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Ludwig Von Mises

Yesterday (September 29th ) was Ludwig Von Mises’s birthday. The man whose guiding principle in life was – “Tu ne cede malis sed contra audentior ito” . Translated, this means

Do not give in to evil but proceed ever more boldly against it

In my opinion he was the most honest man to have walked the earth in a long long time. When he revived the Austrian school of economics and patiently explained the reason why markets and only markets can bring prosperity and happiness, his ideas were brushed away as out-dated by his contemporaries, who were drunk with Socialism. When the mighty evil empire came crumbling down in the nineties, Mises was finally proved right. He had conclusively demonstrated fifty years earlier that Socialism was an impossibility and would only result in poverty, starvation, slavery and death whenever and wherever it is tried. Even some prominent socialists admitted that Mises had been right all along.

Personally too Mises was a gem of a human being. Though an ardent advocate of Capitalism and prosperity, he had little material profit in life. No university was willing to open it’s doors to him, for fear of being targeted by the vindictive socialist intellectuals.  While he advocated classical liberalism and tolerance in social matters, in private life he was a deeply conservative man. He married just once and lived a content life with his wife till his last breath.  His wife recounts an anecdote in her bio-graphy of him, which tells us a lot about his deeply compassionate nature. Mises who fought the violent labour union ideas that were being promoted at the time, once refused to change his ageing secretary when she could no longer efficiently work. He said that if he removed her, she would find it tough to make ends meet and said he could manage with her.  Contrast this with the great friends of the labourers in the Soviet Union, who mercilessly massacred the very same laborers who trusted them. Mises would not compromise his beliefs at any cost. Once he stormed out of a meeting of economists who were discussing various methods of collecting income tax, declaring that they were all a “Bunch of Socialists”.

Even today Mises’s contribution is rarely acknowledged. Today the mainstream media and academic establishment occasionally come down from their throne and acknowledge the Austrian school’s remarkable ability to explain so many things that confounds the Ivy league schooled economists. But even then they only mention F A Hayek’s name. F A Hayek was Mises’s student, who brilliantly expanded Mises’s business cycle theory and even got the Nobel for it. But Hayek was soft towards his opponents. He attributed all their crimes against humanity to just intellectual mis-judgement. But Mises was more forthcoming and would call a spade a spade. He never had kind words for the Socialists. That’s probably why no university will ever mention that such a man walked on the earth and provided us with all the tools necessary to defend civilization from the hands of the Socialist butchers. His magnum opus – “Human Action” is a must-read for every honest man who loves his and his loved ones’ freedom and wants to preserve it. But beware. Mises is a wise old man – like the Bheeshma of our own Mahabharatha. His moral convictions are incorruptible. He would patiently but surely prove to be wrong, all that our collectivist intellectuals teach us. A true teacher does not provide one with fish. He teaches one how to fish. Mises teaches us to think for ourselves. He doesn’t force anything on us. He does not manipulate our emotions. His voice is calm, clear and dis-passionate. At the end we learn what is true and what is false. What is right and what is wrong. But it is a different question what we choose to do with this knowledge, for we have to remember that

Truth will set you free. But it will make you miserable first.

You can read a short bio-graphy of Mises as penned by Rothbard here

And a video on the man he was,

Some quotations of his, that demonstrate his courage, wisdom and integrity

If history could teach us anything, it would be that private property is inextricably linked with civilization.

Once the principle is admitted that it is the duty of the government to protect the individual against his own foolishness, no serious objections can be advanced against further encroachments

The common man is the sovereign consumer whose buying or abstention from buying ultimately determines what should be produced and in what quantity and quality

It is irrelevant to the entrepreneur, as the servant of the consumers, whether the wishes and wants of the consumers are wise or unwise, moral or immoral. He produces what the consumers want. In this sense he is amoral. He manufactures whiskey and guns just as he produces food and clothing. It is not his task to teach reason to the sovereign consumers. Should one entrepreneur, for ethical reasons of his own, refuse to manufacture whiskey, other entrepreneurs would do so as long as whiskey is wanted and bought. It is not because we have distilleries that people drink whiskey; it is because people like to drink whiskey that we have distilleries. One may deplore this. But it is not up to the entrepreneurs to improve mankind morally. And they are not to be blamed if those whose duty this is have failed to do so.

Freedom is indivisible. He who has not the faculty to choose among various brands of canned food or soap, is also deprived of the power to choose between various political parties and programs and to elect the officeholders. He is no longer a man; he becomes a pawn in the hands of the supreme social engineer.

A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final total catastrophe of the currency involved.

Fascism can triumph today because universal indignation at the infamies committed by the socialists and communists has obtained for it the sympathies of wide circles. But when the fresh impression of the crimes of the Bolsheviks has paled, the socialist programm will once again exercise its power of attraction on the masses. For Fascism does nothing to combat it except to suppress socialist ideas and to persecute the people who spread them. If it wanted to really combat socialism, it would have to oppose it with ideas. There is, however, only one [emphasis in original] idea that can be effectively opposed to socialism, viz., that of liberalism. It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error*

Note:

I included the last quote specifically because that is one and the only quote that can be used against Mises. When the Socialists can no longer pretend that Mises did not exist, they resort to slinging mud that he was sympathetic to Fascism. This is his quote that they use to support their accusation. Nothing can be farther from truth. The above quote has to be specifically understood in context. What Mises says is true and was the prevalent view in Europe then. Lenin and Stalin had massacred millions of Russians in their labour camps and were openly threatening the free countries. The spectre of communism was definitely haunting Europe as Marx had black-mailed. That is why the western nations adopted a policy of appeasement towards Hitler, hoping that he will contain the onslaught of Communists. But it proved to be a jump from the fire to the frying pan. Mises was talking about this prevalent view only and rightly pointed out that Fascism will not prevent the spread of Communism. He then proceeded to demonstrate in his works that Fascism was also Socialism in disguise only.  Infact the Nazis and the Fascists themselves acknowledged that Mises was their enemy. When Hitler’s army invaded Austria, the Nazis stormed Mises’s residence to arrest him. as they were irritated by his ideas of liberty. Fortunately Mises had already escaped to freedom. And not surprisingly the Russians also wanted Mises and his works in their hands. When it came to destroying freedom, Fascism and Communism joined hands.

You have the right to remain silent

(This was a critique I published in my personal blog, to the Right To Free and Compulsory Education act when the act was enacted a few months ago. It’s proper place is in this blog. )

The Right to Education act is being criticized in some quarters as being inadequate. The point of my criticism however is that it is an atrocious attempt by the Indian state to extend it’s iron fist into what should essentially be a private responsibility. The fact that it only mirrors the Socialistic form of public education already prevalent in some western countries does not justify it.

The name of the act – Right to Free and Compulsory Education. Calling a compulsory provision as a right demands an enormous perversion of the language – an art that the Socialists have mastered. I would attempt to show that it is not a compassionate measure and would not deliver the results it promises. It would in fact turn out to be a massive Social engineering experiment by the socialists who would stop at nothing in their missionary zeal to achieve compulsory mind-numbing Soviet style equality in this world and reduce all humanity to mere numbers.

( Before reading this critique please take time to read through the act first. It is available for download here )

First of all there is no such thing as a free lunch. As long as schools,teachers and books do not grow on trees, education cannot be free. But I will come to that later. Even assuming that this huge,bloated,corrupt,inefficient,constantly under deficit government has the resources available to finance this monster, there are a lot of other serious flaws. So though I do not accept the idea that government should have anything to do with providing education, I would try to prove that they are not honest even about that and are only going to destroy an entire generation.
In Chapter III of the act it is stated that all non-enrolled children will be compulsively enrolled in the neighbourhood school ( which the government shall ensure exists ). Now the concept of neighbourhood schooling is a tried and failed concept in the USA. Their socialistic public education system is a perfect example of how government interference can destroy a proud,productive people and reduce them to couch potatoes. Today American kids score low on every indicator of talent. (American higher education system is world class still. And that’s because it still offers choice to students, the universities are autonomous and run mostly on their own funds )Their neighbourhood schools are recognized to be the breeding ground of anti-social elements. The problem with compulsory enrolment in neighbourhood schools is that it removes the parent’s right to choose the school for their kids or not to school them at all ( Again when did these communists care about our rights? ) So even if you know that the neighbourhood school is filled with thugs, even if you fear that the monstrous teachers there would cane your kid to death, you have no choice but to place your child at risk. ( Any person who knows the state of government and aided schools in India would testify that I am not exaggerating. There are millions of horror stories )
So what does the act do to remove these fears? It provides for School Management Committees which some respectable people have hailed as the only good aspect. But I am not so sure. These communities are supposed to be constructed with three-fourth strength being parents and the remaining being teachers, local representatives and some education workers. On surface this sounds a good idea. Indeed it is welcome that parents have a greater say in running the school ( Do not forget that they still do not get to choose the school ). And the act also provides for the transfer of the physical assets of the state schools ( government schools ) to be transferred to these committees. Another welcome step. But I do not for a moment believe that the communists included this provision out of any respect for parents or property. I suspect that this is an experiment they are conducting on communal ownership of property. Now in a free society, people can choose whom to buy from. This is called consumer’s sovereignty. In a communist society, this is replaced by blackmail. If the “people” are not satisfied with a product/service they get, the only recourse they have is to threaten the producer of the good/service. This is the fundamental concept of communism. In place of the right each person had over himself, the communists give each person a right over every other person except himself. So the SMCs here too have been granted arbitrary powers to control the teachers. The SMC is supposed to ensure that the teachers are diligent and disburse salaries to them. Now the act also states that the teachers of state schools will be state cadre. So they will have to be paid bloated, union-hiked government school wages. So SMC actually does not have much say in this matter and will be powerless in the face of the powerful teachers unions. As a further addition the act also stipulates that the teachers should not be transferred once appointed. With all these vastly reduced powers, the SMCs would be owners only in name. The frustrated parents would make SMCs just a community of grievous individuals. So the stage is set for never ending conflicts between teachers and SMCs. Another dream of communists- a society filled with unresolvable conflicts.
The monstrous provisions of this act are yet to come. The act is a huge infringement on the rights of private schools. It stipulates that even unaided schools should allocate 25% reservation for weaker sections ( Another undefined word ). The government promises to reimburse the education subject to a maximum of what it costs per child in government schools. We know the state of government costs. The government schools actually put a negative cost on children by destroying their initiative. So the cost they fix will not be considered sufficient by private schools. How will they treat these kids forced upon them? Again the answer is simple. Define a term equitable education and threaten them to provide it. ( I seriously pity the kids who are going to be forced into schools like CV and SBOA. Even most middle class kids find the culture of these schools too hot to handle. And you are seriously going to take a boy from the slums and force him into the same school as a girl with killer looks wearing the trendy low cut tops? And then you are going to jail him for eve-teasing? Again how sick can you get? )
The act also stipulates that any new school should be approved by the government. There are already provisions requiring this. But now educating your kids in an unrecognized school that provides cheap, good quality education will be considered a crime. If you are not educating your kid the way the government wants you to, you are not educating him at all. And what are the norms for recognition? It states that every school should compulsorily have a playground. Every teacher should have the degree that government deems appropriate. Now there are lots of charitable organizations, NGOs, Christian missionaries and some Hindu charitable trusts that provide education for the most vulnerable sections of the society. Most of these operate out of houses or other temporary shelters. They employ volunteers to teach who do a much better job than our union patronized B-Eds. Many poor parents are willingly sending their kids to these places instead of the frightening government schools. Now this act would not recognize any of these schools. The bureaucratic machine would step in choking all innovation. It would criminialize charity. And parents would be subjected to community service as a punishment for not educating their kids in a government approved school. Again how do these people have the courage to include all these monstrosities in a so-called right?
After setting up all these draconian arrangements, what will they do with our kids. Who decides what to teach? The act states that competent academic authorities will prescribe a curriculum which the schools have adhere to. Who are these gentlemen? What are their political affliations? How will the kids who have been made to believe that they owe their lives to the government and this act, have any spine? How will they exercise the cherished right to free speech our constitution guarantees? The act states that the schools should use mother tongue as instruction medium as far as possible for elementary education. We do not know how they define the word “as far as possible”. But still this is opposed to the cherished dream of most parents- to school their kids in English. This is not because they hate their mother tongues, it is because English is the global language and a path to success. But isn’t English the preserve of these elites. Masses should love their mother tongue right?
The act also stipulates that no child should be held back in any elementary grade. I am not a great fan of exams. But this provision will surely destroy any remaining semblance of quality in education. Why care to learn if you are gonna pass anyway?
All of the criticism above was directed at the compulsory provisions of the act. The free provisions are equally destructive. How is the government going to raise the 1.5 lakh Crores it proposes to spend over the next five years. Tax us more? But we already have a 2% education cess on all goods right? How to fulfil this promise without angering the already choked middle class? Simple. Deficit financing. Just print more money and put the blame for the inflation that results on forward trading.
The very idea that the government has a greater right over children than parents is nauseating. How sick can these communists get? Who are they to compulsively take a child away from his parents? Who decides what is education? If parents decide to teach their children family trade or home school them or send them to a place that does not fall under the “Government approved” definition of school, who are these people to question that decision? Every decent person must mull over the monstrous provisions of this act. This is a vulgar idea taken straight out of the Communist Manifesto which declares that the children belong to the community as a whole. The left intellectuals scream in pain when some rights of the accused were removed in POTA ( I am opposed to POTA too since it places the burden of proof on the accused. But I am questioning the double standards of our intellectuals here ). Here is an act that destroys the liberties of every decent parent in this country. And the intellectuals are celebrating.
If these people were atleast serious about their stated aim of universal education they would have gone for something akin to the school voucher system being successfully tried out in various places. The concept is simple. Just provide the poor parents with cash vouchers. They can enrol the kids in the schools they want by paying with these vouchers. The schools can re-imburse these vouchers by submitting them to the government. The system is not perfect. It still involves government interference. But atleast it actually helps the poor by removing all the bureaucratic bottlenecks. And parents get to choose. If it is so simple why didn’t our benevolent intellectuals choose such a scheme. This is where their real aim becomes clear. Power. Power over our kids. Take them in young is every totalitarian’s dream.
BJP which claims to defend our cultural values has shamelessly supported this huge assault on our family structure. It is time it got some spine. Conservatism is not about destroying mosques or molesting Christian nuns. It is about defending the institutions we value the most like property,family,business and religion. If BJP truly wants to become a middle class party again it should stand up against this communist assault. This isssue together with the rising demand amongst farmers for re-instatement of the right to private property that our liberal constitution originally guaranteed can propel BJP to the centre stage again.  Is BJP up for the challenge? Can it show that right wing politics is the true politics of the masses? Can it give us our own Reagan?

Addition:

Milton Friedman, that tireless crusader for liberty campaigned endless for introduction of some degree of choice into the American public education system. If compulsory neighbourhood schooling could have such harmful effects in a vibrant participative democracy like America, in a corrupt, unaccountable setup like ours, it will turn out to be a frightening Soviet nightmare. Below is a series of videos that the Milton Friedman’s Free to Choose network published to campaign for freedom in education. Let us demand too that our government leave atleast the children alone.

Note:

For informed critiques of the act, visit http://swaraj.nationalinterest.in/2008/10/31/right-to-education-bill-is-flawed/,http://ajayshahblog.blogspot.com/2010/04/right-to-education-act-critique.html

Communist – How to spot one

(Authored more than a year ago. Moved from my personal blog.)

Twenty years ago India abandoned the path of socialism and embarked on the road to prosperity. When we have just started enjoying it’s fruits, there are already enlightened voices calling for moderation. While it was expected that the so called intellectuals would behave this way, what is frightening is that so many decent hardworking people are also beginning to believe that somehow socialism and communism are wonderful ideas that just did not work. They are apologising for their desire to make their lives better.  The following is for their benefit. They should know what the real soul of a communist is. I know this better because, for the better part of my adolescence I was under the intoxicating influence of this vicious theory. I owe it to my college for curing me. And I owe it to the people who cured me that I point out what they are accepting when they allow a leftist to convince them of the virtue of socialism

When a person declares himself a communist/socialist  this is what he means:

• I have no respect for the rights of my fellowmen to possess property. I would seize their property and expect them to appreciate it as being done for the greater good of the society.  (The theory of communism can be summed up in one sentence. Abolish all private property – Karl Marx)
• I would decide what they should eat, wear and talk about. I would demand that everyone treat everyone else equally without regard to their personal preferences.
• I would refuse to acknowledge that I should take responsibility for earning my own living. I would declare that I have the right to satisfy all my needs and blame the society for not satisfying my needs of food, clothing, shelter, healthcare, education or job. (From each according to his ability, to each according to his need. – Karl Marx)
• I would envy people who are more talented, hard working and ambitious than I am, and would blame them for daring to earn a better standard of life than mine. On the other hand I would have no problem asking them to pay me a part or whole of what they earn  for letting them exist. I would not accept that what I am doing is nothing but pure extortion and robbery.
• I would not improve my skills and prevent others from doing so. If anyone dares to come up with something original and new, I would accuse him for daring to do something which his fellow men were incapable of doing and thus daring to become better than them even if this invention raises everyone’s standard of life. I would put him to death and then have no problem using his innovation to make my life better.
• I would preach austerity and a simple life from inside an air conditioned castle, driving a Lamborghini. I would jusify this by saying that my life is more important than others as I am the one ordained to establish harmony on this earth. ( Consider the lifestyle of any dictator who ruled/rules any communist country )
• I would keep contradicting myself. Whenever I find that some past statement of mine was proved wrong, I would simply deny having said that. When someone points this out, accuse him of being a reactionary and execute him. I would suspect even my own comrades in arms. I would claim that only my vision of communism is correct and destroy all other rival versions.(Remember all the fraternal wars between Soviet Russia and China, China and Vietnam, Vietnam and Cambodia and of course the famous rivalry between Stalin and Trotsky)
• I would pretend to be an intellectual and voice my opinion on subjects that I have no understanding of. When some fact contradicts my beliefs, I would just distort the fact to suit my belief.
• I would not be able to explain the fact that communism being a worker’s movement as I claim, has never succeeded in becoming any force in the countries where the number of workers is highest – the industrialized countries. I would hide the fact that communism everywhere has been preached by the educated scholars who never did any physical work all their lives, carried on by goons who had no problem in killing their country men and accepted silently by illiterate peasants.
• I would call for violent takeover of private property in the name of nationalization. I would say that I have a right over the property (which I would call a national resource) simply because it falls within the nation’s boundary. I would refuse to acknowledge that the natural resource became an useful economic resource simply due to some individual’s effort and that is why he claimed it as his property.
• Whenever someone points out my ideology’s past failures and horrors, I would refuse to take responsibility and claim that this time it would be different even if all evidence points otherwise. I would claim that communism is a noble ideal and humans are not noble enough for it.
• If someone points out that historically, Capitalism has removed more people out of poverty than any communist godfather ever promised , I would close my ears and simply declare that Capitalism will fail because Marx said so. So people should not embrace capitalism even if it promises them a better way of life. I would declare that communism is more important than bread. ( Mao declared once that the people should get over the ravaging famines by reading about communism )

I would claim that communism promises universal love and peace, while refusing to accept the fact that it has surpassed the Nazis in the sheer number of people it has massacred in it’s concentration, sorry labour camps. I would call Hitler a villain and Stalin a hero, even though Stalin’s killings outnumber Hitler’s. I would praise North Korea for starving it’s people while accumulating nuclear weapons.

This can go on. But I have better things to do than getting into the mind of a communist. I felt compelled to write this post, because of the sudden increase in the crazy voices around me. These people were forced to eat their words in the nineties and the early years of the new century. Now that they find that the western economies are in a crisis they have come to life again like Zombies, nastier than ever before. ( Again this is not a crisis of capitalism itself as many claim. Just ask a few simple questions, who gave the sub-prime lenders the courage to go out and lend sub-prime? Who created the false bubble? Why did the US government keep expanding the money supply? Is it capitalism to keep devaluing money and adopt a zero interest rate policy? And who has taken the real hit now – bankers or tax-payers? If banks were to blame, why were they bailed out with tax-payer money ? Whose fault was all of this? The innocent free market which obeys only the rules of cause and effect or the increaingly socialist US government which forgot its capitalist roots and decided to tamper with the market?  ).There is a sudden spike in the number of Che Guevara shirts on the street. They are deadlier than before, in that they no longer attack capitalism directly. They pretend to be reformers wanting to change it. Their colour is no longer red. It is green. They don’t call themselves communists. They have fancier names like people for the earth, people for the rights of some unknown tribe in Malawi etc. But beneath the cloak, beneath all their fancy talk, there is the same dark heart –  the hatred for private property. They blame us for being greedy. They openly propound destruction and get praised as humanitarians. They want us to talk to the Naxalites who enter our homes and rob our property. They blame our slightly enhanced standard of life for the diseases in Chattisgarh, as if the tribals had access to high quality health care before liberalisation began. They write books, conduct book fairs, direct movies, teach our kids, organize human rallies and do everything possible to make us feel guilty for making our lives better.

I have shared my antagonism at the risk of sounding rigid and conservative. But we need to be careful when supporting certain ideas.  We have to realise that it is not a choice between capitalism and socialism. It is a choice between freedom and tyranny,society and chaos,life and death.

A Brave new Model

(This was my first post on economics. Moved from my personal blog. I will also move a few other posts on economics that I wrote before starting this blog)

Reality is that which, when you stop believing in it, doesn’t go away.

-Philip K. Dick

The academic community is fond of models. It is true that modeling is the only way to understand several complex phenomena. But I believe that a large part of enthusiasm for models is due to the fact that models permit unconstrained imagination unlike the real world which always comes up with new problems. The theorist who has had a sudden flash of insight hates to be told by the real world that the idea is impractical.

This is not a problem in physical sciences because, however convinced a theorist might be of his/her ideas, he/she has to corroborate it with solid experimental results for it to be accepted. We must be thankful to the early scientists for establishing this tradition of experimentation. This more than anything else has separated quarks from people of real substance. Because ultimately human imagination is unconstrained but the physical world is constrained and people want to live in the real world. So in physical sciences a model is just a convenient tool for finding the truth. It is not the truth itself.

But today, modeling is not limited to the physical sciences. In fact the biggest users of models today are Business leaders, Investment bankers , Economists and so many other ‘practical’ men. It is true that the economy has become too huge for decisions to be made solely on the basis of conventional wisdom. Models are of great practical value in predicting the outcomes of decisions of monumental importance. Whereas the utility of models cannot be questioned, we must not forget the fact that these are still just models and they cannot accurately represent the ever changing nature of reality. It is the failure to grasp this fact that has made the world seem so complex and unpredictable a place than it actually is.

The biggest casualty of this attempt to port a tool of physical sciences into the social realm is economics. It is not exactly clear why economists chose to use mathematical modeling as a tool for economic analysis. It is possible that this was partly motivated by a desire to show themselves as talented as their counterparts in physical sciences. Whatever the reason is, the world has suffered a lot due to this change of direction. Prior to the advent of modeling, the problems of economics were analysed on the basis of human actions. It was understood that the economy is only a sum total of individual actions. Hence it had to be understood only from the standpoint of human behavior. Mathematics and modeling had no place here. But this happy state of affairs was interrupted when a man named Keynes appeared on the scene. Like a pied piper he lured all students of economics away from the real world and into the imaginary world of unlimited money supply and the all encompassing benevolent state. What he preached was fundamentally no different from what Karl Marx had said a century ago. But the same people who recognized communism to be a disgusting idea, celebrated the Keynesian idea of big government. The irony is Keynes himself claimed to be a defender of capitalism and professed to hate socialism, while at the same time preaching ideas that contributed to making Socialism more popular than its proponents could have ever made it.

The biggest problem with Keynesian economics is that it tries to fit human behavior into its model. It assumes that actions of countless individuals can not only be modeled but can also be played around with. It is on the basis of this assumption, that governments and banks try to pump money in and out of the economy trying in vain to make people act the way they want them to. Any parent with a teenaged son/daughter would know that individual behaviour cannot be regulated without the individual’s consent. Parents who attempt to do that end up with rebellious kids who blame their parents for all their misery. The argument that the parents were motivated only by a desire for the children’s welfare is seldom bought by the children. If people who are so close and important to an individual, cannot predict or regulate an individual’s behaviour, how can government planners, sitting thousands of miles away in closed cabins expect to?

Today even physical sciences realise the limits of mathematical modeling. Todays research on artificial intelligence relies heavily upon Fuzzy logic, Neural Networks and Genetic Algorithms. None of this is mathematical in its approach. The scientists have realised that a lot of phenomenon are distributed in nature and are hence inherently imprecise, unpredictable and more importantly constantly evolving in nature. So mathematics is just not the tool for the job.

If people must indeed model economic actions, I would suggest them to take a closer look around while driving their car on a busy morning. Every vehicle around you wants to squeeze the last inch of space available for it. The sole motive of every driver is to reach his/her destination in time. Most of the motives clash. I want to go straight. The car before me wants to take a turn etc. But still most of the people manage to attain their motives. How does this happen? Simple. We start with a few simple rules. Always drive on the left. Stop at signals. Keep at least a feet away from the vehicle at the front. Indicate before turning etc. As long as people stick to these rules everything is smooth. If someone violates, he/she is considered an offender and punished accordingly. So as long as the person next to you is sensible and acts in his/her own self interest, you too can safely reach your destination provided you too act in your own interest.

Now consider what would happen if were to apply mathematical modeling to the traffic regulation problem. Suppose the planners are too irritated by the delay caused by traffic jams. Rather than going for a strict implementation of the traffic rules, they decide to model traffic to prevent problems from happening it all. After all prevention is better than cure, right? So they develop an advanced system that would decide what kind of traffic flow is best for everyone. It averages out everyone’s motives and constraints and provides a fair deal for everyone. You get up in the morning and decide to take a ride to a nearby grocery. But the traffic that day is heavy. So the system calculates that every person should on average take 20 minutes to travel. So to discourage you from travelling in five minutes to the shop and in the process ‘steal’ 15 minutes from your fellow men, it taxes the 5 minute route. On another day, you are in a hurry to reach the hospital. So you want to use your car. But the system calculates that the load will be unmanageable that day and taxes every car that takes the road. If the planner is strict, it might even bar you from using car that day. After all every one has to share their troubles. What happens on a normal day? You have an on board display that tells you how much the system will tax you if you take a particular turn. The tax is directly proportional to the disturbance you will create to the regular traffic by making that turn. As long as people keep travelling straight along with the flow, no one has a problem right? But what about the place you want to reach? That is expendable because it cannot be fitted into the model. Ideal isn’t it? No more traffic jams. A world fair for everyone. I suggest to city planners to start working on this idea soon. They can get the best brains to create a model for them. I am good at mathematics. May be I’ll join too. Long live the brave new model, sorry world.

Note:

On second thoughts, traffic is a bad analogy for economic co-operation. Though it fits for the purpose of this article, the analogy should not be extended. While driving in a traffic, the presence of other vehicles only hurts you. The best thing to happen for you would be a completely free highway. But in an economy, our well-being essentially depends on the existence of other players. If very few people engage in productive activities, our standard of living will invariably be low, irrespective of how much effort we put. Taken to the extreme, however hard Robinson Crusoe tries, the one-man economy he lives in, can never lift him out of his animal – like existence. Also note that this only strengthens the case against modelling and excessive regulation. In an economy, there is an inherent harmony of interests amongst various participants ( despite the existence of competition. Your competitor in the industry is the only person whose success might materially harm you. Again lack of competition is also harmful ). So regulation leads only to introduction of problems in an otherwise healthy setup )

The Curse of the Ground – The Zeroth law of Economics

Reagan exited office right about at the same time my generation came to this earth. And it would not be an exaggeration to say that we are all Reagan’s children. The idea of student politics, ideology, protests, communism, feminism, liberalism and so many other isms is so alien to our generation. Bill Gates is our God. Technology is our religion. Silicon Valley is our holy land. We dream of freedom and wealth, not equality and power. Except a for a few crazy souls like me, no one even cares about politics and economics. In short we are Happy. And that’s because we are Reagan’s children.
If you had not watched the video yet and wonder what I am talking about, please watch it first. After watching, think for a minute about what Reagan is trying to convey via the first anecdote.
Reagan rightly points out that Socialism has no respect for man’s soul. But the anecdote also points out another more fundamental flaw of Socialism – the fact that it arrogantly refuses to recognize the existence of “scarcity”. Now if we all lived in a garden of eden, the socialists might be right in asking why can’t everyone just have everything they might need. Actually that question would be meaningless for when food and clothing and shelter and all other material comforts are as abundant as air, why would anyone even feel the need for them? Do you feel the need to breathe? *. But alas we don’t live in a garden of Eden. Nature is not a sweet mother whose gifts we naughty children are refusing to share. The earth does not yield grains or throw out minerals on its own.  Nature is stingy. The book of genesis in Bible captures this in a profoundly meaningful verse

And unto Adam he said,Because thou hast hearkened unto the voice of thy wife,and hast eaten of the tree, of which I commanded thee, saying, Thou shalt not eat of it :cursed is the ground for thy sake ; in sorrow shalt thou eat of it all the days of thy life ; thorns also and thistles shall it bring forth to thee ; and thou shalt eat the herb of the field :in the sweat of thy face shalt thou eat bread,till thou return unto the ground ; (Genesis 3:17-3:19)

God cursed the earth for Adam’s original sin. Ever since, man has had to toil on earth in order to survive. The garden of Eden was lost to him forever. If we are going to live, then we are going to have to earn the means to live. The idea that any one has a right to food, clothing or shelter just because he was born, makes no more sense than the right to own a yacht that Reagan is talking about. Yachts are scarce? Well my friend, so is food. If that were not true, Robinson Crusoe’s life would not have made for such a gripping read. Why the hell did he have to try so hard, if food grows on trees as the Socialists believe.
Now you are exaggerating. No one is so stupid as to not understand this simple fact, I hear you say. But believe me, refusal to consider this simple fact is behind most of our problems. Why do we have this never ending stream of rights – “Right to Food“, “Right to Education“, “Right to Health”, “Right to Internet” (Yeah you heard it right) ? Do we ever ask “But How?”, when our politicians promise us these? Do we ever ask who pays for it? Or do people believe that there is something called a Free lunch?
If you say that Socialists are not so stupid to fail to recognise scarcity, that leaves us with only one other explanation. They are evil. They want to live off others. They shamelessly lay claim to things that they played no part in creating.  But as Margaret Thatcher pointed out, there is a problem with this – “You eventually run out of other people’s money”. And that brings us to the second anecdote and why we all have a duty to stop the socialists. Like the chicken in that story, there are few people in this society who generate enormous wealth that benefits all of us. ( If it were not for Bill Gates, Computers would have remained locked up in laboratories with no one except some bearded unix gurus understanding them. Were it not for WalMart, shopping would not have become a hobby ). And when some stupid Robin Hood decides to rob these people and “help” the poor, he is essentially hampering the creation of wealth, without being of any use to the society himself. Who knows how many ideas were killed before birth due to India government’s sadistic controls prior to the 90s? Would the great technological revolution of the 80s and 90s have happened even earlier had the Reagan-Thatcher era arrived earlier?
Some economists pretend that taxes have no effect upon productivity. If the guy wants to earn more, let him work more. What is the harm in taxing him higher, he still ends up with more money than he had originally. So he will still work, they say. But men have even more complex needs than that simple chicken. To understand the logic behind why “Atlas” will shrug one day, we need to explore the concept called Opportunity cost. But let us keep that for another day. I leave you now with this thought from Mark Twain

Don’t go about saying that the world owes you a living. The world owes you nothing. It was here first.

Noted in Passing:
* You do feel the need to breathe, when air is in short supply, like under water or high altitudes. Then laws of economics will begin to apply to air too. Researchers living in such extreme conditions are forced to treat air as an economic good and manage their oxygen cylinders economically.

The Philosophy of Freedom

Freedom is still the most radical idea of all – Anonymous

When I started this blog, I wanted this to be a place where I could explain to people how and why free markets work. And I read verociously, collecting evidences to prove the efficiency of free markets. But in the process I have come to realise that this is not an argument that can be won solely on the merit of evidence alone. I for example did not become convinced of the benefits of free markets because I read some obscure economics text book filled with statistics of South Korean economy out-performing India. I did read them, but only later. Before I came to love free markets, I fell in love with something else first – FREEDOM. My college had an electrifying effect upon me in the first few months. I was a pond fish thrown into the ocean. I learnt my first lessons on freedom there. And freedom is a harsh teacher. When you are under the all protecting embrace of some one, you can afford to be irresponsible. You have neither freedom nor accountability.  But a day does come in everyone’s life when one has to leave the safety of one’s nest and find his own place under the sun. Then we realize that freedom is not free. With it comes great responsibility. You have to remember that every word you say is a promise and every act you do is set in stone. This huge accountability is what makes freedom too hot to handle for many. But even during the worst of days when I had messed up everything ( There were many ), never once did I want to trade my freedom for security.  And that is something I will always be proud of. Freedom is the lifeblood of my soul. It is not for sale.
As I fell in love with freedom, I wanted to make sure that she will never leave me. I searched for the best way to defend my newly found love. I still remember the night when Atlas Shrugged shattered all my existing notions of justice. Ayn Rand is a ruthless fighter. She is the perfect match for that wily old fox, Karl Marx. Ayn Rand was not an economist. She talks little about markets. Infact her heroes often hate  ordinary people like us who in fact constitute the markets. But she convinced the world that there is justice in freedom. That all talks of morality are meaningless without freedom. I have moved on after Atlas Shrugged. Ayn Rand cannot explain the world.  Her philosophy is too rigid and uni-dimensional. You cannot convince people that selfishness is a good quality. She has created a cult following. And cults are poisonous to freedom. But this is not to speak less of her influence on the philosophy of freedom. It is just that freedom is a very simple and natural idea and has to be supported by a simple and intuitive philosophy.
That philosophy is called Laissez Faire. It literally means “Leave Us Alone”. Western nations were governed by this philosophy in the late nineteenth century and they sowed the seeds of the greatest triumph of mankind in the several thousand years of its existence, when Capitalism lifted millions out of poverty within a span of a couple of decades and human population witnessed a dramatic boom.* America and Britain, the two freest nations on earth also became the most prosperous. People realised that markets had the midas touch. Whenever people were left free to trade, they generated unimaginable quantity of wealth. Then there were no economists telling people how to spend their money and how to live their lives. The subject of macro-economics was not even born. People did not care about GDP. They cared about freedom. The statesmen of that age were wise enough to know that freedom was the absolute necessity for human life. And once people are left free, they can generate all other material comforts.
Today laissez faire and capitalism are dirty words. The condition is not as bad as the 60s and 70s when several youngsters spent the prime of their life trying to be their country’s Che Guevara. ** But still even  those who understand the benefits of capitalism are apologetic about it. If only I had a nickel everytime I heard someone say this – “Socialism is noble, but Capitalism works”. What is noble about an ideology that refuses to grant people even the basic right to spend their hard earned money as they please? What is noble about attaining equality in starvation? Why is it so important that everyone should be equal, when the most special moments in one’s life are the ones when he realizes that he has done something sublime, something no one else could have done?  What is progressive about public ownership of property, when all of human civilization is due to man’s attempts to attain greater privacy and control over one’s life?
Do not confuse charity and socialism*** Socialists hate charity, because it reduces the need for an all encompassing big state.  The root of socialism is envy. Envy poisons human mind. It makes one want to destroy rather than create. That is why socialists never talk about creating wealth. They always want to re-distribute others wealth. In George Orwell’s words socialism is ” A boot stamping on a human face, FOREVER“.
However poisonous it is , Socialism is an idea. And ideas cannot be fought using facts. If that was possible, just a look at the Korean peninsula would have sufficed. The difference between South and North Korea is all the difference there is between Capitalism and Socialism, between the morality of freedom and the (im)morality of equality. But people still love to flaunt Che Guevara on their shirts as if he were a rock star. We have to fight ideas with ideas. To believe in free markets and capitalism, one has to believe in freedom first. Milton Friedman, the most popular economist on the side of freedom said this -“Underlying most arguments against free markets is an argument against freedom itself”.
Today free markets have clearly shown their superiority. But we should not forget that we are always one generation away from tyranny. It takes just one determined mad politician and a crisis to lose this fragile freedom we have. Freedom needs to win it’s battle against equality. If you are convinced of the tremendous importance of this cause, join me in defending freedom. Educate yourself about the working of free markets. Convince others that freedom works. I am planning to share whatever I have understood about the economics of freedom in a series of posts. Spread the word if you find that useful.
There is one scene from the first episode of FRIENDS that inspires me whenever I watch it. Rachel has freed herself from her benevolent family, but still uses her dad’s credit card to shop. Her new friends convince her to shred the cards. Then Monica tells Rachel this – ” Welcome to the real world. It sucks. You are gonna love it“.
To me that sentence captures all that I have learnt about freedom.

Noted in Passing:
* Yes. Do not be frightened by population. Despite all it’s problems it is good that mankind is populating the earth and not rats
** Che was a monster. To consider him an icon of liberty is equivalent to holding Madonna as an icon of chastity
***Anbe Sivam, a Tamil movie does this dirty trick