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.

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.