are failing miserably in meeting their objectives, with vast leakages along the distribution chain.
So, Modi government is not actually going to totally end these wasteful welfare programs; they are only going to rework them and change their current form! That is a pure baloney. Making an economically wasteful program more efficient means making the whole process of wasting our precious resources more efficient!!! Changing current form of so-called welfare program is not free market economics; it is not even leaning in the direction of market. Such middle of the road interventionistic policies, as Ludwig von Mises said, only leads to disaster and full socialization of the economy in the long run.  What we need is an end of the whole welfare state itself. We don't need the Nanny government itself.

As I said above, if Panagaria becomes PM Modi's chief economic adviser, then, expect more inflation and more fascism in India. This ain't any free market economics; This is pure fascism.

Thursday, May 22, 2014

On Narendra Modi and his alleged Free Market Economic Vision

So, Narendra Modi and his BJP party won a clear majority in the just concluded 16th Lok Sabha election. On Monday Modi will become the new prime minister of India. The atmosphere all around the country, mostly as seen in the mainstream media frenzy, is euphoric at this moment of so-called historic win of Modi. Most people see Modi as some kind of messiah who will save this country from corruption, economic stagnation, lack of political power and influence with her neighbors etc., etc. I want to focus here on one alleged thought that is going around mainstream media re Narendra Modi's economic vision. Many articles are describing Modi's economic vision - I have dealt with his development model in past article - as, lo and behold, "Free Market" vision (see this for example)!!! Is it really true that Modi's economic policies in Gujarat were free market policies? The best way to tackle this question is to first see the true definition of the free market, and then contrast Modi's actual policies with this definition. If what Modi did resembles this definition then the mainstream media is correct in terming Modi as a free market prime minister. Any deviation means media is, as usual, lying.

First, we see some definitions of 'free market' from varied sources. Wikipedia defines 'free market' in this way:
A free market is a market economy in which the forces of supply and demand are free of intervention by a government, price-setting monopolies, or other authority...The laissez-faire principle expresses a preference for an absence of non-market pressures on prices and wages, such as those from government taxes, subsidies, tariffs, regulation (other than protection from coercion and theft), or government-granted or coercive monopolies.
Investopedia defines it as:
A market economy based on supply and demand with little or no government control. A completely free market is an idealized form of a market economy where buyers and sells are allowed to transact freely (i.e. buy/sell/trade) based on a mutual agreement on price without state intervention in the form of taxes, subsidies or regulation.
World English Dictionary defines it as:

an economic system that allows supply and demand to regulate prices, wages, etc, rather than government policy 

Merriam-Webster dictionary defines it as:
an economic market or system in which prices are based on competition among private businesses and not controlled by a government
And most importantly, the famous free market economist of the twentieth century, Ludwig von Mises, defined a market economy as:
The market economy is the social system of the division of labor under private ownership of the means of production. Everybody acts on his own behalf; but everybodys actions aim at the satisfaction of other peoples needs as well as at the satisfaction of his own. Everybody in acting serves his fellow citizens.
Another champion of free market, Murray Rothbard, outlined the necessary condition for the existence of the market economy:
This means that the key to the existence and flourishing of the free market is a society in which the rights and titles of private property are respected, defended, and kept secure. The key to socialism, on the other hand, is government ownership of the means of production, land, and capital goods. Thus, there can be no market in land or capital goods worthy of the name. (Read the whole article What is the Free Market).
Now, contrast these characteristics of a free market economy with Modi's policies in Gujarat. Do Gujarat has any private property rights regime - which is secured by the State itself - in the means of production? Not at all. In fact, Modi has robbed many farmers of their land during his 13 years stint in power. Do we have different prices like wages, rents etc., being regulated by the free market forces of demand and supply in Gujarat without any interference from Modi's state? No. Just like any other state we have myriad of legislative acts interfering the free exchange between a buyer and a seller. Modi's government taxed like any other government. Modi's government gave subsidies to farmers and industrialists like any other government. Modi's government gave monopoly powers to business tycoons like Tata, Adani etc., like any other government. Modi government has put the people of Gujarat under a heavy burden of public debt like any other state government in India (see this). In fact, Narendra Modi dictated every policy in Gujarat from the get go.

If someone truly understands the system of free market, then, he can immediately see the logical fallacy of the term 'Narendra Modi's Free Market Policy'. If there is a free market, then, there is no Narendra Modi because, as Ludwig von Mises explained:
The market economy [capitalism] was not devised by a master mind; it was not first planned as an utopian scheme and then put to work. Spontaneous actions of individuals, aiming at nothing else than at the improvement of their own state of satisfaction, undermined the prestige of the coercive status system step by step. (The Ultimate Foundation of Economic Science, p. 109)
And, if there is Narendra Modi's free market policy, then, there is no free market. It is Modi's whatever vision that is forced on people!

Actually, Narendra Modi is a fascist leader. There is no free market in Gujarat. It is only socialism where, in reality, government owns the means of production. It is fascism where the state and big corporations loot the hapless public. It is crony capitalism. There ain't any free market in Gujarat, and there won't be any in India now that Modi is the PM of India.