The Demand and Supply of Fines and Corruption

supply-and-demandA comment on the last piece prompts this tiny lesson in microeconomics.

“Corruption is one big pain point in the economic growth of a country. I have this funny idea but would like your inputs from an economists perspective. If things get costly it reduces its demand. Can corruption be made costly? This may increase compliance. Just to illustrate. If we raise fine for a fault, say traffic violation, which suppose today is Rs 500 to Rs 5000. Today the violator gets away by paying Rs 100 to traffic police. This is 20% of legal cost. If the penalty is 5000 and assuming traffic police acts rationally thereby asking for bigger bribe…won’t that deter future violations by the offender? Here I presume that traffic police will act smart knowing fully well that offender isn’t going to pay 5000 but at the same time he himself won’t settle for just Rs 100 and may raise ‘price’ to Rs 200 or 300. This is effective 100-200%% jump in bribe money that may pinch offender at some point in time. Pls throw some light.”

To start off, let’s examine the statement “If things get costly it reduces its demand.” In lay terms, that is true but economically speaking, prices don’t affect the demand or the supply of a product. To understand why not, we have to clearly understand what economists mean by “demand” or “supply” and distinguish them from “the quantity demanded” and “the quantity supplied.” Continue reading

Indians Make it in the USA, not in India

Prime Minister Modi is visiting the SF Bay area this weekend. Entreaties to “Make in India” will echo all around. Sadly, little attention has been given to why Indians themselves are unable to make in India, or even make it in India. Indians make it anywhere except in India. Particularly, Indians make it in the US. They are immensely successful as entrepreneurs and as top level managers in major corporations in the US. Why?

I wrote this in February earlier this year. Here it is, for the record.
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Antonia Maino aka Sonia Gandhi is #4 “Richest Politicians”

Business Insider has a short feature, “Meet The 23 Richest Politicians In The World“, and Dr Manmohan Singh’s boss, Ms Antonia Maino aka Sonia Gandhi is listed as the 4th richest with wealth estimated between US$2-19 billion. This must have given Kapil Sibal and Digvijaya Singh the conniptions, and I am sure that it lends more weight to Dr Subramanian Swamy’s charges against AM aka SG. I am of course thrilled and here’s why.
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The Habit of Being Honest

A few days ago, a Pakistani singer by the name of Rahat was caught smuggling around $130,000 out of India. It does not matter what the prescribed penalties are for such an act but the interior minister of Pakistan called up the Home Minister of India, P. Chidambaram and thanked him for facilitating Rahat’s release. Thanks to Mr Chidambaram’s intervention in the matter, it all ended well for the singer. But not for the country.
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