Saturday, June 21, 2008

Crisis Inflation –Confujun to hai Utter by Chandra

The present debate of Indian and world economy is primarily on ‘inflation, nuclear deal, loan waiver to farmer and higher education and food crisis, credit crisis, technology crisis and trade crisis.

For many crucial formal government documents will take several months and years report in a structured format. But only inflation and few other things will come out quickly without waiting for anything.

Ajay Shah writes “Prices are the messenger ……………The simple fact is the average global yields are far, far below what is possible with contemporary science. Vast tracts of land in the world - e.g. in India - have extremely poor yields. High prices generate the incentives for increasing yield. This process, of prices sending out signals and yields then going up, has been going on for centuries”.

Why the Indian governments treat the prices as “The socialist vision sees humans as inflexible and slightly stupid, who then need to be told what to do by the government”.

There is something wrong with the present price system. It seems they have been ignoring some important ideas which are on the top list board meeting in other parts of the world.

The quote mania plays sometime inevitable role to understand the situation that are framed in a sensation mode. One “from Keynes: “By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” The other from monetary stalwart from Milton Friedman: “Inflation is the one form of taxation that can be imposed without legislation.”

The other news paper writes “Keynes has a lot to teach us” but the fact is that the news paper wrote the above line because of the following lines goes like this “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done”.

We need to learn a lot from F A Hayek not from Keynes whose ideas killed economics muse if not economists.
More importantly, the news paper is totally ignorant of what the other monetary stalwart F A Hayek wrote equally on the subject. Let’s muse some of his ideas wrote in 1976.

Professor Hayek's most important insights is one on Choice in Currency. “THE CHIEF ROOT of our present monetary troubles is, of course, the sanction of scientific authority which Lord Keynes and his disciples have given to the age-old superstition that by
increasing the aggregate of money expenditure we can lastingly ensure prosperity and full employment. It is a superstition against which economists before Keynes had struggled with some success for at least two centuries.3 It had governed most of earlier history”.
Altogether he talked about the Rejection of legal tender issued by the monopoly Government. Read more here.
But the question remain constant as one Indian liberal economist ask "Do all poor not have 8 per cent nominal growth in incomes? With skill shortages in parts of the country (all poor don’t have employer-employee relationships and fixed incomes), do we have a robust empirical basis for the assertion or is it just a mindset? Some (not all) poor also have opportunities for income growth. Otherwise, that other crucial political number, the poverty rate, would not have dropped".

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