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In the previous post, What’s Capitalism, I had noted that capitalism is a combination of (1) private property, (2) free markets, (3) voluntary trade, and (4) institutions which legally enforce contracts. I briefly touched upon the first three already; here I discuss the matter of “institutions which legally enforce contracts.”

Contracts

“A contract is a legally binding agreement which recognizes and governs the rights and duties of the parties to the agreement. … An agreement typically involves the exchange of goods, services, money, or promises of any of those.” The wiki’s definition serves our purpose. The two parties agree to do, or refrain from doing, some specific act. An example: the agreement that homeowner Alex reaches with Bob for remodeling the kitchen. Continue reading “What’s Capitalism – Part Two”

Climate change hysteria is the big three-ring circus in town, and as can be expected, children are clamoring to not just watch the circus but to join it as well, as children with over-active imagination are wont to do.

It’s fair to say that those running the circus are in it for the money, and are not motivated by altruism and universal benevolence. They want to grab your attention so that they can grab your wallet. There’s a sucker born every minute.[1] Continue reading “Climate Change”

Economists understandably get worked up about the “Nobel” prize in economics (Nobel in quotes because it was instituted in 1968 by the Bank of Sweden “in the memory of Alfred Nobel,” unlike the Nobel prizes in physics, chemistry, medicine, literature and peace.)

In any event, you cannot evade the fact that it confers enormous prestige, and most regrettably it buys unjustified influence among politicians and policymakers, especially in developing nations. Continue reading “The “Nobel” prize in Economics”

When asked why he was resigning from a particular country club, Groucho Marx’s explanation was “I don’t want to belong to any club that would have me as a member.” That he was allowed to enter meant that the club’s standards were low, and therefore he’d not want to be a member. Very droll. Anyway, there’s an obvious asymmetry between entry and exit. Continue reading “The Asymmetry between Free Entry and Free Exit”

I believe YouTube is an inexhaustible treasure house of audio and video content guaranteed to delight and instruct every conceivable taste. I spend altogether too much time on the web, and quite a bit of it on YouTube. I am sure that I would have been much smarter and wiser had I had the benefit of the web when I was growing up. Better late than never, though.

Bibek Debroy’s talk on the Mahabharata is a shining example of the gems you find on the web.

It’s as delightful as it is edifying. Bibek-da, as I like to call him, is a scholar of unparalleled distinction of the Indian classics. Not  just that, he’s a distinguished member of my tribe, an economist. What’s not to like about him! Continue reading “Bibek Debroy on the Mahabharata”

I am a contrarian, someone who frequently takes a view opposite to that held by the majority. My default position is to view with the utmost suspicion any idea that is popular or fashionable. If the vast majority of the population thinks and believes in a certain way, I default to considering it to be wrong. If the majority believes proposition P to be true, I suspect that P is probably false. My null hypothesis is that the majority is wrong. Very rarely have I had to reject the null hypothesis.

Therefore it should not come as a surprise to you that I am anti-natalist given that most people are natalist. Mind you, there is no causal connection: majority beliefs do not cause me to hold the beliefs I do. It is only that I am more likely not to find myself on the side of the majority. My antinatalist position would not change even if nobody held it or if everybody did. My position is rational, in the sense that I reasoned my way into it. Continue reading “Why I’m an Anti-natalist”

Why people gravitate toward socialism is a question that has been asked and answered by economists for a while. The fact is that we all grow up in an ideal socialist setting, namely our family. That molds our moral intuitions which then guide our normative positions. That is, our beliefs about how the economy should function is grounded on our intuitive understanding of how the world works, which are formed in our (what else) formative years.

Thus we reach conclusions that are at odds with the reality of the world. For example we believe that order cannot emerge without orders from above. This has intuitive appeal — something is true and needs no analysis or investigation — because we see that to be true in families and firms, not to mention in armies. So it is an alien concept that order can emerge without orders in a free marketplace. (Free here means that there are no barriers to entry or exit.) Continue reading “The Perverse Persistence of Socialism”

This year’s Oct 3rd will mark the 100th birth anniversary of a man I intensely admire, just as Oct 2nd marks the 150th birth anniversary of a man I equally intensely detest, Mohandas Karamchand “Mahatma” Gandhi. Rarely do two humans occupy such diametrically opposite ends of the spectrum of human thought, action, morality and ethics.

James McGill Buchanan was born in Tennessee on Oct 3rd 1919 to a family of  high social status (his grandfather was the governor of Tennessee in the 1890s) but of modest means. He received his Ph.D. in economics from the University of Chicago in 1948. He was the architect of “public choice school,”[1] and for his contributions to that academic enterprise he was awarded the Nobel Memorial Prize economics in 1986. Continue reading “Happy 100th Birthday, James M. Buchanan”

To pick up where I left off in the previous post — “Governments fail because usually the citizens are not very clever, the politicians are power-grubbing cretins, and the bureaucrats are corrupt ignoramuses. The solution is therefore to keep government small and its scope severely limited” — let’s ask “What is the proper role of the government or the state?”[1]

For a start, we should define “the state.” The state, according to the German sociologist Max Weber (1854 – 1920), is a “human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory.” This characteristic of the state, more than anything else, determines and constrains its scope. Continue reading “What’s the State?”

When governments fail — and they do so with predictable regularity — nations fail. But why do governments fail? That’s because humans constitute the government, and humans by nature are myopic, greedy, ignorant, egotistic, and stupid. Those flaws, generally present in modest measures in all of us, get exaggerated in people who wield power. People in government can be relied upon to be the worst exemplars of the human race. The greater the power, the lower on the humanity scale a person is likely to be. As Lord Acton said, “Great men are almost always bad men.”[1]

The basic problem is that for the government to do its job, whatever that may be, it has to have power. That power attracts the most power-hungry, anyway. But even if by some chance, someone with little ambition does get in a position of authority, that authority itself frequently corrupts the person.

So there’s the bind: government has to have power; power attracts the worst kind of people; these people are usually not wise and are corrupt; they end up destroying the nation through poor governance. The slogan is “Minimum government, maximum governance.” And the reality is “Maximize government, minimize governance.”

Solution: limit the role of the government, and keep it small so that those in government have very little power. That is, limit the role of the state.

In the next few posts, I will explore this topic of why government must be severely limited. For now, here’s a bit from an entry from 2008: Of Kakistocracies, Principals and Agents. Continue reading “Why Governments Fail”