Onion prices and the Free Market to the rescue....

[vamsi@siliconcorp.com]

    First and foremost the current crisis is not a big deal at all but
it has been unnecessarily been amplified because the Political
Leadership in the Country refused to address the public and make them
think about it logically.  In a Democracy we have to educate the people
and the people will educate the Leaders through polls.  That is, they
will tell the Leaders whether they like what they hearing or not.  Of
course, remaining silent on the issue entirely is a sure failure.

    The Government should have taken this opportunity to lobby heavily
for the Farmers and the Free Market principles.  By allowing the prices
to escalate in the short-term Farmers would be encouraged to produce
more of it - leading to a decrease in prices eventually.  Furthermore,
it can be argued that if prices escalation continues for a lengthy
period the Farmers are the ultimate beneficiaries and they would
translate that profit into investment in heavy machinery to improve
their Farming output - this too will lead to a decrease in prices
eventually.  The story is so simple that it can be articulated by bold
politicians and convince the people that the Market would encourage
Farmers to stabilize the prices and that the Government should stay out
of it.

    Actually, the above explanation would be complete if the Government
would dismantle its wretched Distribution System.  That is, with the
Distribution System in place the price escalation in on commodities
doesn't translate into direct profits for the Farmers and there in lies
the fundamental problem.  While the consumer is effected by price
fluctuations the producer doesn't feel the changes in prices because he
is buffered by the Distribution System.  The laws of Economics are that
this kind of alienation of Producer and  Consumer is dangerous.  Namely,

pricing is no longer constrained by Supply and  Demand - with the
Government's Distribution System in place we have introduced a third
element which neither encourages the Suppliers to produce more nor does
it remove wasteful consumption in the System.

    Hence, the argument for Free Market is that if the Government stays
out of loop entirely the prices will stabilize themselves through
increased production and efficient distribution.

    Finally, I believe the Government can articulate this to the people
in a way that won't compromise their voter base.  In fact, it would
improve their voting statistics.
Why?


  1. Farmers make up majority of the population and probably a good
     percentage of the Voters.  Hence, by publicly stating that price
     escalation will allow Farmers to have the money that they need to
     buy their equipment and to pay their bills would bring many of them

     to the Voting booths.  Even Farming labor would benefit from this.
     That is, if the Farmer makes more then he will be inclined to give
     more to the labor!!
  2. What about non-Farming voters?  Well, for them the prices would
     eventually stabilize because Farmers would compete to produce more
     and more due to the price escalation.  The efficiency of the Farmer

     would increase too because he is investing more in equipment that
     will allow him to produce more than the person next door.  That is,

     the Consumer would eventually benefit in the long term through
     increase in production.

    The Government must have the courage to articulate this to the
common Man which is not as hard as controlling the prices and getting
into bigger trouble later!! The incumbents can articulate these points
effectively and even challenge the opposition to do better.  What we
lack in India are good Political Leaders who are exceptional at
explaining basic concepts in a way that touches the lives of ordinary
people.  We spend too much time distorting the facts rather than
educating the public - a prescription for disaster in a Democratic
System.

Sincerely,
Vamsi M.


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