Month: November 2007

LOSADS!

Law of Supply and Demand

Not to put too fine a point on it, but the law of supply and demand is a bitch. Stripped of all details it basically states that the price of something is determined by the interaction of the quantities supplied and demanded. Therefore (1) an increase of the quantity demanded, holding the supply constant, will increase the price; (2) an increase in the quantity supplied, holding the demand constant, will decrease the price; (3) a decrease in the quantity demanded, holding the supply constant, will decrease the price; and (4) a decrease in the quantity supplied, holding the demand constant, will increase the price.

Sing pretty songs, if you please, or dance nimbly invoking the gods, or pass sincere legislation to suspend the effects of that law. You would have as much success doing that as you would have in suspending the law of gravity and legislate against it effects. The law of supply and demand is not quantum mechanics and can be taught to the average 6 year-old with ease. Ignorance of the law should be a matter of shame, and willful disregard of the law by policymakers should be punished through public floggings.
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Moving Mountains

Golf, not Chess

Economic growth in a sense, and to a much larger extent economic development, is more akin to a game of golf than a game of chess. In golf, the opponent’s moves matter very little; you may as well play by yourself and later compare scores if needed. In chess, your move depends on how your opponent has moved and how he is likely to respond to your move. In other words, chess is a strategic game while golf is not. All this is very broadly speaking, naturally. I don’t mean to imply that there are no dependencies among economies as they grow; what I mean is that, especially for a large economy like India, how much it produces and how determines how materially prosperous it is and is independent of how other economies are growing. For strictly benchmarking purposes, one can glance over at the neighbors. And if one is smart, one can learn from the experiences of those neighbors. Still, when it comes to economic growth, it is largely the case that you are playing against yourself.

Here I want to glance at India’s large northern neighbor and recently a strategic competitor in the fiercely competitive game for control of scarce resources. China has been moving mountains — quite literally as you will soon note — for quite a few years for growing its economy. From an Indian perspective, it is a chilling reminder that there are no shortcuts to economic growth and that it takes something special in terms of will and perseverance to overcome the ill-effects of flawed economic policies and failed leadership. It is also a story of hope and the indomitable human spirit, a story of almost superhuman striving by mere mortals.
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