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Short response to Mr. Sastri
V. busy today. I will compile my responses later. Short response today.
a) Mr. Sastri has mentioned that certain lines in the IPI preamble are
dogmatic. Well, the procedure is as follows:
* Pl. suggest alternative language and it will be debated. If
that language 'wins,' then it goes into the main document.
I am against all kinds of dogmatism. But if we say that the word
socialism should be removed from the Constitution, and replaced by a
blank, that is not being dogmatic. It is allowing people to select their
economic system through regular democratic methods (elections). If a
socialist party comes to power, it should follow socialist policies
since people want that to happen. If a capitalist party comes to power
(do you see any on the horizon?) then that should follow its own
principles since the people voted it to power. The constitution should
not tell us that we are socialist just as it does not tell us that we
are Buddhists or Zoroastrians or something else.
b) Coming to the 2nd welfare theorem. In my first year of learning
economics at this university, 4 years ago, I had myself fallen at one
time into the ridiculous implications of the two welfare theorems. I now
discount that gymnastics completely (though it is a creditable piece of
gymnastics) since I do like to look at institutions and governance at
the same time. I would strongly urge that those theorems be treated as a
beautiful piece of art/maths and that we leave them in the textbooks for
young economics students to solve.
Young economist who are generally completely divorced from an
understanding of life, can make the kind of statement that you made. But
we know better. Or should know better.
In my opinion (which is uncolored by either a lack of skill in maths or
a lack of understanding of real-life politics and governance), only the
Austrian school of economics has any real sense to it. Other schools
(having read the peurile arguments of Marx, I find it amazing that it is
called a 'school') including the Chicago school (the school that has
moved afar into ridiculous gymnastics, from its root which was in Milton
Friedman), are littered with folk who are gymnasts of some type or the
other: smart babies, is what I would call many of them.
The market system, the way I mean is ALWAYS rooted in the interpretation
of the Austrian school. Buchanan was a bureaucrat who entered academic
economics, and founded the public choice school which speaks much sense
(Buchanan got his Nobel Prize in 1986; and he is the most deserving of a
Nobel Prize since Hayek).
What we need is for Sen to try to reconcile public choice with welfare
theory and a deep understanding of markets; if that is not done, his
theories are highly suspect, in my eyes. I respect his insights into
capabilities and functionalities. Also his insights into famine. But
much has escaped his perceptive eyes, and we CANNOT afford to follow his
highly defective assessment of the world. If India makes the mistake of
following Sen, then we are doomed completely. Get some of his insights.
But don't forget the nearly 25 other economists who have received awards
before him. In particular, NEVER forget Hayek or Friedman or Buchanan or
North or Kuznets or Herbert Simon (and many others). And don't forget
Adam Smith or John Stuart Mill. And Shenoy. And Deepak Lal. And Subroto
Roy and others who are on this list.
Wealth creation is done through rapid growth and strong instititions of
justice and freedom. Not through government redistribution! Ouch!! The
word 'redistribution' hurts, having seen what it means in real life!
Somebody wanting to get something for nothing, i.e., the complete
demoralization of the country and the creation of human parasites.
Gandhi hated redistribution, challenging us to teach a person to achieve
a livelihood, rather than to give charity. Do not call for such stuff.
We need to liberate India, not to make it further captive to the lazy
folk and corrupt officials. Let the spirit of India shine into the
world; not its hungry beggar-like look.
I realize that most people in India are happily ignorant of the Austrian
school. I have therefore written to JSTOR and received permission to
post the Hayek (1945) article on the web. I am awaiting permission from
the American Economic Association since the article was published in the
AER; once received, I will post that article in PDF format on the web,
and we will all of us be able to understand the market system (i.e., the
freely determined price system) and why NO bureaucrat can interfere
successfully with it.
Before anyone reads Sen, they should have read and understood Adam
Smith, Hayek and Friedman. Then they are free to read Sen; that can only
then help and not detract from a basic understanding of the world.
Before I close this "short" piece:
I have always scared off people by asking them to propose a formula for
the minimum wage that they keep asking for; or the formula for the
'level' of government intervention that will ensure equality. I
challenge you and ANYONE ELSE IN THE WORLD to propose a formula that is
universal and that can be computed by a computer through a simple
program. That challenge has been lying untouched; people talk of this
and that, but they fail to show a formula that a government bureaucrat
can use to determine the level of interference in our lives.
BTW, I was Prof. of Management in LBSNAA and taught both young and
senior IAS officers a bit of finance. Amazingly, very few IAS officers
knew how to read a balance sheet, and yet they are made MDs of huge
public sector organizations! But leave aside this untrained IAS
officers. I make a general claim: that NO bureaucrat (no matter how well
trained by me in the Academy, or by Prof. Nirvikar Singh in the business
school at UC, Santa Clara) can run a firm more efficiently than a
completely people-owned (i.e., shares owned by public) company: no
matter what its defects. This is based on sound principles of agency
theory; institutional economics, public choice theory, understanding of
markets, and various levels of personal knowledge.
Please prove to me that government bureaucrats who have either no stake
in the public sector company or the ability to read a balance sheet, can
run the mammoth public sector of India better than "ordinary" folk who
are MBAs, well trained, competitive, and highly professional, and who
can be fired by shareholders if they take bad decisions.
Russia was plundered by its bureaucrats. India has been plundered too.
Let us admit the facts, and move on to a firm position on markets as the
primary mechanism of human freedom. Bureaucrats and poorly paid, corrupt
politicians are not our saviors. Let us admit that they are merely our
servants and WE, The People, need to tell them what to do, and not to
imagine that they know things which even God may not (such as setting a
minimum wage!).
SS
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