Energy subsidies – Burn it

One my pet peeves is indirect subsidies. They distort the economy and ruin the environment. It is nothing but robbing Paul to pay Peter. But since Peter also gets robbed to pay Paul, no one really benefits. Well there are some Pauls and Peters who manage to get the tax man to rob and not get robbed. Exhaustive Get the Energy Sector off the Dole article by Jeffery Leonard is an excellent read.

Why ending all government subsidies for fuel production will lead to a cleaner energy future—and why Obama has a rare chance to make it happen.

We can be sure that the same arguments is applicable in India or pretty much any country.

India vs Hong Kong – health and wealth

I stumbled upon Gapminder. I used one set of data to compare life expectancy versus Income per person (over time) for India and Hong Kong. Check it out and draw your own conclusions.

India versus Hong Kong

You can try various combination of countries and other parameters.

“Fear the Boom and Bust” a Hayek vs. Keynes Rap Anthem

Yo! Yo! Yo! fellow nerds. Very cool video – rap debate between Keynes and Hayek. Just when you think you have seen everything, …..

The silent tsunami from Economists

The silent tsunami from Economists  on the food crisis.  Good short term and long term solutions:

• Merely to distribute the same amount of food as last year, the WFP needs—and should get—an extra $700m.

• In most places there are no absolute shortages and the task is to lower
  domestic prices without doing too much harm to farmers. That is best
  done by distributing cash, not food—by supporting (sometimes inventing)
  social-protection programmes and food-for-work schemes for the poor.

• Then stop the distortions:
  In general, governments ought to liberalise markets, not intervene
  in them further. Food is riddled with state intervention at every turn,
  from subsidies to millers for cheap bread to bribes for farmers to
  leave land fallow. The upshot of such quotas, subsidies and controls is
  to dump all the imbalances that in another business might be smoothed
  out through small adjustments onto the one unregulated part of the food
  chain: the international market.

The vanishing common sense

Some points TVR Shenoy makes in The vanishing food stock shows you how even well informed columnists think and gives you a glimpse into why the so called food crisis exists:  Shenoy writes:

• our economist prime minister and his team of experts had done a poor job of managing food stocks
• Forget two years ago, was
  anybody in the central secretariat paying attention even four months
  ago? India then had the opportunity to pick up three million tonnes of
  rice from Myanmar (Burma). The great economic experts in Delhi
  dilly-dallied. Today, there is only a million tonnes left — and the
  price is over 40 per cent higher.

Questions for the Shenoys of this world:

1. Why are handful of people (PM, his team of experts and the Central Secretariat) managing the food stock of a billion strong nation which includes millions of farmers and traders? I thought Soviet Union collapsed few years ago and with it the idea that handful of central planners can be substitute for million of humans and their thousands of institutions and organisations, collectively called the market. I guess I was wrong.
2. If three million tonnes of rice was just waiting in Myanmar to be taken, while prices in neighbouring India was going up, what were the millions of evil traders and businessmen, who supposedly put “profits before people” doing? Why didn’t they “exploit” the poor farmers of Myanmar by buying low and “exploit” the poor Indian consumer by selling high?  Are all Indian traders and businessmen as dumb as the Central Secretariat? Or are there some barriers to such trade ?
3. Does the Central Secretariat include the central Agricultural ministry, the food processing ministry, the zillions of central and state government employees in rural areas to “help” farmers, all the state government agricultural ministries and their staff, the gram this and the gram that, krishi this and the krishi that, my favorite the FCI, the zillions of PDS shops, rural dev ministries, the social security ministries, the zillions of subsidies that go directly to inefficient fertilizer companies, the fertilizer and chemical ministries, the panchayati raj ministries, the zillions that go to indirect electricity, water and other subsidies, the loan melas that go to mostly rich farmers, all the nationalised banks that supposedly was nationalised to serve the rural poor whom the evil private banks won’t serve, zillions of barriers to even a simple common market inside India, let alone with the outside world, ………?
4. If yes to question 3, then what more do you expect the Central Sec to do? They have tried all complications and distortions humans can come up with.
   
5. Come to think of it, if yes to question 3, then Central Sec must be full of all-seeing, all-knowing, omnipresent gods. Is it legal to worship them? If so, when can I start?
   

Wait for few weeks and we will be on to the next fad. The current food crisis will fizzle out just like the last big crisis–the rising oil price crisis. The world, thanks to globalisation, liberalisation, technology, etc., has learnt to do more with less. The world could do better, if only the governments–eastern, western, rich and poor–stop distorting the markets with indirect and disingenuous subsidies, putting unnecessary barriers to trade, playing god and market by predicting and subsidising the fuels of the future, etc.

Some Don Quixotes in government will chase windmills of private monopolies, hoarders and exploiters (see earlier post Of men, mice and monopolies).

Traders and speculators will continue to outwit every government plans and scheme. They will buy low from the government and sell high, back to the government. I don’t blame them either since they are usually not allowed to do anything else.   

So while we live in this blameless, Kafkaesque world, doing the tango and the Kabuki with various incarnation of plans-crisis-plan, the world figures out ways to move on, get around stupidity and vanishing common sense.

Of men, mice and monopolies

This is what happens when you have monopolies. One distortion of the economy soon needs another. One destructive policy needs and equally destructive and unprincipled “remedy”. According to Railway
Minister Lalu Prasad, who presides over probably the largest monopoly in the world,

Read more

What about the other monopoly called FCI. This wonderful creation of central planning loses thousands of tonnes of food every year to men and mice.  It is my contention that FCI feeds more criminals and rats day in and day out than hungry people. An exaggeration no doubt, but not by much.

Who will save us from the exploitation and profiteering of anachronistic monsters like FCI?

Next time you encounter the following: use thousands of features on your computer; wade through garbage and human excrement in railway stations that looks more like refugee camps; read about farmer suicide, even though zillions have been set aside by taxpayers to aid them, via subsidies and food procurement, and that tonnes and tonnes of food  disappear every year from government shops and storage, chew on the following:

Microsoft, which delivers better and better products, every year, for cheaper and cheaper prices, is relentlessly hounded and accused of being a monopoly. But railways and FCI ……….

Before you conclude otherwise, I am a big fan of Mr Lalu Prasad. He is a shrewd politician and politics, especially in a complex democracy like India, needs more Lalu Prasads. Not naive fools whose only qualifications are that they speak English well and studied in prominent Engineering colleges. Maybe even did a tour of the West and are have come back to “serve and sacrifice” for their motherland. Clueless bull!

One more contention of mine: Mr Prasad knows fully well how destructive the Railway Ministry, the monopolistic nature of railways in India and FCI are to the development of India.  He knows well that his gimmick will not make any difference whatsoever.  But the price is rising, inflation is up, elections are coming, etc. etc. And he is a shrewd politician.  Man got to do what a shrewd man got to do!

More on oil

says Richard W. Rahn in Socialist Oil Death Spiral.

Most people do not realize that about 90 percent of the
world’s liquid oil reserves are controlled by governments or
state-owned companies. Exxon Mobil, the world’s largest privately owned
oil company, owns only 1.08 percent of the world’s oil reserves, and
the five largest private global oil companies together own only about 4
percent of the world’s oil reserves.

This is news to me too. How come we hear so much about the evil private oil company and so little about the rest?

Teacher or Athlete: Who is more valuable?

Why do professional athletes make so much more money
than, say, professional teachers? Do people really value sports more
than they value education? Teachers provide a service that is generally
accepted as contributing real value to the development of society. Some
people view sports, however, as superfluous. They think of it as
something that society could function well without. It doesn’t seem to
make sense that work deemed important by most people could be valued
far less than that which may be unnecessary or seen as frivolous to
many.

This is similar to a paradox of old: Why are diamonds so expensive
and water so cheap, when water is absolutely essential to the life of
every human, and diamonds are basically luxuries that every person is
capable of living very well without? The answer is scarcity.