Category: Economics

Market Structure, Political Parties and Collusion

Political parties are like firms in the marketplace. The same principles that drive the behavior of firms drive the behavior of political parties. They collude if they can, and gain from their collusion at the expense of the consumers.

Here I will outline my conjecture about the two major national political parties in India. If you are a supporter of either the Congress or the BJP, you may be disappointed by my analysis. Especially if you are a BJP supporter, you may wish to skip this post. BJP is complicit in Congress’s crimes.

In the following, I will lay out briefly how markets are structured (to take up where I left off in my previous post on the matter) and then reason analogically that the BJP and the Congress are not competing but rather they are colluding.
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Three Lessons of Development Economics, or Why Utsav Mitra is Mistaken

ecodev101 The first lesson of development economics is that economic policies matter. Even if a country has everything going for it, lack of good policies condemn it to poverty. So it is easy to believe that if only good policies were known to those in power, economic development would necessarily follow. My good friend, the globe-trotting adventurer and consultant to capitalists, Utsav Mitra, brought that lesson to mind in a recent twitter exchange on my timeline. As a student of development, I have written a bit over the years on the matter and Utsav refers to it in a tweet which is embedded below.
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On Competition and Markets

From a broad philosophical perspective, competition is encoded in the basic DNA of the universe. At every level of analysis, competing forces seek domination. At the largest inanimate scales, gravitational and electromagnetic forces constantly compete in stars. At the smallest scales, inside an atom, nuclear and electromagnetic force compete. In the biological world, living things compete all the time. It’s a constant battle between and among botanical and zoological species. Humans, as part of the animal world, are past masters of the game. We, like all other living organisms, are all descendants of ancestors who were successful in that competition at least long enough to have survived to reproduce.
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Minimum Wages — Follow up

Markets work, in general. That’s like saying, people are healthy in general. But people do fall sick. Similarly, occasionally markets fail. That’s when you need intervention, not otherwise. But it cannot be any random intervention. The treatment has to fit the etiology of the disease. So also, market intervention has to be specific to the kind of failure the market suffers from. We must therefore first be sure why the market failed and only then try to fix it. If legislating a minimum wage is the solution, we need to ask what the market failure is.
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Minimum Wages

In response to my two earlier posts on “Understanding Economics” and its followup, the matter of minimum wages has come up in the comments. Some ideas have the peculiar characteristic that they appear to be good at first glance but lose much of their shine upon closer inspection. Minimum wages is one fine example of that set.
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Understanding Economics — Follow up

Here I reply to some of the comments to my post “Understanding Economics” of a few days ago.
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Understanding Economics

A while ago a non-economist friend who had read my book “Transforming India” said that as he did not understand economics would I write a book explaining some of the basic concepts of economics? It would be a “prequel” to the “Transforming India” book. That sounded like a good idea and over the last couple of months, I have spent some time on such a book. The working title is “Understanding Economics.” Not the most brilliant title but that will change to something more attractive by the time it is ready for publication.
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Why Socialism Fails – Part 1

Ken Olson, co-founder of Digital Equipment Corp, said in 1977, “There is no reason anyone would want a computer in their home.” Even very smart people sometimes make statements which, in retrospect, are proven to be ridiculously mistaken. Technology is hard to predict, partly because innovation which drives its evolution is by definition unpredictable. Those foolhardy enough to make predictions about technology get generally ridiculed years later when everyone knows what no one knew before. Hindsight is awesomely accurate while foresight often misses the barn, leave alone the target painted on it.
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The distinction between Rights and Freedoms.

Now for the important matter of the distinction between rights and freedoms. Of late, there has been a proliferation of rights. There’s the right to information, right to employment, right to food, right to education, and so on. Somehow people start thinking that the expansion of rights enhances freedom but in fact it is the opposite: the expansion of rights actually reduces our freedom.
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India is Poor by Choice

Economic growth, development, progress—whatever you call it—is neither inevitable nor impossible. There are lots of examples of economies that continue to struggle with economic growth. And there are many examples of economies that have made rapid progress. What distinguishes the ones that that succeed from the ones that fail is economic policies. Again an operational definition of “good economic policies” will have to do: those that work. Economic policies that most efficiently harness the available resources are those that work. Economists usually categorize resources used in production -– into land, labor, and capital. Of these, human resources is the most critical. It follows then that policies that value human resources are the ones that work.
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