Why Economics is efficient

I often heard Economics is a royal subject during my college days. But, all my friends were afraid to accept Economics as part of their course curriculum because Economics is very hard and full of mathematics. I might be persuaded  by a live stock inspector to purse economics during my teaching to his son.  And It was probably a coincidence that his friend is an economics lecture on same college where he taught me somehow ‘What Economics is all about’.

I’m a curious economist but I would like to rant today on an article Economics Does Not Lie by GUY SORMAN. He has beautiful defined how Economics is right or getting right to predict the future.

Guy Sorman has lightly focused on bad economic policies as dangerous as incurable epidemic  that deprived the millions of peasants getting their land right in Russia, China and Tanzania during twentieth century. He also focused on currency inflation and new policies that played an obstacle to the society at the beginning as people were unfamiliar.

No longer does economics lie; no longer would Baudelaire be able to write that “economics is a horror.” For the mass of mankind, on the contrary, it has become a source of hope.

If economics is finally a science, what, exactly, does it teach? With the help of Columbia University economist Pierre-André Chiappori, I have synthesized its findings into ten propositions. Almost all top economists—those who are recognized as such by their peers and who publish in the leading scientific journals—would endorse them (the exceptions are those like Joseph Stiglitz and Jeffrey Sachs, whose public pronouncements are more political than scientific). The more the public understands and embraces these propositions, the more prosperous the world will become.

1. The market economy is the most efficient of all economic systems.

Adam Smith’s eighteenth-century take on market efficiency was metaphorical, nearly metaphysical: he said that it seemed to be guided by an “invisible hand” that produced outcomes beneficial to society. In the mid-twentieth century, Friedrich Hayek observed that no central-planning institution could possibly manage the huge quantity of information that the market organized automatically and spontaneously by pricing resources.

Market mechanisms are so efficient that they can manage threats to long-term development, such as the exhaustion of natural resources, far better than states can. If global warming does become a real problem, for example, price mechanisms or a carbon tax would easily encourage a more efficient use of energy.

Some economists favor free markets not only for their efficiency in allocating resources but for political reasons as well, fearing that central planning or excessive bureaucratic controls could, in the guise of rationality, stifle individual freedom. Markets leave us “free to choose,” wrote Rose and Milton Friedman, and society is the better off for it—though not all economists embrace their libertarian political vision.

2. Free trade helps economic development.

As Smith observed when his native Scotland began to benefit from free trade, it is through access to the world market that poor nations become rich. …….Free trade not only generates the greatest possible growth; it tends to distribute it widely, both within nations and among them. For evidence, consider the emergence of vast middle classes in all free-market societies, as well as the economic convergence among nations that have embraced capitalist economics. After less than 20 years of market-driven growth, Brazil, China, and India—whatever their injustices—are closer to the Western level of development than they were before that growth got under way.

Today, most economists believe Adam Smith’s century old idea of free trade. Economic Think Tank like Adam Smith Institute is an advocate of free trade. There are numerous think tanks that urge how free economies help countries in mutual growth.

3. Good institutions help development.

Economics argue the importance of institution and organizational structures. Above all, our economy, society and the world is based on institutions and without good institutions, development is like a wild castle. Without an independent legal system, we can find many clashes among economic and social entities.

Institutions that improve market transparency are particularly important, since they counter what Nobel laureate George Akerlof calls “asymmetrical information.”

4. The best measure of a good economy is its growth

Growth is undoubtedly a currency to the economy. If there is no growth, economics is like a value less currency that the society does not require.

The Anglo-Bengali economist Amartya Sen, another Nobel laureate, has distinguished—usefully, to my mind—growth that takes place under democratic conditions from that which occurs under tyranny.

5. Creative destruction is the engine of economic growth.

Austrian economist Joseph Schumpeter argued in his book Capitalism, Socialism and Democracy (New York: Harper, 1975) about creative destruction (innovation) that “incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”

6. Monetary stability, too, is necessary for growth; inflation is always harmful.

We are governed by fool politicians who does not understand economics wisely. But, economics understand wisely if it is applied correctly by an independent financial body, central bank. Why Economics is so important, monetary stabilization and right economic policies to stabilize money supply and inflation are  core issues of the country.

The best way to restrain inflation, economists now understand, is to transfer money management from governments to independent central banks like the Federal Reserve and the European Bank, which—monetarists all, these days—try to create only enough credit to provide liquidity and prevent the financial panic that often accompanies credit crunches, resisting vocal politicians who believe that printing more would generate new jobs. Even in a slowdown, the banks seek to keep money stable in order to stimulate investment.

7. Unemployment among unskilled workers is largely determined by how much labor costs.

This year noble prize in economics goes to theory on unemployment. Management of unemployment plays an important role. If there is unemployment, economy can reach at equilibrium which simultaneously affects production, consumption and distribution pattern.

8. While the welfare state is necessary in some form, it isn’t always effective.

Economists recognize that government assistance always produces incentives that may affect, for good or ill, recipients’ behavior and well-being.

Indian Economist argues about welfare state. His book Capitalism beyond the crisis tells a different story.

10. Competition is usually desirable

Beyond that, there is no unanimity: some economists believe that under certain circumstances, a private or public monopoly may contribute to innovation or progress.

If economics, a human science, lacks the precision of physics, a natural one, it advances the same way—evolving from one theory to the next, each approximating a reality that eludes our complete grasp.

But if we understand the end of history in economics to mean the complete realization, in practice, of the findings of economic science, then it has not arrived. The free market still has enemies and critics, ranging from those who dream of a world more just, more spiritual, or transformed in some other utopian way to those who simply seek to defend their own narrow material interests to those legitimate researchers who try to look beyond the market.

Similarly, free trade means that some people will lose their jobs, as we all know; foreign competition can wipe out entire companies or even entire industries. We all know it because, as Friedman argued, layoffs and closings get disproportionate media coverage. Meanwhile, nobody talks about the ongoing reduction in prices for consumers and investors, scattered among a huge number of beneficiaries. That helps explain why politicians are prone to deride free trade and voters are too often ready to agree.

To help the losers in the free market, government shouldn’t back away from either free trade or creative destruction and start subsidizing doomed and obsolete activities, a protectionist course that guarantees only economic decline. Instead, it should help the losers change jobs more easily by improving educational opportunities and by facilitating new investment, which creates more employment. An essential task of democratic governments and opinion makers when confronting economic cycles and political pressure is to secure and protect the system that has served humanity so well, and not to change it for the worse on the pretext of its imperfection.

Still, this lesson is doubtless one of the hardest to translate into language that public opinion will accept. The best of all possible economic systems is indeed imperfect. Whatever the truths uncovered by economic science, the free market is finally only the reflection of human nature, itself hardly perfectible.

We can see, there is still some ineffectiveness that the world suffers like global currency crunch, depression..etc. Is it because we don’t understand it correctly or economics doesn’t understand the economist and society? It’s a tough question.


Deepest recessions forced Irish Govt. high budget cuts

The recent years transformation to knowledge economy from typical agricultural sector helped Ireland to be one of the wealthiest country in European Union. But, It’s the first country in European union entered officially into recession in first half of 2008. The financial crisis 2008 has suppressed severally and affected its economy as well as the standard of living of Irish people. The Irish authorities are unable to tackle the staggered economic situation of the country to save it from the disaster.

Today, Ireland surprised the whole world declaring a high budget cuts of 15bn euros ($21.3bn; £13.1bn) to adjust government deficits. Irish Finance Minister Brian Lenihan declared officially underlining the high budget cuts  “strength of our resolve to show that the country is serious about tackling our public finance difficulties. But our spending and revenues must be more closely aligned. This is the only way to ensure the future well being of our society.”

Country’s banking solvency is still in question. It shows a more surprise when it comes to collapse of the Irish property bubble. The country is currently going through a serious economic downfall including high inflation, unemployment and dis-adjustment in promissory notes. The Government declared it would cut 6bn euros in 2011 which’ll help to adjust deficit to 9.25%-9.5% GDP. The Irish authorities are also expecting to reduce another 3% of GDP by 2014. As concerned with the treatment of promissory notes, the govt. further confirmed that the promissory notes will not be chargeable any interest rate in 2011 and 2012.

European Central Bank (ECB) president Jean-Claude Trichet said “The market observers, savers, investors are looking with great, great attention to what the minister and the government will say in a few hours,”. It’s a huge amount and “[The government] needs to deliver these cuts to stabilise its public finances and win its credibility back, but at the same time it will probably push its economy into a deeper recession.” he further added.

Economy and US Election

Obama said US voters ‘frustrated’ and taking all faults as his responsibility admitted “I’ve got to take direct responsibility for the fact that we have not made as much progress as we needed to make”.  Today, Americans fear for the future. The stagnated economy forced them to change their minds. They become well cautious not to listen the so called sweet speech ‘Yes, We Can’.  Mr. Obama, an ardent advocate of ‘we believe in change’ is not able to bring a real change within American people.

Obama further said “Some election nights are more fun than others. Some are exhilarating, some are humbling, but every election, no matter who wins or who loses, is a reminder that power rests not in those who are elected to office but in those we choose to serve,.”

Obama’s Soundbite Economics

WE all have seen politicians, in every election, promoting ‘soundbite economics’.  Recently, I saw Obama’s economic election campaign in social network website ‘Facebook’ and also in media. Many people are reckoning President Obama is no different than any previous president. Though he was elected prognosticating to bring a real change for the future, but it now seems all hopes and trusts of the American people has turned into ‘a lost opportunity’. Though his policy certainly averted a sprouted great depression, but the negative employment growth has considerably worried many. The U.S. economy, the world’s largest economy since 1870, historically, a stable overall GDP growth rate, a low unemployment rate and high levels of research and capital investment funded by both national and foreign investors because of its decreasing saving rates, is falling down and the U.S. stock exchange’s dramatic up down has certainly bewildered and confused not only the economists but also the policy makers. The recent stumbling over Gulf oil disaster has raised a question of the economic irregularity. Though 30% of the entire world’s millionaire populations reside in the United States and 40% of the world’s billionaires are American, and the U.S. having a holder of 60% of world reserve, still the Obama’s economic policy has insufficiently brought a clear change into the American economy.

The most talkative US health care reform, for which the government has spent 70% of its GDP, has been criticized by most of the American conservatives, as it costs more to the employers in hiring by mandating insurance coverage. Obama’s tax reform has also been subject of critics stating it‘ll make the liberals richer. Small medium enterprises (SMEs) will also be affected as the higher tax bracket discourages to hire more employees and so is the industrial expansion. The overall economic position of the U.S. is unsound. The combined debt of households, businesses and government constituted $50.7 trillions, representing more than 3.5 times of its GDP. The unchecked import growth of energy is making the US more reliant on foreign oils. Though U.S. manufacturing sector remains the world’s largest consisting 19% of the world’s, but it has created largest unemployment during this short recession – one unemployment in every six factory jobs.  The trade deficits has come down to $ 240bn (2.9% of GDP) in 2009 compared to $700bn (4.9% of GDP) in 2008 due to recession. Unemployment has increased to 15mn and another 11mn labor force work involuntarily part-time or had dropped out of labor force as per the Economic Policy Institute (EPI).

The Democrats complain that Obama is getting a bad rap in the media. Obama’s job is still unappreciated. Many critics said his inconstant confidence has brought the economy down. Though he is talking about job creation, recovery and reform, but his uncertainty argument and dualistic approach has waged a bit more to the US economy. As a great orator, in his magnificent illustrative words, “To every American who’s looking for work, I promise you we’re going to keep on doing everything we can. I’ll do everything in my power to help our economy create jobs and opportunities for all people.”  It’s clear that Obama is making every effort to influence the Democratic race. His recent proposal of stop outsourcing might discourage the US companies but it‘ll incur more costs because of the cost effectiveness. To save some tax break, the US companies have to spend more money on hiring labor force compare to the low cost labor intensive county like India.

The vast and complex US economy, which affects the whole world economy, though it is very tough task to manage, having a long term budget deficits and a bit hard to focus on present recovery to bring into a more stable level, but it should not be stay on political choices and benefits.

Picture courtesy: sultanknish.blogspot.com

Anti-Secularism in Practice

The private observance of religious minorities is at stake when it comes to the anti-secularism in practice. It could be denied but true that the whole world is in against ‘freedom of religion and faith’ as the anti-secularist approach has got a solid embodiment even in a ‘constitutionally secularism’ country like India. Secularist measure in India is very negligible and argumentatively, it can be called a ‘political fierce’. India has bitterly witnessed several anti-secular violences such as, 1984 anti-Sikhs riot, 1992 demolition of babri masque, 1992 Mumbai anti-ethnic riot, 2002 Gujarat Godhra riot, 2002 Vadodara Best Bakery case, 2008 Orissa Kandhamal anti-Christians riot, and various continuous anti-social activities in the name of Jihad by the Muslims minorities are no way alleviating India to be a more secularism country. In one word, we can say the philosophical system of faith and belief has completely been vanished, for which the common man is paying a heavy price.

Though Muslims number one billion and almost 48 countries with a full or near Muslim majority, has yet to evolve a stable, democratic political system. The Muslim countries like Pakistan, Afghanistan, and Iraq are in severe tense as they are building foundations and provide platforms to the promiscuous youths to train their brains in the path of anti-social movements. The countries are dying at each moment and are victim of terrorism of anti-socialist groups like Taliban, Al-Qaeda etc.

If we look at European and western culture, it is predominately ‘spiritual famine’. Another aspect of the western world the basic concerns all fundamentalists is the loss of belief on the value system. The self satisfied remarks of religious fundamentalists are confusing both believers and non-believers to stand on which-way. The Islamic fundamentalist Muhammad Qutb, who said “The only religion on earth that includes and satisfies all these requirements is Islam” is severally fostering an anti-slogan against the rest of religions and believers of other faiths which in no way approaches secularism. France being a ‘secularism’ country with its ideology ‘Freedom, Equality and Brotherhood’ has born a new atheistical platform and is fairly supporting anti-secularism whether it is Franco-Algerian War of 1954-1962, ban on burqa, anti-Arab animadverting.Each Western European government shall have to take extreme measure in terms of secularism. “Britain is confounded with its native born Muslim terrorists, while Holland is too worried with its anti-immigration Party and political stabbings, Germany is quite unhappy with its disenfranchised Turkish millions, while Spain is not favoring boisterous train bombings and its minor Muslims, Italy is out of control with its unruly, chaos and uncurbed immigrations, and France and Belgium are struggling to curb their immigrant ghettos” (words quoted from France: The failure of western secularism). The whole Europe has to decide which policies are to be imposed to maintain peace and prosperity’.

In Australia, we can find intense anti-secularism against Indians, Muslims minority and other ethnic minorities. The 1969 fire to al-Aqsa mosque, causing extensive damage and several Indians death can surely cue the world the question of secularism exists. Today, America is more cautious to prevent anti-humanities conflicts and is making every effort not to experience a 9/11 incident and to maintain law and order in its regions. Though Barack Obama is precisely supporting secularism, in his words, “No one has ever said that believers should leave their religion at the door before entering the public square.” Anyway, America and the Americans should realize the differentiation of ‘personal morality’ and in stead of tearing ‘war on terrorism’ should favor secularism at large.

The secularist irresponsibility, due to some finger counted elites, religion will not go anywhere, it is coming back to haunt us for the past and present contempt. Terrorist like Bin Laden have no answer and can offer no alternative. Our collective survival lies in recognising that neither religion nor nationalism is the solution. But we have only choice; the path of ‘secular humanism- the practice of secularism’. Whether it is Allah or the Qur’an, Jesus Christ or the Bible, Lord Krishna or the Gita, we should naturalise the mutual religious respect and work on honest secularism practice.

Picture Courtesy: amreekandesi.com