February 23, 2015

India Needs Free Markets

By In Articles, Economics

A recent Bloomberg Editorial was promoted on the Bloomberg View Facebook page with the following statement: “India needs an organizing vision for the remaking of its economy.”

Au Contraire!

What India really needs, indeed what every society on this indebted and socialized planet earth needs, is precisely the opposite.  For almost a century individuals throughout the globe have suffered under the tragic consequences of the Intellectual Class proclaiming that nations need an “organizing vision… for its economy.”  And everywhere we look economies sputter forward, hardly breathing, and with constant injections of central bank currencies which act as a grand dose of drugs aiming to heal that which was sickened by current injections of monetary and regulatory drugs in the first place.  Governments cannot plan economies because they have no idea what they are doing. Indeed, no one in society has the knowledge to organize a vision for an economy.  Economically relevant knowledge, as Hayek once pointed out, is a product of the market process, not the specialized skill of the Central Planner. To think otherwise it, again to use Hayek, a “fatal conceit.”

India needs an organizing vision like a drug addict needs another dose.

The Editors write:

In his first nine months in office, Indian Prime Minister Narendra Modi has announced a raft of initiatives — to boost manufacturing, improve sanitation, slash red tape, increase foreign investment and more. All worthy goals. What’s been lacking up to now is a coherent strategy to tie these plans together.

How do the editors know these are worthy goals?  Have they taken up the role of the entrepreneur, calculated the profit and loss potential of the investments, and shouldered the risk associated with unknown?  It is only after doing this, and finding that they have made a profit, that they can possibly know that such goals were worthy.  The only possible exception in the above is the bit about “slash[ing] red tape.”  But if by slashing red tape the Editors mean that the Indian PM has initiated an effort to cast away any present obstacles that prevent government expansion of spending, then this too is foolish.  The only good kind of red tape slashing is the kind that removes government intervention from private investment and private enterprise.

What is lacking then is certainly not a “coherent strategy” which will tie the “plans together,” but rather, what is lacking is privately developed plans by profit seeking capitalists who, on their way to anticipated profit, must figure out ways to best serve their customers while at the same time minimizing costs.  The absence of government planning is not “no planning,” it is private planning.  Of course, in all these nations around the world, the government has prevented to astounding degrees the opportunity to plan and profit by private entrepreneurs and thus, it appears that the government is the only option for economic salvation.

More from Bloomberg:

India is only part of the way toward becoming a modern market economy. It isn’t yet on the path of rapid growth it could and should be on.

It is the “modern market economy” bit that is deceiving.  For in a very important sense, the modern economy has nothing to do with the market.  And thus, if indeed India is on its way to this goal, tragedy awaits.  Now, no economy in the world is on a “path of rapid growth” precisely because no economy in the world is an actual market economy, characterized by the free exchange of goods and services and privately initiated production efforts.  And, perhaps most fundamentally, there is no market economy in the world today that has its money system as a market phenomenon; no, the world still suffers under the specter of central banking. Bloomberg’s advice to India, however, is not to embrace free markets, but rather to adopt a more solid organizing vision!

Fatal conceit indeed!

The Bloomberg Editors continue their descent:

First, to be sure, investors want to hear that the government remains committed to fiscal rectitude. That means shoring up a notoriously weak revenue base, in part by making the income-tax system simpler. The push to create a national goods-and-services tax must continue.

I’ll translate: the wealthy want to make sure that the government will continue to sop up more loot from the citizens so as to ensure that their “investments” will have a nice, solid return.  Notice how “fiscal rectitude” is never defined as a slash in spending to meet current revenue levels, but rather, spending levels are considered a Grand Given and revenue needs to keep up.  A more “simple” tax system is a political and tricky way for saying: “close up all the opportunities that citizens currently have to keep what is rightfully theirs– make sure that we don’t have any cracks for private wealth to slip through. For what we declare to be ours is rightfully ours.  Also, we suggest another round of tax hits.  Because rectitude.

The article goes on. But you get the point.  It is remarkable that “organizing vision” is associated with “modern market economy.”  The solution to decades to government control always seems to be more government control.  The world suffers from the illusion that the plans of the central planners are “worthy goals” and that the only thing that can bring forth a future of paradise is to hand over the reigns of the entire economy to those that assume themselves omniscient.  But economic theory shows how blind they really are.  Only the market process, the actions and decisions made by private property-holders can reveal the proper allocations of capital into consumer goods and services.  Only they can build up and construct a structure of production that is sustainable and enhances future growth.  Only individuals know how to spend, and whether to spend.  Politicians are stooges of the misallocation process that has entrapped and enslaved all who are not part of, or friends with, the Statist class.

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. –F.A. Hayek

Written by C.Jay Engel

Editor and creator of The Reformed Libertarian. Living in Northern California with his wife, he writes on everything from politics to theology and from culture to economic theory. You can send an email to reformedlibertarian@gmail.com