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Indian Libertarians

Life, Liberty and Property

History Repeats

FoolishRisk Thursday October 23, 2014

Listen and download here:

http://soundcloud.com/foolishrisk/history-repeats

Lyrics

Once upon a time the risk was ruled by the ancients
ripping through the mazes made indifferent fools of the age.
kept a distance from the rich you all said was sacred.
making masses look more predictable by the phase.
Right away I hide inside your broken trace of space
But only time will tell how long it takes me to last in your place before I crumble.
May I ask the whisperer to mutter solidarity?
Just so I can stumble into a certain clarity's tunnel?
Scarcity puddles made the muzzle wise
Till I saw the embarrassment coming from the subtle ties of the lies
And sputter rhymes like the plunderers demise verbalized.
Murderers of sick children deserve to die
But who will further my despise for a racist.
Fuck equality cuz nobody's evasive enough to face it.
Replacing definitions with the meaning of your emotions
So I can expose them over low quotients
I hold no connection to most the living though they're all a bit different.
I feel like only few existing are consistent.
Yet we all strive but only some of us thrive
The numbers divide cuz they won’t come to provide facts
Like the sun wont disguise itself unless it has to.
Just like you won’t reply to help until it smacks you.
Since some of us are impervious to light because the synapse you won’t notice;
I've been nice enough to bad words they actually focus.
Tactfully mastered the ropes still won’t adapt to the hopeless.
After pastured beats come in laughter approaches
Like calamity coaches captured the task you were chosen for
Left you closing store faster than a honed sword goin passed
You hear the sound barrier carry us round here we don't care
If you sound scary just fairy dust to wary mugs.
But tear it up, if you're not scared of a puppet then rip the subject.
Kick the bucket pick it up again and love it.
Smell the pungent repugnant mummified puppets rip for nothin
They just wanted you to be aware of what’s about to come in.
You hear the government rumblin: no win for no one until we all win something.

 

Once upon a time the rich was fooled by the anxious.
Ripping through the pages paid indifferent rules covered grey.
Kept a distance from the risk they pretend was vanquished.
Fake facets look more cylindrical by the waste.

 

Roads and Traffic Laws

NumbMonkE Saturday October 11, 2014

Image

 

I was riding my bike to my friend's house and saw a man in white uniform. My immediate response, almost a reflex, was to stop and turn around. Took a longer but safer route, saved a little less than 100 Rs (considering the extra petrol I used). This is normal behavior for almost everyone in Surat, where I live. Image And I'm pretty sure this is the case almost everywhere in Indian cities. Even people wearing a helmet, which is the most common reason for stopping a driver, avoid routes with known traffic police presence. Through years, they've gotten tricky, though. Now they will change their ‘ambush points’ (as I like to call them) randomly and start their extortion racket at routes previously considered safe. If this was not enough,Image they also get aggressive and would often jump in the middle of flowing traffic, with sticks and batons flying, to 'apprehend the offender' or in other words 'loot an innocent victim'. So now I have to be extra vigilant just so I don't have to lose my own money. And this is when I haven’t even done any harm to anyone or their property.

 

Note: This is not a post about police behavior but about the laws which enable such behavior, about unjust fines and punishments levied on innocent citizens.

 

Some might say that's the price I have to pay for a safe and smooth drive down the road. I strongly disagree. We already pay taxes for that (not that I support taxation but it's a monopoly and I don't have a choice). Some might say that it encourages people to wear helmet. No! Do not consciously dilute it with mild words. It ‘forces’ them to wear helmets. The only choice they have is to wear a helmet or pay the fine.

 

Wearing a helmet (or seat-belt) should always be a choice. Nobody but the person making the choice will bear consequences for it. If they value their safety more than their comfort, they will wear it. If not they won't. Nobody else is getting hurt except the person making the choice; as it should be. Forcing someone to wear a helmet, even for their own well-being, is tyrannical.

 

To quote a very general phrase that applies to every part of life: "The ends do not justify the means."

 



The end(goal) here being road safety, and the means(method) is imposing rights violating laws and fines. No freedom on how you wish to drive or what equipment you wish to use. This might sound like a good thing to you but it's not. This greatly reduces the efficiency of a capable driver who knows a better method than the proposed one. A person might be able to reach a destination much faster and much safer without these laws than if he was following those laws strictly. Another person might be a risk to other drivers even when following all the laws. It's a person-by-person scenario and a one shoe fits all approach doesn't work. What this does is that the best of the drivers suffer (in efficiency and comfort) while the less capable drivers will still keep making mistakes and putting lives at risk. Laws cannot make a person drive better.

 

Now the implementation of traffic laws, such as mandatory helmet and seat-belts, could be justified if the roads were a private property (which it is not), in which case the owner could dictate the conditions (in a contract) for you to use them and demand a fine when you break a rule (compensation for a breach of contract).

 

But roads (as of now) are public property i.e. they are paid for by tax rupees and hence are owned by everyone who pays taxes. Every taxpayer should have an equal say in what laws are to be imposed for using the roads. He has a right to it. To give one taxpayer or group precedence over another taxpayer or group is a gross injustice. Even if the favored group is a majority it is still being unfair to the minority. It is downright disrespectful of the government to not treat each taxpayer equally.

 

You cannot fine someone that does not agree with your laws but has to follow them. He payed his share of taxes but was unjustly denied any rights to how the taxes will be used. You cannot demand a compensation when he caused no harm to anyone or if he did not damage someone's property. That's theft/extortion. Helmet/seat-belt laws and fines regarding these fall into this category and thus are a violation of the taxpayer's rights. These laws should be abolished. Instead we see a rise in fine amounts for breaking them. A nice and easy way for them to generate revenue for the government but a serious violation of taxpayer's rights. And as a bonus, these fines never work. It is just a burden for the daily commuters, which they keep on increasing. It is just another way to extort money from an already heavily taxed citizen of this country.

 

War for Corruption

smehra Friday October 3, 2014

“If only everyone followed the rules laid down by the government we would be living in a utopia.” This seems to be the general conception of what is wrong with our country.

This stems from the idea that Constitution, laws and by-laws are on the whole perfect and need only be slightly reformed (either to a minimum or maximum regulatory form) with good leaders elected into office. This has been by and large the central theme of the Anti-Corruption movement in India. The idea is that it is the corrupt politician that is slowing down the development of India and that by electing honest individuals into office we can trigger a drastic change.

However, Corruption is not a simple issue. To understand corruption we must ask ourselves what exactly is being corrupted: Corruption of what? I contend that there are three types of Corruption that are usually talked about:

 

  1. Corruption of implementation
  2. Corruption of law
  3. Corruption of purpose

Corruption of Implementation

Through a “democratic” process the government comes up with an open plan, which is largely known by everyone in advance. This planning may be done at national, state or constituent level but what is common in all governmental planning is the act of making plans with someone else’s property that has either been confiscated or probably will be confiscated according to the plan (at least in theory). As Mencken says: “Every election is a sort of advance auction sale of stolen goods.”

Stealing of private property might seem theft if done by a private institution, but government has largely enjoyed ideological, religious and intellectual support for this theft. People who usually talk about Corruption in this layer largely accept the ideological, religious or intellectual reasons for the theft and even promote it if they are able to convince themselves of the plan’s utility to the society. After all there are many “intellectual” reasons as to why we must allocate resources that are deemed scarce, like spectrum and coal, through the central government. It is not easy for people mystified with central planning to imagine any other alternative.

With this in mind it becomes common to blame the implementation. If the intellectual arguments promoted by court intellectuals seem logical in theory, then it must be the practice which is creating the problem. Although it can be, and has been, argued that central planning cannot reach its advertised goals; it becomes important to emphasize that central planning cannot even be implemented according to the laid out plans.

Central planning makes certain assumptions about the implementation of its plan which are not always true. First assumption is that the societal order will accept the plan without a fuss. A lot of governmental acts require individuals to behave in a certain way or to give up certain properties. Laws against murder, theft and assault are widely accepted and therefore draw full cooperation from the majority of the public. Majority of the public will not only accept these laws but also consider it immoral to break them personally. But a lot of government laws and regulations are not widely accepted at personal level. The general population might condemn individuals when they are caught breaking laws such as gold smuggling, but they themselves will try their very best to not pay “import duty” on that flat screen television set they are attempting to bring in the country. These individuals will harp on about why import duties must be paid by everyone (except them apparently) and that these smugglers are stealing from the “nation”.

Which means that the criticism that “the general population is concerned about corruption but would at the same time bribe the traffic policeman” is not only correct but also expected. To quote Bastiat: “Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone”. Tendency therefore forms within the citizens to collectively advocate theft (or taxes) but individually hoping that they are able to escape the claws of the government.

Second assumption is largely about the honesty of the enforcers, which includes the watchers (like lokpal). The idea that those holding power to exploit will exploit according to the plan is preposterous. As Rothbard notes:

 

The common law makes a vital distinction between a crime that is a malum in se and one that is merely a malum prohibitum. A malum in se is an act which the mass of the people instinctively feel is a reprehensible crime which should be punished. This coincides roughly with the libertarian's definition of a crime as an invasion of person or property: assault, theft, and murder. Other crimes are activities made into crimes by government edict: it is in this far more widely tolerated area that police corruption occurs.

It is interesting to note that government edicts not only impose official licenses but also unofficial licenses. The enforcers often not only take bribes to permit certain outlawed activity but also to inhibit competition in the name of the law. Drug cartels usually fall under this category. When the government has outlawed sale of drugs the act of giving out licenses is done by the police either by selective enforcement of their law or by their inability to catch “big players” in the market while simultaneously killing out the smaller competition:

 

In short, whether consciously or not, the government proceeds as follows: first it outlaws a certain activity — drugs, gambling, construction, or whatever — then the governmental police sell to would-be entrepreneurs in the field the privilege of entering and continuing in business.

Corruption is therefore better understood as a knee jerk response to governmental planning. When the government has the power to dole out licenses, deciding who can and cannot be part of the legitimate market, it becomes necessary to commit acts of corruption to survive in the market. Those committing acts of corruption don’t speak out against governmental planning because they become the beneficiary of the unofficial license - and those cheated of their official license too would like the same privilege of being free from competition, albeit legally. Either way this becomes something akin to the game of license.

So who are the Anti-Corruption crusaders really arguing for in case of scams like 2G and coalgate? Wittingly or unwittingly the Anti-Corruption crusaders become the pawns of the official order (official license holders) trying to gain back their legitimate privilege which was sold off in an act of ‘corruption’ by those with power to exploit (state officials). Scams like 2G and Coalgate are not theft from the nation just because proper procedure was not followed in their allocation. These scams are theft from the producers of the nation because the very act of government allocation requires exploitation of these producers. In the absence of governmental allocation and in the presence of a propertarian order, the coal mines would properly belong to those extracting coal and spectrum would belong to those using it - giving incentive for their proper use.

One criticism of this analysis can be that the Anti-Corruption crusaders are demanding complete transparency as well. But no matter how transparent the allocation of the license is, it doesn’t change the fact that privilege is being conferred upon those whom the government deems most fit - which most of the time turns out to be big business because they appear to be most technically efficient.

What the Joker says in the movie Dark Knight, ‘Nobody panics when things go "according to plan." Even if the plan is horrifying!’, could easily be said about anti-corruption movement by and large.

 

Corruption of Law

Only Agorism explains why the food vendor paying the cop to get him off his back is not acting unethically just like a man being mugged is not acting unethically when he complies with the demands of the mugger. Clearly laws contradict themselves. Acts deemed illegal when done by private citizens are deemed perfectly legal when done by appointed individuals. Bastiat considered this “legal plunder”. His thumb rule to identify legal plunder was:

 

“See if the law takes from some persons what belongs to them and gives it to the other persons to whom it doesn’t belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime. Then abolish that law without delay.”

Acts such as robbery and murder are illegal by law. Yet it is perfectly legal for the state to impose taxation which the state considers its right. Similarly land grabbing is a mafia act and is deemed illegal by the law yet the state considers this act to be its right by calling it “land acquisition”. Punishing for sedition too is an illegal act when one considers the “Right to free speech” as a fundamental right. Everyday the state commits acts which it deems illegal. “Practice what you preach” or “lead by example” is something the state never does.

Clearly we cannot ground our understanding of corruption on the basis of implementation if the implementation itself requires violation of the natural rights of the citizens, which are interestingly part of the law by popular demand. Very few anti-corruption crusaders get this far. Arvind Kejriwal, in having recognized the Ambanis as the plutocrats of this nation, seems to beginning to understand this.

Soon after the corruption movement gained steam we saw a demand for honesty among the citizens. We started to hear cries about acts of ‘corruption’ committed by ordinary citizens who are just trying to protect their natural rights. If corruption of implementation is the only kind of corruption that needs to be talked about, then there is no basis to hold the plutocrats accountable as they themselves are direct beneficiaries of the state’s plan. If everything goes according to the plan these plutocrats would get their privilege unhindered by corruption. It hardly seems fit to deem the street food vendor (who bribes to carry on his business) as a morally unfit citizen - yet a consistent treatment of “corruption of implementation” would demand this.

To a libertarian it matters little as to how the state allocates spectrum, coal, oil etc. when in fact these have been stolen from the taxpayers and labourers. Just like how it matters little to the victim how loot is divided among the gang of thieves.

If state’s own actions are against basic ethics, how did law come to be this corrupted? Libertarians have a tradition of pointing out laws which are inconsistent with basic ethics and those which confer privilege upon a certain class of people. I myself have criticized SEZ, APMC, Spectrum Allocation, Internet Regulations and land laws. So is there an objective law that can be constructed that could be considered as an uncorrupted version of law?

Libertarian understanding of the law comes from their adherence to the Non-Aggression Principle which states that:

 

Initiatory violence or its threat (coercion) is wrong (immoral, evil, bad, supremely impractical, etc) and is forbidden; nothing else is.

To a libertarian, any construct of law must adhere to this principle otherwise the law itself will become a means of legal plunder and create a net plundering class and the net plundered class. Such a law will become corruption of law itself.

Even if you do not adhere to this principle, let us suppose that you do have a consistent document of objective law which does not grant privilege to one citizen at the expense of another. Would that satisfy the libertarian’s demand for justice? No. Law, being written by legislative body and interpreted by the court system cannot remain objective.

John Hasnas explains in his publication “The myth of the rule of law” that we are living in times where people generally believe that we are being ruled not by certain individuals but by a given set of objective laws. But as he breaks that myth later on, it becomes clear that laws are a bunch of inconsistent notions that can be cherry picked and interpreted to come to almost any conclusion - it becomes the judge’s interpretation and understanding of the case that dictates the results. As it should be, because as the laws and their applicability become objective it becomes less capable to provide justice:

 

Let us assume that I have failed to convince you of the impossibility of reforming the law into a body of definite, consistent rules that produces determinate results. Even if the law could be reformed in this way, it clearly should not be. There is nothing perverse in the fact that the law is indeterminate. Society is not the victim of some nefarious conspiracy to undermine legal certainty to further ulterior motives. As long as law remains a state monopoly, as long as it is created and enforced exclusively through governmental bodies, it must remain indeterminate if it is to serve its purpose. Its indeterminacy gives the law its flexibility. And since, as a monopoly product, the law must apply to all members of society in a one-size-fits-all manner, flexibility is its most essential feature.

Which is why consistent libertarians demand Private law or polycentric law. They realize that the need for law arises from arbitration and the need for order - which can very well be provided by the citizens themselves in the free market.

With this understanding, there is no uncorrupted version of the law because law can’t be objective at all. Sure the law benefits some people at the expense of others but as soon as you try to make a state’s law objective you are unable to apply them in a one-size-fits-all manner and do justice. Which means that the well connected will always be able to become the beneficiaries of the law as long as the law itself is a monopoly of the state.

 

Corruption of Purpose

Did the state lose its way? Has it corrupted its purpose? To answer that we must ask what is the purpose of the state - a question that is rarely asked.

The most common reply of this question is that it’s purpose is law and order. But this is a circular logic. Laws are made by the state and implemented by the chosen enforcers. Think of all the oppressive regimes that have existed, like those of Stalin or Hitler, they all had their laws which were implemented to their fullest possible extent. Almost all of the atrocities were committed not by the dictators directly but by the law enforcers who were just following orders in accordance with law. Clearly that would be an example of the state which has lost its purpose.

Maybe the purpose of the state is to provide for the general welfare of its citizens. But to guarantee this the state takes control of certain sectors of the market and assign licenses to certain individuals to provide welfare. But on a deeper analysis we find that the state doesn’t own anything it has itself produced. State is but an idea - it is the individuals in the economy that produce the goods. It is a body of forceful monopoly rather than a provider of service, even the service of protection is provided by individuals otherwise identified as the police. Statism is the idea that only certain individuals have the right to provide those service on the market. Those with these special rights are identified as the part of the state and whatever the state has it has stolen (Nietzsche). It is this understanding of the state, that it is a provider of welfare or any service in general, that libertarians aim to break. (Read more on Why government is detrimental to human well being)

The general population is largely unconcerned with the laws and their implementation. Firstly because the laws are numerous and inconsistent. It becomes an exercise of intellect to wade through them to form a case, people who provide this service are referred to as lawyers. Secondly, it is the end result of the society which they are mostly concerned with. If the purpose of state is misunderstood to be “welfare”, what most people therefore mean by corruption is the corruption of purpose. They try find the reason behind this corruption by blaming it on bad laws and bad implementation, failing to acknowledge that the purpose of the state might be opposite to what it claims to be.

If the purpose of the state is correctly understood to be a “gang of thieves, writ large” then it all falls into place. State has therefore not “lost its way” but is acting exactly as it should, performing redistribution of wealth from the producers to parasites; from working class to the ruling class.

 

No one, for example, is surprised or horrified to learn that businessmen are seeking higher profits. No one is horrified if workers leave lower-paying for higher-paying jobs. All this is considered proper and normal behavior. But if anyone should dare assert that politicians and bureaucrats are motivated by the desire to maximize their incomes, the hue and cry of "conspiracy theorist" or "economic determinist" spreads throughout the land. - Rothbard

Conclusion

Almost all revolutions have materialized when a class of people recognized that they are being oppressed and exploited. However there is no guarantee of that class analysis to be accurate. Marx had a “plutocracy only” position when it came to the state. (Read Roderick Long’s analysis of class theories Part 1 and Part 2) With this consciousness spreading among the masses it became easier for another exploiting class to show itself - the Red bureaucracy, which consisted of the state officials. Such a class consciousness allowed the proletariats to accept “one of their own” as their ruler, hoping they would look out for their class interest. Indian independence movement had a “nationalistic” class consciousness. It was focused on expelling the Britishers from India. Such a consciousness allowed the masses to accept rulers supposedly of their own class - Indian elite. It seems the Anti-Corruption movement has its own class consciousness that they want to promote: the corrupt and the honest.

It is not surprising that the politicians are doing their best to promote their clean image, trying to show to the “uncorrupt” masses that they are one of their own and that their rule will benefit their class interest. However as class analyses go, this is a very poor one. The masses are not the uncorrupt working towards a common goal, they are being oppressed even by the most honest politicians framing the most well intentioned policies implemented by state’s enforcers. Worse, such a rhetoric allows the politicians to distract the citizens from exploitation by an ‘honest’ state official. If the purpose of the state is welfare of society then the existence of the state is antithetical to that purpose.

 

In a deep sense, getting rid of the socialist state requires that state to perform one final, swift, glorious act of self-immolation, after which it vanishes from the scene. - Rothbard, How and how not to desocialize

 

RBI – Destroying the economy through interest rate manipulation

anacap Thursday October 2, 2014

The Reserve Bank of India just made its quarterly monetary policy announcement. The one message that comes out clearly from an Austrian perspective is that the RBI is unflinching in its resolve to do all it can to destroy the Indian economy and heap misery on all Indians not privileged by a closeness to the banking and financial system.

Why such a strong statement

Unlike commonly believed, Central Banks such as the RBI are just legalised counterfeiting agencies granted a monopoly to counterfeit money. The primary role of the Central Bank is to manipulate money supply (which always, strangely, goes up in the long run these days) and interest rates, and provide the last line of defence (from market forces that would bring them crashing down) for an otherwise bankrupt, inflationary banking system.

Central Banks like the RBI carry the ultimate responsibility for two of the biggest economic problems of our times

 

  1. The ever-burning problem of price inflation
  2. The dreaded boom-bust cycle

The economy does not need Central Banks like the RBI

Very simply, an economy can chug along very well without a Central Bank. Money would be one or many of some commodities (say gold, silver). The unit of money would be some standard weight of each money commodity. All prices would be in terms of these monetary units. In fact, that's how it was historically and most, if not all, modern currencies started off as a certain weight of gold or silver of a certain purity. The Pound Sterling, for instance was defined as 1 pound of Sterling Silver. Goods would have prices in each of these monies and there would be an exchange rate between these monies as well.

Production of money would also be an economic activity on the market. Many people falsely believe that this would give extraordinary privileges to those who mine the money commodity and mint the money. The truth is that even these activities are production processes for which the producers have to advance money to purchase the services of factors like land, labour and capital goods. So what the producers gain in these activities is only the surplus of sale proceeds over production costs (called the price spread), like in any other business.

Controlling money supply does not require a Central Bank

A common objection is that these miners and mints can unilaterally pump up money supply (the number of units of money in circulation) and gain extraordinary (often called supernormal) profits. This objection is completely wrongheaded. On a free market, there is a very interesting mechanism that keeps money supply under control and in line with the preferences of consumers.

Increase in supply of money will cause price of goods and factors to rise and purchasing power of money to fall. This combination will lead to a lower price spread in the money manufacturing business. This will lead to a flight of capital from money manufacturing to other lines with higher price spreads (commonly known as arbitrage action). As a result, fewer factors will be applied in money production and money production will fall, reversing the effect of the earlier increase in money supply.

The important point to note is that without a central bank, money supply will be as much as people want to hold. Producers can only produce money in line with the money holding preferences of consumers.

Central Banks are not needed for interest rate determination

Let’s get this straight – Markets can determine interest rates without the need for a Central Bank such as the RBI. Financial intermediaries have existed long before Central Banks were created. Even today, they can and do exist without the need for a Central Bank.

Interest rate is an economic phenomenon that emerges on the time market when people exchange present goods for future goods. When people save, they need to put their saved funds in some productive activity (called investment). Identifying productive activities on behalf of the savers is a service that can be and is provided on the market. We call these entities “loan banks” and the activity financial intermediation. These are entities that accept long-term savings offering an interest and lend it out for a higher interest. The income to the loan bank is the interest rate spread less the bank’s operating costs.

Central Banks are just a cartel of bankrupt banks

Modern banks do not channel savings into investment. Instead, they create money out of thin air and inject it into the productive segment of the economy. This system of banking is called Fractional Reserve Banking (FRB). When banks engage in FRB while the money is a commodity, they become highly unstable. Holders of notes and deposits asking for their commodity units can bring the biggest of banks down in a bank run. This acts as a market limitation on how much money banks can create out of thin air through FRB. When money is not a commodity (as it is today), the banking system can create far more money out of thin air before inflationary pressures force the system to raise rates in an attempt to quench the flames the banks have lit.

Central Banks basically release banks from these market limitations and enable them to inflate money supply almost indefinitely. Central Banks are instituted and/or protected by governments through a monopoly on money production and they in turn protect the banks from bank runs. The entire banking system, in exchange, becomes a source of endless spending money for government. This I-scratch-your-back-and-you-scratch-mine arrangement is how governments, central banks and fundamentally bankrupt modern banks get together to rob everyone else all the time.

Interest rate manipulation hurts the economy

On the free market, there would be an interest rate. At that interest rate, all real savings would have been offered on the time market in exchange for future money (with interest). There is no more potential for lending. How then is an FRB system to deploy the money they create out of thin air? Clearly, they can only achieve this by depressing the interest rate below the free market rate.

In effect, projects rejected as bad ideas on the free market now get funding under FRB. The more the extent of FRB, the worse would be the ideas that get funded. Think pets.com. A bubble is thus created. In this manner, the production system gears itself up to produce a lot of junk that consumers do not want. This bubble goes on for some time till the junk is recognised as junk and a depression sets in. In this manner, interest rate manipulation by the banking system creates the boom-bust cycle that we all suffer.

The massive money creation by the entire banking system also sets prices on a perpetually upward path. Such a situation would not persist on the free-market. The rapid and life-destroying price rise that makes life miserable for all but the super-rich is a consequence of this non-stop money production by the banking system protected by the Central Bank and given legal protection by governments.

What should be done with the RBI

The RBI is a fundamentally pernicious entity. It is unnecessary for an economy to function. It harms the economy in more ways than is obvious. Rather than focus on whether RBI should raise or lower interest rates, we need to focus on energies on getting this economic monstrosity shut down.

 

Mangalyaan and The Broken Window Fallacy

anacap Friday September 26, 2014

In the midst of all the euphoria over the “success” of Mangalyaan, the Indian Space Research Organisation’s (ISRO’s) mission to Mars, it is important to pause for a moment and understand what it really means from an economic standpoint.

Unlike commonly believed, I do not hold that the “success” of Mangalyaan is something the whole nation should celebrate. In fact, Mangalyaan is just another case of entire populations indulging in The Broken Window Fallacy and forgetting the One Lesson that Henry Hazlitt so beautifully condensed economics into so many years ago.

As always, politicians have been busy breaking windows to stimulate activity in particular sectors without taking into account the real costs of doing so, i.e., the loss in overall social wellbeing caused by their window-breaking. On the other hand, a gullible populace is being led by the nose into believing that all this window breaking is going to make them prosperous indeed. A fair dose of patriotism thrown in makes it a heady concoction indeed. No wonder so many intelligent people are sounding so intoxicated.

The Broken Window Fallacy

The Broken Window Fallacy is a parable first laid out by the great French economist, Frederic Bastiat to highlight the most common error committed in the field of economic reasoning. In that parable, while a baker is berating his no-good son for breaking his shop window, a number of bystanders including some economists comment that there is a bright side to the story, i.e., fortunes to be made in the industry of glass pane makers.

Such thinking is clearly fallacious. It takes into account the increased economic activity in glass pane making. However, it completely ignores the increased economic activity that would have otherwise been witnessed in some other sector, say shoemaking that the baker would have spent his money on. For every unit of income that is created in the glass pane making industry, there is a corresponding unit of income lost in the shoe making industry.

More importantly, the end result when the window is not broken is that the baker has a glass pane AND the shoes, while when the window is broken, he has only the glass pane. Clearly, his wellbeing has been reduced. The window breaking has made him poorer by a pair of shoes.

Mangalyaan and The Broken Window Fallacy

Mangalyaan was a mission launched by the ISRO. It was funded by two means

 

  1. Taxing the Indian public – A visible transfer of resources from the people to ISRO. A window was broken first to make resources available to ISRO.
  2. Inflating money supply – Every unit of new money created steals a bit of the purchasing power of every unit of money already in circulation. This inflation is in reality a stealth tax and is just a cleverly concealed way of breaking windows to hand resources over to ISRO.

What would the public have done had they not been robbed to pay for Mangalyaan? They would have spent the money on consumption or saved and invested it in a line of production that they found most attractive. Can they do that now? Clearly not. The industries that would have benefited by this voluntary consumer spending or investment are going to be hurt. The consumers who would have consumed the output of the sectors where investment would have flowed are hurt by the non-availability of their more highly preferred goods.

Thus we see that Mangalyaan is the equivalent of the stimulus given to the glassmaking industry in Bastiat’s parable. The taxation and inflation constitute the equivalent of the breaking of the window resulting in diversion of the baker’s resources into the glassmaking industry. Like the vandal’s act of breaking the window, Mangalyaan too makes society worse off by destroying wealth in an attempt to promote particular activities favoured by those in power.

In case you feel tempted to point out all the scientific breakthroughs that one can expect from Mangalyaan, just bear in mind that such a possibility is known or knowable to all. In spite of this knowledge, the people preferred not to pay for it. That much is obvious from the fact that they had to be forced to pay through taxation or inflation. This only means that ex-ante, the people preferred something else to paying for Mangalyaan but have been forced to pay for Mangalyaan. Therefore, Mangalyaan has left them holding their less preferred good. This means that overall social wellbeing has been lowered by Mangalyaan. It is one more instance of wanton wealth destruction by government.

An apology

In case this article caught you in the middle of some chest thumping, sorry to be the party pooper. Someone’s got to point out that this emperor has no clothes. Right now, I’ve taken on that job.

 

Why government is detrimental to human wellbeing

anacap Monday September 22, 2014

Government is detrimental to human wellbeing because there is nothing government can do without first causing harm to some human beings. Even the good that government can do to some human beings comes at the cost of harm done to other human beings. It is impossible that it be otherwise.

 

The reasoning is extremely simple. Any action requires means (commonly known as resources). Government does not possess any resources of its own. It does not obtain the resources it needs for its actions by producing goods of value to others, trading them on the free market of voluntary exchange and generating surpluses in the process. What it does is to violently take away other people’s legitimate property and use that to obtain the resources it needs.

 

So right there, before it does any ‘good’, government has done harm. But what about the ‘good’ that it does with the resources thus obtained? Can there not be net social benefit as a result of government’s actions. The short and simple answer is ‘No’.

 

Why the answer is ‘No’

 

To comprehend this answer, we need to first understand that ‘wellbeing’ is a subjective, psychic concept. It is the subjective appraisement that one’s state of existence is better off than…….. what? In comparison to……. what? It is in answers to these questions that the key to the comprehension of social wellbeing lies.

 

Fundamentally, man is a purposeful being. It is in his nature to engage in action aimed at satisfying his ends (whatever those ends may be). Action (purposeful behaviour) presupposes that man is able to visualise at least 2 alternative universes

  1. one that would result if he did not act in a specific manner
  2. one that would result if he were to act in that specific manner

Man as a purposeful being who chooses, say, path 2 does so because he subjectively ‘prefers’ the outcome of path 2 to that of path 1. Any other inference would contradict the purposeful nature of man. This preference is what is properly understood as the subjective appraisement of individual wellbeing. It’s like saying “I’d rather be in this state than in that state. That’s why I choose to do this.”

 

Every individual has his or her preferences. Satisfying one’s preferred ends requires the individual to apply means towards end satisfaction. Means are the things that an acting individual may act on. These means either exist in nature or have to be produced by the use of other things found in nature (including human labour).

 

So, how does one obtain these ‘means’? If you were Robinson Crusoe, you would have to produce every means all by yourself. If you lived in a society where different individuals produced different means, you could either continue to produce all those means by yourself, or wholly or partially obtain it from others who produce them.

 

But why would any other individual offer you what (s)he has produced? Is (s)he not also an individual acting to satisfy his/her own ends? The answer is simple. What if (s)he thinks your stuff satisfies his/her end better than the stuff (s)he has? In that case, (s)he would voluntarily offer what (s)he has to obtain what you have. In economics, this is called the concept of reverse valuation and the action of A offering X to B to obtain Y from B with both parties acting of their own volition is called voluntary exchange.

 

Voluntary exchange and human wellbeing

 

The interesting thing about voluntary exchange is that both parties, A and B, ex-ante (or as understood just prior to the action) attain their more preferred state as a result of the exchange. This attainment of the more preferred state of existence is what economics understands as enhancement of human wellbeing. If you walked into a cake shop and bought a cake for Rs. 60, it is because at the instant just prior to the exchange, you preferred to obtain the cake rather than retain your Rs. 60 (which you could have done). No one is forcing you to buy the cake.

 

It is very important not to confuse this ex-ante understanding with ex-post analysis, i.e., analysis with the benefit of hindsight (which is always 20/20). Imagine that you bite into the cake and find that it tastes like mud. That only means that you chose the wrong means. You can at best learn from this and not buy that cake from that shop again. It does not in any way change the fact that ex-ante, the cake was your preferred option.

 

From the cake seller’s point of view, he voluntarily gave you the cake. That implies that he preferred to obtain the Rs. 60 rather than keep the cake to himself. He could very well have done the latter but chooses the former.

 

Thus, in this 2 person example, it becomes clear that ex-ante, both parties to the voluntary exchange attain a state of greater wellbeing as a result of the exchange. This is easily extendable to an economy with billions of actors because all exchanges are between 2 individuals. If every exchange is voluntary, then every individual enhances his/her ex-ante subjective wellbeing as a result of every such voluntary exchange that (s)he participates in.

 

What if B were not to prefer X over Y? Clearly, he would not voluntarily offer Y to A in order to obtain X. How is A to obtain Y? He has 4 options.

  1. See what is the best he can do with X
  2. Produce Y himself
  3. Look for someone else who would prefer X to Y
  4. Use violence to take Y away from B

Cases 1 and 2 are cases of no interpersonal exchange. Case 3 is an extension of the voluntary exchange analysis done earlier. Case 4 is interesting and is an example of what economics calls violent exchange.

 

What we can see is that these two types of exchange – voluntary and violent – are mutually exclusive and collectively exhaustive. If there is an exchange, it must be either voluntary or violent. There is no 3rd class of exchange possible. This makes the study of violent exchange very important.

 

Violent exchange and human wellbeing in the 2-person example

 

The key to understanding violent exchange is the realisation that in our example, A is better off because he has obtained a more preferred means. B, however, is worse off because he is deprived of his more preferred means. Even if A offers him X in exchange, he is worse off because he preferred Y to X. It is also clear that he is worse off as a result of A’s use of violent force.

 

Is it however possible that overall wellbeing is enhanced? The important point is that that no meaningful statement of this sort can be made. Wellbeing is the subjective appraisement of an individual. It is not a quantity denoted by a cardinal number or measured in terms of one. So, you are in no position to square off B’s lowered wellbeing with A’s enhanced wellbeing and claim any enhancement of overall wellbeing. Monetary calculations in the name of cost-benefit analysis are a bastardisation of the estimation of social wellbeing.

 

Violent exchange and social wellbeing

 

Extending this to a society that includes billions of people, violent exchange leaves the peaceful, voluntary segment of society worse off and the perpetrators of violence better off. Thus, we see that violent exchange is harmful to producers and beneficial to looters. This is even more so if the society is under the control of a gang that systematically loots the productive members of that society. If you’ve seen Sholay, you would know what I mean.

 

In the long run, this situation becomes worse and even the looters become worse off. This is because the productive segment of society shrinks and the loot available to take away through the use of violence correspondingly shrinks. Over time, the ranks of the looters keep swelling while those of the producers keep shrinking. Eventually, no one produces and everyone is a looter. But since there is nothing produced, there is nothing to loot. So, the society degenerates from an advanced, civilised society based on production to a primitive, barbaric society based on hunting, gathering and looting. Thus, we see that violent exchange, especially if systematic and institutional, makes society worse off.

 

Why the very existence of government is detrimental to human wellbeing

 

Government cannot exist without initiating force, i.e., using violence against the people it “governs”. To enforce its monopoly on the legal use of force, i.e., to be a government in the first place, it has to initiate violence against competitors. To possess any resources to function, it needs to collect taxes. Taxes are not voluntary payments. They are extracted using the threat to use violent force. Seizure of property or confining a person in a cage, i.e., arrest and imprisonment, are acts of violence. So is collecting ‘fines’. In all these actions, government is no different from Gabbar Singh.

 

These being the most basic actions of a government just to exist, we see that the mere continued existence of government is just the institutionalisation of a system of violent exchange that will use violent force to extract resources from the productive members of society in order to distribute the same to, obviously, the non-productive or parasitic members of society.

 

As explained earlier, a sustained, institutionalised system of violent exchange harms society by bringing it down from the advanced state of a civilised society characterised by production to a primitive, barbaric one based on hunting, gathering and predation. Thus, it is easy to see that the very existence of government is detrimental to social wellbeing. The proper goal for anyone who wishes to see a prosperous society is to work towards the shrinking and the eventual abolition of government.

 

Slave Nation

smehra Monday September 15, 2014

“Why do we have a Master?” asked my fellow slave while we were walking to our place of work. The road we were walking on was almost a century old well trodden path. A century of walking had beaten the ground into this pathway.

 

The question sounded absurd. I wondered what made him think of it. “What do you mean? We have always had the Master. We need him.”

 

“But why?”

 

“Well the Master provides us with various things we need to survive: Food, clothing and shelter. He has even started building roads in various places. Who would do all of those things without him?”

 

“But the Master does not grow food, it is our fellow working men who grow it. The master does not stitch the clothes we wear nor has he built the hut we live in. Even roads have been designed and built by our fellow working men. What do we need him for?”

 

“Yes, true. But Master directs us to produce these things. Without his direction we would be direction-less: producing things we do not need and sometimes over producing things that we do need. Master manages this for us, he is the expert.”

 

“But what about this road? We have been travelling on this road for years. Surely there is a need to improve these roads.”

 

“Why? We walk here. We don’t need a cemented road.”

 

“Well, maybe we need a cemented road for some rickshaws. Maybe a few of us should be running rickshaws - that would really ease the journey that we take everyday”

 

A rickshaw would be good, I thought. “Well maybe we can petition the Master to direct some slaves here to run rickshaws.”

 

“But what if you and I got together to build a road here. Why can’t we do that?”

 

“And ignore Master’s orders? Besides, this road is the property of Master. We can’t do such an act without his permission.”

 

“How is this road property of the Master? He has never even set foot here. We, on the other hand, walk through here everyday! Surely we should be allowed to improve it the way we want.”

 

“But there are so many of us who use this road. How do we decide what kind of road is needed”

 

“At this point don’t you think any improvement would do? We can take a survey and find what kind of road is most popular. We could even build the road lane parallel to this one; there is enough unused space here. That would be our road, our fellow commuters can choose which one to use. This way we will know if what we are building is needed by others”

 

“Imagine if everyone started building their own roads. That would be chaos! We would have roads everywhere. No one building bakeries or huts. No, we need Master to tell us what needs to be built where and where our labour is needed. There is a reason you have been assigned to Tea Plantation”

 

“But why do we need tea? Do you know of anyone who drinks tea? We are not a nation of tea drinkers - we like coffee!”

 

“Yeah, we get coffee from other nations. They like tea so that is why we need to produce tea. Other nations will stop giving us coffee if we stop giving them tea.”

 

“But what if all nations started to produce tea? Wouldn’t we have no coffee? Then shouldn’t there be a Master that presides over all the nations to decide which master produces what good?”

 

“But who will take all that tea? Everybody can’t live on tea. There are nations that want coffee but are not good at producing coffee and there are nations that want tea but can produce good coffee. The nations good at producing coffee produce good coffee because there are nations like us who want better and cheaper coffee than we can ourselves produce.”

 

“Why can’t the same logic be applied within the country too? Surely if everyone started paving roads not everyone will get something in return. So we wouldn’t have so many road builders. Similarly people in our country who like tea will be able to get tea from those who can produce tea a lot better.”

 

“Perhaps you are right. Maybe we don’t need Master to direct our every action. But we still need him. We need him to protect us from Masters of other nations who may come to enslave us.”

 

“Why doesn’t the Master let those of us capable to fight foreign invasion form our own army guild? The Master doesn’t fight himself. The same army would still protect us as it does now, only it wouldn’t need the Master.”

 

“But we still need Master to settle our disputes.”

 

“Master himself doesn’t settle disputes, he has appointed men like you and me to settle disputes. Anybody with a rational mind can act as a judge. Why only yesterday you stopped a fight in the farm by settling their disputes. Master and his appointed judges were not needed. They trusted your objectivity so they listened to you.”

 

These questions were strange. Indeed whatever the Master does can be done by many others. Then why do we need the Master?

 

“Have you ever seen the Master”, I asked.

 

“No. But the watchers keep meeting him, so he must exist.”

 

“I don't think it matters in this discussion if he exists or not.”

 

We continued walking for sometime. Then I asked, “What made you think of this question?”

 

“Because my friend”. I realized he had stopped walking and had fallen behind. “We are still walking on this century old road and I don't want to go where it takes me”.

 

Prostitution: The oldest discriminated profession

smehra Tuesday September 9, 2014

If labor and persons in general are to be free, then so should there be freedom for prostitution. Prostitution is a voluntary sale of a labor service, and the government has no right to prohibit or restrict such sales. - Murray Rothbard

The remnants of conservativism shines brightly even among the most liberal population in India. Take for instance the sad conservative commentary that is developing around the recent case of prostitution ‘crackdown’ which has roped in the ‘Makdee’ actress Shweta Basu.

 

Keep your Morality to your Property

Regardless of whether one considers prostitution as moral, the consent of those involved is not violated. Political forces in society, namely the state, can only ‘crackdown’ on prostitution by surveillance and invasion of privacy, ie by violating property rights. State, as in almost every other aspect of society, becomes the aggressor in this case.

 

My body My right

Those who gather under this slogan should not remain silent about this violation of self-ownership. If a person owns his or her own body, then a person has the right to provide what ever labour services using their body. The state does not have a “joint custody” of your body.

Prostitutes do not sell their body (or body parts, it is organ selling you are thinking about - which is also perfectly voluntary otherwise organ donation would be banned too). Prostitutes provide labour service in exchange for money - much like almost every other labour activity in the economy. Flesh trade is a misnomer, as flesh is not actually traded for money. But even if it were - my body my right.

 

Those “Rich” clients don’t “deserve” their names exposed

Another conservative commentary that is coming, from supposedly liberal sources, is the demand for exposing the names of the clients. The liberal propaganda seems so strong, that the adjective “Rich” has been attached to the clients without even knowing who they are (that was the complaint remember), to garner liberal support for this demand.

Private exchanges are exactly that - private. It is bad enough that the media is cheering the act of violation of privacy regarding the actress, it also now demands that the names of others involved be made public too in an act of retribution. Where are the names of the intruders who committed aggression on peaceful individuals involved in a voluntary trade? Sad part is releasing their names would mean nothing - they are heroes in the eyes of the moralists.

 

Release all those arrested

Why are the clients and pimps roaming free?” says one commentator, “They should be punished as well!

There is no denying the fact that those with connections are able to buy their way out of this, but the demand should be the opposite. Everyone arrested or remanded for this victimless “crime” must be released immediately. (Everyone who did not commit violence in this trade, that is). Arresting someone who has committed no violence is kidnapping. Equal oppression at the hands of the state is hardly the ideal version of equality. If someone’s wallet is stolen in a bus, it hardly justifies the theft of other passenger’s wallets as well:

 

“The justice of equality of treatment depends first of all on the justice of the treatment itself. Suppose, for example, that Jones, with his retinue, proposes to enslave a group of people. Are we to maintain that "justice" requires that each be enslaved equally? And suppose that someone has the good fortune to escape. Are we to condemn him for evading the equality of justice meted out to his fellows?” - Murray Rothbard

Lack of money and ease of labour is irrelevant

Lack of money is no justification for any action - violent or nonviolent. Non-violent acts need no justification anyway. After all, isn’t money the end of almost all wage labour? The use of term “lack of money” seems to be aimed at putting prostitution in a “special category”. While it is true that prostitution is not very high in most people’s job preferences, but so are a lot of other jobs - and an individual’s job preference is of no concern to anyone. No one has a right to a particular service nor does he have the right to deny certain kinds of labour their incentive. For such a right would mean initiation of force against peaceful individuals.

Also when statists deny prostitutes their incentive using force, they automatically force the prospective prostitutes to take up a lesser preferable job; as the “lack of money” issue is not resolved by this ban which can only be resolved through economic exchange.

“She took the easy way out” seems to be another conservative comment, which not only underestimates the difficulty of a prostitute’s job but also seems to think that wage must be related to ease of labour somehow - which is an economic fallacy (Read more on Labour Theory of Value fallacies)

 

Prostitution is illegal in India

A misnomer is being spread around that prostitution is legal in India. It must be emphasised that prostitution is illegal in India for all practical purposes. It would be like legalizing Trains but banning laying of tracks. Any form of organized prostitution is still illegal - which makes no sense. If a certain act performed individually is legal, what justification is there to make that act illegal when done collectively? This not only outlaws the Brothels but it effectively outlaws labour unions as well. To a layman it may appear that outlawing Brothels is a good thing, but think of the benefits freedom of organization does to other sectors of the economy. Calcutta sex workers have reportedly been able to fight for their rights and provide structure to their operation by forming a union.

 

It should be noted that many of the grimmer aspects of the street-walking trade have been brought about by the outlawing of brothels. As long-lasting houses of prostitution operated by madams anxious to cultivate goodwill among customers over a long time span, brothels used to compete to provide high-quality service and build up their "brand name." The outlawing of brothels has forced prostitution into a "black-market," fly-by-night existence, with all the dangers and general decline in quality this always entails. - Murray Rothbard

 

Central Planning | A defense from a central planner

srinivas.chakravarti Wednesday August 20, 2014

Humpty Dumpty sat on a wall, Humpty Dumpty had a great fall.

The 18th century nursery rhyme, its original probably a riddle, is loved for the one image it invokes — a great fall. The picture of a dumpy egg, of a being crashing to his well-deserved and irreparable end provokes mirth among children. It also provides to short-of-ideas parents and teachers the relief of a successful attempt at distraction.

The Union Planning Commission has been toppled off in a progressively untenable balancing act. Reconciling projection with implementation, performance with evaluation, discussion with allocation has taken its toll.

And applause greets its fall.

I regard this as not just unfair and unfortunate but positively dangerous for with all its Humpty Dumptyness, the Planning Commission represents a crucial strand of our post-Independence self-definition. It represents a people whose leaders very consciously integrated India’s political goals with its social and economic aspirations and made planned economic progress a tool not just for progress per se, but for balanced well-being.

Mr. Gopalkrishna Gandhi wrote today in the Hindu newspaper in defense of keeping the Planning Commission, instead of abolishing it, and the quote above is from his article.

Before I continue with the criticism of central planning itself, here are a few quotes to lay the foundation for 'public policy'.

 

Each individual is the only and final arbiter in matters concerning his own satisfaction and happiness. 

Economics does not allow any breaking up into special branches. It invariably deals with the interconnectedness of all phenomena of acting and economizing. All economic facts mutually condition one another. Each of the various economic problems must be dealt with in the frame of a comprehensive system assigning its due place and weight to every aspect of human wants and desires. All monographs remain fragmentary if not integrated into a systematic treatment of the whole body of social and economic relations.

 

It is only the passionate pro-socialist zeal of mathematical pseudo-economists that transforms a purely analytical tool of logical economics into an utopian image of the good and most desirable state of affairs.

The first problem with the statist view of the economy, and economics itself lies in the error of treating the economy as a system. The systems theory which sees the country's economy as a neat little box, and the State as its director has caused far more damage to life, liberty and property of individuals than one can imagine and quantify.

Instead of seeing the economy for what it is, the defender of the Planning Commission, wishes to impose an "idealistic" view of what the economy should be. To clarify further, the statist view of economics is essentially a mixture of normative and positivist theory of society, with the normative worldview dominating the "holistic" view.

 

It is important that this link in our planning chain be remembered for thus reason: If an institution’s or a tradition’s calibre is best judged by the state of its performance, its purpose is best gleaned by the stature of its provenance

The author here seems to be implying that the central planning body should be judged more by it's historical authority and purpose, rather than its performance. Is this not a logical fallacy called 'appeal to authority'?

What follows essentially in the article is an illogical defense of central planning, and intervention. The same old spiel of elimination of poverty, protection of democracy, and implementation of social justice is repeated, when in fact, almost no government anywhere in the world in the last hundred years has managed to "improve" conditions of individuals.

It must be accepted that the politicians, media, academic experts, and even the so called free market economists are clueless as to how economic prosperity can be achieved. They continue to repeat the same failed ideology of socialist-interventionism to protect their positions of power and privilege wherever they may hold it.

While Indians may have begun to abandon the view of socialism as 'good' in the last twenty years, the support for broad and deep State intervention in the market is accepted with little scrutiny. Almost all voters accept new intervention when shown fancy graphs and charts, which have little connection to the real economy.

The quote below explains interventionism -

It is necessary to point out this fact to prevent a confusion of socialism and interventionism. The system of the hampered market economy, or interventionism, differs from socialism by the very fact that it is still market economy. The authority seeks to influence the market by the intervention of its coercive power, but it does not want to eliminate the market altogether. It desires that production and consumption should develop along lines different from those prescribed by the unhindered market, and it wants to achieve its aim by injecting into the working of the market orders, commands and prohibitions for whose enforcement the police power and its apparatus of coercion and compulsion stand ready. But these are isolated interventions; their authors assert that they do not plan to combine these measures into a completely integrated system which regulates all prices, wages and interest rates, and which thus places full control of production and consumption in the hands of the authorities.

 

However, all the methods of interventionism are doomed to failure. This means: the interventionist measures must needs result in conditions which from the point of view of their own advocates are more unsatisfactory than the previous state of affairs they were designed to alter. These policies are therefore contrary to purpose.

Does the question of failed plans even occur in the minds of voters? Do they even consider the fact that the bureaucrats, politicians and their crony friends have their own self interests? Do voters think even for a moment that the individuals vested with so much power will ever think about individuals besides themselves?

Of course, the magic of democracy and good governance will fix all ills that ail the Indian economy. The almost religious fervor with which voters worship democracy, and the politicians are a sign, that any possibility of real change seems even more distant by the day.

The arguments against central planning and intervention even in moderation is so obvious, that it is sorely missed before and after elections. With every new government in place, there are new promises, bold reforms and freebies that almost no voter can resist in supporting them.

The fundamental truth about human nature is clouded by a blind belief in scientism. It is a dangerous belief that society can be improved from the top down using scientific methods.

So then where do we start from? What are those universal truths which help us understand the world better? The quotes below lay the foundation of true and real economics -

"Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego's meaningful response to stimuli and to the conditions of its environment, is a person's conscious adjustment to the state of the universe that determines his life. Such paraphrases may clarify the definition given and prevent possible misinterpretations. But the definition itself is adequate and does not need complement of commentary."

What these people fail to realize is that the various measures they suggest are not capable of bringing about the beneficial results aimed at. On the contrary they produce a state of affairs which from the point of view of their advocates is worse than the previous state which they were designed to alter. If the government, faced with this failure of its first intervention, is not prepared to undo its interference with the market and to return to a free economy, it must add to its first measure more and more regulations and restrictions. Proceeding step by step on this way it finally reaches a point in which all economic freedom of individuals has disappeared.

The author who defends the Planning Commission ends his article with the following paragraphs -

 

Abolishing the Planning Commission turns the clock’s hands back. It distances the Indian state from India’s federal spirit. It makes self-analysis and self-criticism alien to government. It makes bridge-building between the weak and the strong, the centre and the peripheries, seem irrelevant.

More, it portrays planning and conceptualizing as a luxury. “We are doers, not thinkers,” is the abolition’s subtext.

The Planning Commission needed to be returned to its first purposes, to its transparent and audacious planning for an India progressing without old enervations and new injustices to prosperity. It needed to be returned to its founding documents, its defining mandates. There are steps that could have been taken to make its plan-fund transfers more consultative, less conditional, more participative, less prescriptive. These changes could not have been carried out by UPA-I or -II, mid-course or end-stream. The new government could have done so with reason and credence, on its “first page.”

The Planning Commission needed mending, not ending.

It did not call for capital punishment.

While idea of central planning may be equal to intellectual exhilaration, and bring euphoria to the planners, it does severe and long term damage to individuals well being. The defenders of central planning are not just the outright socialists, but also, the self proclaimed "free market economists" who regularly appear in print and visual media; touting their latest books as solutions to economic and social problems.

The social sciences that is taught from high school to post graduate college seems to be in favor of a normative-positivist worldview, one where the world is a giant system with each society as smaller systems, which need to controlled, commanded and planned, without which society will become disorderly and ultimately collapse.

This systems theory view has been perpetuated for the last hundred years worldwide through the education system, academia and the press, which leaves very little room for a realist view of society.

What we have witnessed worldwide for the last two hundred years with State intervention is planned chaos. This chaos created by the State is almost always blamed on the free market.

With such grandeur delusions, the opponents of central planning will be always seen as extremists, intellectual pariahs or simply insane, thereby effectively silenced from the mainstream, leaving only the loud, and ignorant opinions for the voters to consume; which is in itself a vicious cycle.

To understand the failure of interventionism -

 

Why Intervention Persists

Planned Chaos

 

Cronyism by Modi govt

srinivas.chakravarti Tuesday August 19, 2014

The past two months have provided proof, that the so called 'acche dinn'(good days) are certainly amiss for the near and distant future. It seems as if we are back in 2004 at the start of the UPA term, with the announcement of various new social welfare programs, infrastructure projects, tweaking of existing programs, and SEZ projects. There is little proof that the Modi govt is any different from the previous government.

 

Any visible changes seem too small, around the edges which will have no significant on the Indian economy.

 

A prime example of the continuing cronyism of the previous government is the latest announcement from the Commerce ministry regarding new Special Economic Zone "incentives".

 

The typical list of incentives includes tax holidays for a fixed time period for private firms to start new businesses, and increase investments in existing ones. A common theme that runs through the SEZ project is the acquisition of land, primarily farm land. The government at the Center and states always run into the difficulty of convincing farmers to sell their land to the government at a "fair price". The farmers are generally promised a market price for their sale of land, which most of the time turns out be a false promise, and a distorted price.

 

Do the people who support the SEZ projects consider the fact that in the long run, sale of the large farm lands will drive the prices of land high, which leads to an unsustainable boom in real estate?

 

Does the thought of directing away land as precious capital and a scarce resource to taxpayer subsidized activities in manufacturing and IT/ITeS cross their mind? Do we know if the firms in the manufacturing and IT sector are actually competitive, if it not for taxpayer funded subsidies? Do they even consider the impact this has on higher education, and creating an unsustainable boom in education? Can it be ignored that State intervention has created an education bubble in India, which has rendered a vast majority of students to mere low skilled employees?

 

Apparently the failure or partial "success" of the SEZ program can be fixed by this -

The SEZ policy, which was initiated with a bang by the previous UPA government, ran into rough weather with the Finance Ministry withdrawing the tax incentives available to SEZ developers and the units there in.Of the 566 formally approved SEZs, only 185 are in operation. Many of them could not come up because of the decision of the government to impose Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) in 2012."Reviving SEZ will give a boost to the manufacturing sector, which has registered near zero growth in last two financial years," the official added.
Perhaps the government realized that tax holidays after all were not the best way to go, and imposed a new tax on firms which benefitted from the SEZ projects.

 

Once the tax holiday ended, the firms had to bear the cost of paying a tax along with the existing taxes. If it is not profitable to produce goods and services, minus the crony benefits provided by government, does it not make sense to let firms bear the initial cost of setting up their respective businesses, and not tax them at all?

 

To make matters worse we hear this -

Voicing concern at a large number of stalled SEZ projects across the country, Prime Minister Narendra Modi has said a high-level team has been constituted to review the problems and resolve them at the earliest."In the PMO, there is a special team to look into why SEZs are not finding takers and to suggest solutions for the benefit of the entire country," he has said.As expected, we continue to see a failure of government intervention, in spite of all the great government "successes" in building highways, roads and power plants.Maybe it is time to question the merits of government planning of the economy.Note : Read more at SEZs are an insult to Free Markets