Pollution and Taxation

Back in my final two years of high school, I took a little opted-for subject called EVS (as opposed to the compulsory EVE). Unlike EVE, EVS focused primarily on ecology and economics and was jointly taught by a biology teacher and an economics teacher(the latter of whom, was probably one of the best high school teachers I've had the pleasure of studying under), and it was one of those classes where participation and discussion was encouraged(admittedly, the class size was small, starting off with just myself before 3 other people joined).

Among the topics on which we had a very active discussion and debate, were Pigouvian taxes. Pigouvian taxes are taxes imposed to correct for negative externalities, usually keeping in mind social costs that are created by the activities of industries. The classic example(which was also the one discussed in class) was that of a firm belching out toxic fumes while manufacturing a particular commodity, causing acute bronchitis in the local population. We assume that the marginal social cost increases at a higher rate than does the marginal cost of production. The graph looks something like this:

Now, we impose a tax:

As one can see, to maintain the same price level, the firm has to cut down on production significantly, or switch to cleaner technology.

The good thing about a pigouvian taxation system is that unlike what other environmentalists demand, it is pragmatic, compatible with market economics and conventional ideas of growth (Unfortunately, my dear anarchists, that 'total revolution' is an a dream way, way too fanciful).

Before proceeding any further, when we were first taught this model, a few of us did raise an objection to this: Say the emissions caused cancer and untimely deaths, how do we quantify that with taxes?

It's been five years since then, and my assessment of the morality of quantifying deaths has changed, but it turns out that the basic argument is still valid; in fact, this was something Arthur Pigou pointed out himself, that the marginal social cost itself is quite difficult to estimate. Nevertheless, as the graph shows, such a policy is not necessarily ineffective either. The only thing that needs to be considered here is how much damage you perceive the firm is causing and imposing a tax on that basis to force the firm to acquire cleaner technology or become undercompetitive.

A more sophisticated objection was raised by Ronald Coase, who said the burden should not be borne by the firm alone and if such a tax is indeed implemented, it should only be imposed once.

Why? Because Coase points out that with the first round of taxation, the firm is forced to use cleaner technology, making the area more livable, thereby attracting more residents. However, with the increase in the number of residents, the marginal social cost will increase again, drawing in another round of taxation and so on, in essence according to him, punishing the firm for making the area more livable.

Even if you may accept Coase's objection in general, I do not think that it applies to greenhouse gas emissions. For one, climate change brought about by a greenhouse effect is a global phenomenon. Secondly, locational constraints do not apply to vehicles.

A more illuminating objection is that such a tax may not have any long term effects, since it will only constrain the output of an individual firm, but it does not consider the fact the number of firms may increasing, thereby negating the effects of the tax on total production.

This in my opinion, does give some indication of what a good environmental tax policy should look like. The tax may be more effective on the demand/consumption side of things, which is the principle behind a carbon tax. Consider a tax on petrol for instance. At a certain level, this would reduce consumption of petrol in general and would drive up demand for more fuel efficient vehicles.

There is some evidence that taxes on consumption do affect demand, for instance, in the UK and the EU with strong environmental laws, high fuel prices and costlier insurance on less efficient vehicles, the demand for and sale of economical cars is rising faster than in America, where regulations are more lax and fuel prices are low.

There are still certain issues with this, since a similar tax on diesel would increase transportation costs of other commodities and running costs of equipment such as tractors etc. In effect, personal diesel vehicles would need to be taxed at much higher rates than corresponding petrol vehicles to compensate for higher running costs of the petrol vehicle during its life-cycle.

The good thing about such taxes is that the revenue collected from it may be used to fund a hydrogen fuel network and offer subsidies on zero emissions vehicles like the new Toyota Mirai, but at this point of time, it appears not much more than wishful thinking at best.

Of course, for this to work, there needs to be global consensus on this and that looks far from likely. Also, people go batshit crazy with any talk of raising petrol prices, especially the Left these days. Despite that, pigouvian taxes are a far more reasonable option than what deep ecologists suggest, which is absolutely impractical: Going cold turkey. 

BLING! BLING!- Religious Idiocy DOES Hurt the Economy

Believe it or not, it does. Primarily, the fascination of South Asians with a pretty, yet otherwise useless commodity called 'gold'.

In the fiscal year 2011-2012, India's total gold imports stood at around 56.5 billion USD while the Current Account Deficit was approximately 77.1 billion USD(4.2% of the GDP). A telling picture, considering that while the CAD this year has reduced(1.4% of the GDP), gold imports have risen up from 2013-2014 by over 35% to 900 tonnes(I don't know what that works out to in terms of USD, but it's more than the 2011-2012 figure).

India happens to be the world's biggest importer for gold, and the reasons are almost entirely cultural- given how everyone rushes to buy gold during 'auspicious' Hindoo festivals, weddings, anyaprashans and virtually for every conceivable reason on the planet.

Some people think that it's a 'safe' investment, but that's not quite right either. Gold prices can appreciate and depreciate just like any other commodity. In fact, the safest investment ever is to buy the RBI's Inflation Indexed Bonds. Interestingly, recent attempts by the RBI to market this were undone in part by the preference of individuals for...you guessed it... gold.

And there are investments that return better value too.

It's no mystery that people all over the world are fascinated by gold, but the cultural fascination for gold in South Asia is astounding. Temples are filled with gold, even today, and even the poor buy gold as a reserve.

The problem is that with such a large demand for gold cutting into the current account, it does become problematic when this current account deficit in turn is used as an excuse to cut government spending on welfare schemes.

So do yourselves and everyone else a favour, at your wedding or your child's anyaprashan or whatever, ask for hard cash instead of gold and invest it in treasury bonds or mutual funds or something. It's a much, much better investment and it's good for the economy too.

Do you really care about the saffronisation of education?

Short answer: Most of you don't give two fucks unless it happens at an 'elite' institution. Bourgeois much?

Longer rant:
If you really want to know, this process of saffronisation has been going on for quite some time now. It's really shocking that people only start caring when it happens at places like FTII or IIT-Madras.

Gajendra Chauhan bothers you

As of 2014, the ABVP has control of the students' unions in 15 out of the 30 Central Universities and many of the appointments at the authority level in these universities are former RSS pracharaks. From what I've heard from friends in Silchar studying at Assam University, the ABVP regularly harasses students affiliated with the Students' Federation of India with threats to severely compromise their academic lives. What's more is that with RSS pracharaks in the authority, they can if they really want to. The situation is hardly going to be better in any of the other 14 Central Universities where the students' body is controlled by the ABVP. But of course, Assam University is not a 'premier' institute, so you hardly give a shit.

This doesn't...

People brushed off the presentation of 'Hindutva science' at the Indian Science Congress this year as a minor nuisance. While the entire scientific community was signing petitions regarding such a disturbing turn of events, where pseudoscience was being given a voice at the premier state sponsored scientific convention in the country, our merry band of pseudo-intellectuals decided not to give a fuck. No rallies there.

Neither does this...
(Hey! Isn't that College Street?)

Nobody gave even a minor fuck about the fact that the Union slashed the overall health budget, but increased funding for AYUSH. Yes, if you think American conservatives are bad for their evolution and global warming denialism, you should know that India actually spends a shitload of money on education and research in homeopathy of all things(Quite literally, 'টাকা জলে দেওয়া'). Amusingly, a section of our secular, progressive intellectuals actually supported the cause of homeopathy colleges.

And it doesn't stop there. All this is not even the tip of the iceberg as far as saffronisation is concerned. Here comes the whopper:

Our conscientous Left (including the statist Left, revolutionary Left, searchist Left, anarchist Left, Left but not quite Left, Rightist Left etc.) has somehow not gotten the memo regarding the saffronisation of the school curriculum which really is the biggest problem as far as saffronisation is concerned.

Nor that this guy, who had Wendy Doniger's book banned, decides what millions of kids study.

What do you think is a bigger problem? Injecting Hindutva faculty into a premier institute, or the brainwashing of millions of impressionable children into an ideology of irrationality and hatred? Because if you're going with the obvious answer here, I don't see anybody protesting on the streets about the latter. You can at least trust people in college with their own political beliefs, you cannot expect schoolkids to rise up in protest because they're being taught irrationality and hatred.

As a matter of fact, the fact that you do not attack the disease at its roots has a major contribution to the fact that the same kids grow up and then turn entire university campuses to the religious right.

But unless it's one of your elite cultural icons of education, you are hardly bothered with what happens where. Some of the posters being shared by students elsewhere read, 'Ritwik Ghatak was here' and unless everyone knows about Ritwik Ghatak and his cinema, this has no meaning for the vast majority of college students out there. This cancerous elitism is really a thing, it's a fact that students in elite colleges consider their counterparts elsewhere to be really beneath their level, despite quoting Marx, Sartre or Ritwik Ghatak at the drop of a hat (I now believe this ability is a reason for the elitism, the irony...)

If the Left(all included, once again) keeps practising its politics of self-interest and bourgeois elitism, it shouldn't come as a surprise that the cultural right is making massive gains all across campuses.This elitism is toxic and self-defeating, the vast majority go to institutions that are not meant for intellectual Mandarins and it is this mass that later forms the backbone of the nation state.

No, please don't pretend like you care about the saffronisation of education if all you care about are its manifestations in your intellectual space. If you really care, address the root of the problem, about how even the less elite Central Universities are being saffronised, about how pseudoscience gets the same attention as modern science and most importantly about how schoolchildren grow up believing all of this and then propagate the same once they grow up.

Kyriarchy, Anarchy and Economics

[If you're expecting anything remotely out of the mundane, this isn't the post you're looking for]

So a word that's been floating around these days, especially among those of a more alternate anarchist persuasion(distinct from mature theories like Syndicalism and Anarcho-Communism) who're trying to completely obliterate all forms of social hierarchies is something called 'kyriarchy'. Given my unfamiliarity with the term, I resorted to wikipedia and this is what came up:

"Kyriarchy is a social system or set of connecting social systems built around domination, oppression, and submission. The word is a neologism coined by Elisabeth Schüssler Fiorenza in 1992 to describe her theory of interconnected, interacting, and self-extending systems of domination and submission, in which a single individual might be oppressed in some relationships and privileged in others. It is an intersectional extension of the idea of patriarchy beyond gender. Kyriarchy encompasses sexism, racism, homophobia, classism, economic injustice, colonialism, ethnocentrism, militarism, and other forms of dominating hierarchies in which the subordination of one person or group to another is internalized and institutionalized^."

So while wikipedia may be misleading at times, it is usually quite accurate and so the following discussion is based on that.

So what does a post-kyriarchal society look like? One apparently devoid of any form of social hierarchy.

Assume such a commune exists i.e. a society without any hierarchies whatsoever.

Since, most anarchists on the left advocate a form of 'gift economy', I'll deal with that. [There's also a proposal for participatory economics, which has its problems, but I'm yet to come across a single anarchist in Calcutta who advocates it]

The idea in such a system, is that you take what you need and give what you want. Now, any rational individual can see how this is bound to go wrong, but such a mentality and definition of rationality is apparently kyriarchal. Moving on...

In our idealized post-kyriarchal society, we have a gift economy and everyone is free to do what they wish etc.

Assuming the commune is sustainable, it stands to reason that there is someone who can practice medicine.

Suppose the commune is hit by an epidemic which only the doctor can cure and he has a limited supply of medicine, when he is taken ill. He can always make more medicine, but he has to get well. Along with the doctor, the commune farmer population(numbering 10) and the entire population of scholars of English literature(numbering 10) have been taken ill too(total population of the village being 50), there is only enough medicine for 11 individuals, and the rest will risk death.

Whether the commune decides democratically or not, they need to make choices concerning how the medicine will be distributed and there will be some preferred while others are not. For instance, the doctor consuming the medicine is something that is necessary to the commune's survival given only he has the necessary skills to save the village. Secondly, the agricultural skills of the farmers is essential to the food security of the village and thirdly, the scholars of literature are needed to boost the intellect of the commune with their knowledge of Derrida and deconstruction. How the commune decides to distribute the medicine reflects its value system(democratically decided, of course).

For instance, it may choose to only save the farmers and doctor, prioritising the survival of the community to 'aantlamo' capability, it may do the exact opposite too, demonstrating that it prioritises aantlamo over food and sustenance. It might decide to save some farmers and some scholars. Each choice here reflects a different value judgement and prioritisation and preference of certain occupations and characteristics over others, i.e. it creates a hierarchy.

If like most people, you decided to save the doctor and a majority of farmers and maybe one or two scholars(or none at all), you might have acted in the interest of saving as many people as possible in the commune, but you still hierarchised certain professions over others, in this case, farming over scholasticism, and the doctor over all(because otherwise, the commune might have been wiped out).

In any subsequent event of resource crunch, certain occupations or groups of people etc. will be chosen over others for allocation and certain occupations will be intrinsically be considered more necessary than others. This is a problem that is common to any society; capitalist, communist, anarchist, tribal or otherwise and a hierarchy of choices will have to be established and some kind of 'discrimination' will continue to exist.

Which is the basis of rational choices and the need for economic planning in general. The economic system is created by the need for resource allocation and is not merely something that can be derided as a 'capitalist conspiracy'(how you choose this allocation or what specific system you use however, can vary upon the value system). In the real world, resources and capabilities are not infinite. And while this restating a truism, it is a truism that is often forgotten by idealogues. Hence this waste of 45 minutes in explaining something that should really be obvious.

There are other issues with gift economies, that are addressed by central planning, free markets, mixed markets and syndicalism that need to be pointed out as well, for instance, what directs production? Even in the cases where gift economies seem to work, the open software movement for instance, it is directed by external market forces(in this case, the production and demand for IT resources).


P.S.- I have really no idea what people exactly mean by kyriarchy and how exactly the idealogues tie it to anarchis,, and I accept this is naive, but there is a growing number of people who deride the subject of economics and rational choice theory as being entirely 'false' or a 'conspiracy', and advocate 'alternate thought', when orthodox thought comes out of very practical needs.
P.P.S.- There are things like racism, sexism and heteronormativity that can be done away with, i.e. if you define kyriarchy intrinsically. Functionally, absolutely not.
P.P.P.S.- Yes, I am a bourgeois liberal and I will not check my privilege on the justification of rational choice theory. Arigatou gozaimasu.

The Ideal of Scholasticism

So this article has been doing the rounds on facebook, and I understand that in the light of recent happenings across colleges in India, it offers up some thoughtful criticism of the state of education today. My point is not to counter everything said, but a particular ideal that I feel permeates the article and Liberal Arts colleges at large at every level of organisation.

The thing is, and although I'm certain the authoress understands education far better than I do, that in a way, it does justify a sort of ivory tower attitude towards what education should be and I disagree. It rests upon an assumption of free-thinking, that does not really exist, since the kind of culture being valorized is in itself, extremely normative despite its disregard for attendance criteria etc.

One of the things that keeps popping up in labellings of the university system as pandering to 'GDP growth' or driven 'market economic' logic is how certain things like MoUs with the industrial sector or a more job-oriented approach being somehow harmful to the intellectual climate of our Arts and Sciences colleges(hereafter, referred to as A&S colleges). This I believe, is somehow misguided and persistence of such an attitude may well be detrimental and counterproductive to the state of education today.

The first thing is that it is my personal belief that the purpose of the education system is to create socially responsible individuals who can potentially contribute to society either intellectually, economically or culturally by virtue of giving them scope to maximise the functioning of their capabilities. This is not to say that socially responsible individuals should pander to the status quo, but that to challenge such ideals requires a connection with greater society at large. The role of public intellectuals is not to sit within ivory towers and sermonise over cups of coffee and cigarettes(although I could very validly be accused of the same here), but to engage with this and such a role is profoundly political. That is one of the most important reasons for the existence of student politics, independent or otherwise. To that end, I find a normative discourse such as 'universities are supposed to produce scholars, not workers' unfortunate.

The trend has been to valorise scholasticism and ivory tower intellectualism while decrying engagement with industries or business as against a particular 'academic culture', or in a somewhat more paranoid manner, as an insidious attempt at privatising the public sector(the fear of which, while not baseless on a general scale, but is misplaced here). I quote this particular passage from the piece I mentioned at the beginning:

"This is what has always distinguished the public universities and colleges in the country from the IITs and IIMs and the professional law schools – that they have guarded and nurtured fiercely a certain romanticism about academics neither wisely nor too well. This bit of idealism is neither irrational nor lazy. Far from it: it is this spark that lays the foundation of thinking and doing big. It makes one argue, innovate and dream up fundamental changes in academia – not make hack-writers and technicians out of fine minds and generous souls."

This is not a singular instance of a person railing about how A&S colleges are intellectually superior to technical institutes, but a widespread chauvinism at every level in A&S colleges that indulges in chest-thumping regarding academic purity and the fact that such colleges are not 'nerd factories' and discourage people from becoming 'good little worker bees'.

I cannot speak for the humanities point of view(although I am certain a section of them might agree with me), but as a student of science and considering that science students form the majority of the student community in most A&S colleges while remaining a minority in the cultural discourse, let me say a few things:

1. The majority of academicians in any field aren't innovators or revolutionary paradigm-shifters, but the equivalent of what the writer of the article derides as 'hack-writers and technicians'. She misses out that such 'hacks' and 'technicians' are the backbone of the academic community, and it is due to the sum of their relatively smaller contributions to their fields that the innovators can often come up with 'big-bang' discoveries etc. There's nothing wrong with being a 'run-of-the-mill' nerd, although most of us still want to achieve greatness in some way or another.
2. With innovators and game-changers, there is no 'formula' to producing or laying the foundations for such people. Given the rarity of such individuals there's hardly any point in waiting for 'academic Messiahs'. Furthermore, it is often true, especially in the sciences, that such Messiahs displayed attitudes that are derided as being in common with 'hack writers and technicians'. 
3. At least in the present context of India, a lot of the truly 'world-class' scientists have backgrounds in more technical and 'job-oriented' universities. Ashoke Sen, Shiraz Minwalla, Rajesh Gopakumar in theoretical physics, K.H. Paranjape and Mahan Mj in geometry, Subhash Khot and Manindra Agarwal in theoretical computer science(I could add to that list and it would go on), have backgrounds in technical universities.
4. Some may raise a counterpoint regarding Satyen Bose and Meghnad Saha being students of Presidency, and they'd do well to remember that in those days, Presidency was indeed a machine, producing workers for the purpose of the British Raj. The environment was quite 'market-oriented', in a manner of speaking.
5. Economics departments across the country have produced leading academics on a regular basis, and in A&S colleges, they've been the least committed to intellectual purism, encouraging students to engage with industry etc. An ivory tower attitude never really helped in economics, but that's the nature of the subject.

But most importantly, engagement with industry and the public/private sector is not antithetical to scientific progress, but intrinsically linked to it, both directly and indirectly. The best departments of science have had strong links to the industrial sector, even in the USSR and there are very few exceptions to this. Even strong departments of Pure Mathematics(probably as Ivory Tower as you can get in any scientific discipline), are often found in universities with ties to industry.

The applied sciences cannot get by without cooperating with industry or exposing their students to such an environment anyway. How on Earth are you supposed to conduct advanced computational research in atmospheric sciences, the understanding of which is essential to understanding climate change, without supercomputers? And concentrating resources in certain thrust areas in applied science will automatically lead to complaints from people involved elsewhere regarding bias and being ignored as far as funding goes. How is such research supposed to take place without tying up with private agencies? Any institution seeking to fulfill its potential in the sciences should encourage cooperation with the industrial sector instead of shunning it. Else, there is a severe risk that they will be left behind in the dust.

To return to what I was saying earlier, universities should ideally encourage people to expand upon their capabilities and people should realise that academia may not be everyone's cup of tea. Surely, if someone is talented in that respect and does not recognize it, he/she should be shown that they can fulfill their potential in that regard, but that's not a general thing. There are people, across departmental barriers, whose talents lie elsewhere, in the corporate sector, in the Government, in industry and otherwise, and the dominant culture would do well to take note of that and encourage these too, instead of normatively passing judgement on them. This isn't really 'market-oriented rhetoric' or 'GDP growth fetishism'. Not everyone wants to study for the 'heck of it' and they shouldn't be culturally encouraged to do so, ignoring their personal and general social realities. The pursuit of an abstract idea of excellence that almost every university and college aspires to as a whole, depends on this.

It needs to be remembered that a vast majority of people coming to A&S colleges, come to such places in the hopes of getting a job eventually and I see no reason to 'correct' such a view because that is contingent on their social realities. One shouldn't forget that a large percentage of people in these colleges ultimately end up in the private sector anyway, and that a dominant culture of deriding such attitudes only contributes to some of them not being able to maximise the functioning of their capabilities and creates a confusion with regards to their own understanding of fulfilling their capabilities. And this does happen, with people who come to certain departments wanting to eventually get into a more 'professional' sector, but thanks to the idealism, start believing academia is right for them, before realising it isn't and missing out on valuable internships etc. that they could have pursued at the time.

Tie-ups with private sector industries are not a foreshadowing of eventual fees hikes and privatisation of a particular university. It's not encroaching on any place where the public sector is active, but filling a niche where the public sector is not active. This is plain alarmism and revoking such agreements will end up harming students whose inclinations lie in that direction and rob them of a chance at a well-paying job.

It should be realised that those who join industries with high-paying jobs do end up contributing to society economically and ensure a secure future for themselves and their families. It also needs to be remembered that while you and I do not want or need luxuries in life, there are some who do, and they shouldn't be discouraged from pursuing any course of action that would make them happy, unless it involves harm to anyone else.

Thinking of engineers and workers as machinistic and unimaginative or snarking at people desiring a cushy well-paying job at a private company, is matched by the attitude that perceives Professors of Literary criticism as people freeloading off the State. Neither attitude is particularly healthy and both are counterproductive to an academic culture.

Others may point out that such a culture is specific to the humanities disciplines such as Literature and History, and not the sciences and economics, and truly, I know nothing about the necessary 'cultures for success' in those areas. However, that raises questions regarding whether or not such normativity is necessary or beneficial in the larger context where there are departments of sciences too.

Neither has such an environment in the country's top colleges helped encourage major political movements beyond the scope of campuses. Very few academics in such universities are involved with framing political policy or actively involved in thinking about how to solve problems of society beyond the occaissional activism to ease one's conscience, and criticising market economics from one's armchair(usually without looking at a single book on economics). The ivory tower excesses coupled with college-centric idealism often causes myopia in the political visions of its adherents.

The fact is, one cannot divorce political activism from society. Disassociating academic spaces from society at large only serve a purpose of greater depoliticization that is not necessarily dependent on the existence of campus politics. A student from JU might find an IIT or a National Law College to be apolitical by her standards, but we're seeing a time when graduates from such institutes are becoming far more politically active(both on the left and the right) than an average graduate from an A&C college and this should not come as a surprise anymore.

The lesson that these colleges 'teach' apparently, regarding a culture that eschews 'cushiony job placements' is a recent phenomenon as I had mentioned earlier(perhaps post-Naxal era?), or at least, indications of where people end up demonstrate so. This is not a culture intrinsic to the fabric of A&S colleges and is something that needs to change with time. The neo-Brahmanical chauvinism needs to end and give way to a more pluralistic culture, one that encourages fulfilling capabilities and not an imposition or valorization of a certain scholarly ideal.

Challenges of Development- Deficit, Welfare and Other Demons

Sharan Banerjee has written a counterpoint essay to my previous post on his blog here. I'll try and answer his numerous critcisms here.

The first thing that Sharan points out, if I've understood him correctly, is that there is no necessary payoff between welfare and business and that the two are not antithetical to one another. I agree with him on this. My point there was that business interests were pushing out welfare to help them keep more money in their pockets by tax cuts.

Regarding debt and deficit, what I meant was not that they are absolutely immaterial, but that debt and deficit scares are being used by the government and corporations to rationalise cuts in welfare, while slashing taxation rates at the same time.

It might have been slightly misconstrued that I was understating the impact of debt and deficit, and I had pointed out that the internal debt owed in Rupees far exceeded the external debt, primarily in USD. A way of reducing this would be to print more currency and 'buy' your own debt, and while this causes inflation, there could be a number of policy checks implemented, and pegging both poverty criteria as well as minimum wage to it. If such policies are not followed, the natural reaction would be to increase Government revenue through taxation of high income groups or maintaining corporate tax rates and wealth taxes, which have been maintained/slashed/done away with respectively, and by increasing Central excise duty on a large number of finished goods(which happened, but could have been increased further without becoming prohibitively expensive). Instead, the government has cut back on spending in vital areas of social welfare like education, healthcare, food security and NREGA. It was here that I pointed out the Union Government was pandering to the interest of the upper classes instead of the poor and lower income groups. So I was not advocating increasing welfare ceteris paribus but advocating a rationalized tax increase to offset the spending in social welfare.

Also, in agreement with Sharan, I did advocate cutting down on subsidies of LPG and petrol, which primarily benefit the middle-class and not the poor. There could be rationalised subsidy cuts across the board which basically finance the middle-class. What I do not believe is that these cuts should not be affecting the poor.

His example of the resounding success of the Tories in the UK as an example of austerity reaping resounding benefits is something I disagree with and here is why:

In the period 2009-2013 (IMF data)

Harsher austerity measures do not imply increased GDP growth and the GDP growth rates achieved are not very impressive either:

The funny thing is, the main period of austerity was in between 2010-2012, and the economy was well on its way to recovery before that. The recent 'spike' around 2014 is largely thanks to the fact that no further austerity policies were enacted during that fiscal period.
As One may counter that the employment rates have risen dramatically during this period, but unemployment rates are still pretty high and as Simon Wren-Lewis explains, it may not be great news. Furthermore, while the average income may have risen in the UK, so has wealth inequality and with cutbacks in social security, that's no reason to cheer about.
While I think a discussion of the UK here is somewhat irrelevant, unless we're talking about 'jobless growth', which I will be turning to next, there's something else that bothers me about the austerity cult as I had pointed out in my previous articles, and it is wonderfully encapsulated by none other than David Cameron in this speech during 2013.
"It means building a leaner, more efficient state.
We need to do more with less.
Not just now, but permanently"

The reason why there people such as myself get worked up about austerity measures is that more often than not, is that it is an attempt to downsize the Government in the long run and if you remember, Modi promised just that with his campaign motto, 'Minimum government, maximum governance', echoing the Republicans in America. What this effectively means is that the spending cuts in healthcare, education and social security may well be permanent(So far, his policies and political rhetoric hasn't given us liberals any reassurance that he is any different from the political Right wing anywhere else). His 'welfare' policies reflect just that, the state receding from its role in social security, and the gradual expansion of the private sector in these areas which violate certain principles of social justice as we liberals see it.

However, since we're not moralising here, let's get on with the extension of my argument in the previous article about why you should care about social welfare and development even if you do only care about growth(assuming a form of sustainability here).

It's interesting that Sharan brings up the Solow growth model. He is correct in concluding that people saving money in banks will contribute to GDP growth, everything else remaining the same or ceteris paribus. The interesting thing about the Solow growth model though, is that according to it, both technological progress and a skilled labour force is also essential to growth. As I see it, however, that for this to happen, social mobility and education need to be guaranteed and the welfare cuts do nothing to make that happen. Without social mobility or education, you're stuck with a more or less fixed locus of skilled labour within the population. Someone could argue that for all practical purposes, the concentration of technologically skilled labour will always be coming primarily the well-off, assuming the existence of 'relative poverty', which is something that has no quickfire solution(No, Marxists and Anarchist friends/haters, that's not gonna happen no matter what you think), and they would be correct, which is why it does seem like the Modi and Jaitley are going to be trying to finance institutes of technology both through the public and private sectors to at least ensure that even within the middle class, they would look to expand the technologically and scientifically literate mass(I won't get be drawn into an argument regarding Hindutva science here though). But there's a bigger problem here with just focussing on technological development too.

One reason why  even conservative regimes within certain developing economies still invest in technology etc. while cutting back on almost everything else is because of fears of a 'Middle Income Trap'. This is basically a situation across emerging economies such as Brazil, South Africa, Mexico, Russia etc. where the income levels have stagnated in the middle income category. In another light, the question could be reframed as 'Why other than Japan and the Asian Tigers, no emerging economy has been able to transition to a developed economy?' The guidelines for this can be seen from this this report of the Asian Development Bank, which is probably why the Government is gung-ho about building an information economy.

However, if this paper by Larry Summers and Lant Pritchett is to be believed, then the mad rush to maintain growth rates and avoid the middle income trap may be self-defeating, since according to them, unnaturally high periods of growth(>6%) are often followed by slowdown and a high growth rate may indeed be a forecast of imminent slowdown as a case of 'regression to the mean', and that income levels are poor indicators of the same. If this is true, excessive worrying about how to avoid the middle income trap may well be pointless before ensuring a sustainable development plan.

And perhaps we can learn from South Korea here, which ensured comprehensive education and healthcare while embarking on a quest to achieve astronomical economic growth.

Sharan makes a point by saying high unemployment and low income can be offset by investing in infrastructural development and I am in almost complete agreement with him here, but there remain a few caveats. For one, unskilled labour in infrastructural development is often temporary labour and furthermore, such labourers are subject to inhumane working conditions. Especially since the present Government has an extremely apathetic view of labour rights and unions, I have concerns that such projects might well turn into mirrors of the infrastructural development projects in the Gulf. Of course, this doesn't mean that such projects shouldn't happen, but that serious labour law and minimum wage reforms are required before such development can take place, deregulation of labour will only lead to labourers being forced to work for less wage and for longer hours.

Where I completely disagree with Sharan however, is in his views on social choice and welfare.

For instance, his example of the choice made by BPL household to prioritise labour over education is basically the reason why we have welfare schemes such as 'Mid-day Meals', which for all its apparent ridiculousness and flaws, have indeed drawn students to schools since it reduces a significant part of their families' expenditures.

The value of social welfare lies in the fact that they allow individuals and groups greater freedom in making social choices and grant them greater social mobility, which is vital if the middle-class is to expand significantly.

The ability to make a choice for say, higher education, which has real risks in the chance that it does not pay off, is severely compromised without a lack of a social safety net like employment guarantee or food security. If for nothing else, social welfare schemes should exist for this purpose.

As I pointed out in an earlier post, while the PDS is leak-prone, the leakage in case of food security has reduced to 20%. While Sharan says the point regarding the criticism of cash transfers as efficent/ineffective is 'moot', but I think it isn't. I stated earlier that the utilisation unconditional cash transfers are subject to personal preferences, and in the long run, do much less with regards to food security than a PDS. Even assuming Conditional Cash Transfer Schemes, the problem of inflation and local variations of foodgrain prices are issues that cannot be solved unless the CCTS is both inflation adjusted and price sensitive, which may end up being more expensive than a PDS.

I would be fine with a National Income Guarantee instead of the NREGA, but I somehow assumed that the NIG would be even more reprehensible to people on the economic right than the NREGA, since the NREGA at least provides work to for income.

(I'd probably write more, but I'm drowsy.)

To Support Welfare or Businesses?

So yesterday, I uploaded a rather boring and long-winded post on the Modi government's rollbacks of welfare schemes and how that basically sucks for the generally poor Indian population. Like most blogs on economics and policy, the amount of fucks given were close to zero, with one person being more interested in my Google+ display picture than the content(Normally, I'd be pleased, but the issue I believed, deserved more attention).

But among the fuck-givers, the most common complaint from those of a rightist persuasion(bordering on Wingnuttery) was that none of these welfare schemes can happen now because we don't have the money to finance our welfare schemes given India's 50-60% debt to GDP ratio and that increasing welfare spending contributes to deficit and that's bad for the nation as a whole.

Let me start off with a salacious accusation that people who scare the masses with debt, deficit and their seemingly disastrous consequences on the economy are basically a bunch of selfish fucks who are more concerned with having money in their pockets than your or my general condition and this is a merely a ruse for the Government to cut down on welfare for the masses and cut down on their taxes.

Since I was unable to convince people of the need to expand spending on welfare for its own sake, because y'know, some people have a manic fetish for growth rates and 'free' markets which they believe are the panacea to every economic and social woe on the planet. Most of them advocate widely debunked theories of increasing austerity(which naturally compromise development and welfarist policies) to bolster growth and reduce deficit and debt, which they believe are the biggest fucking problem the economy and society at large faces.

Their thinking is simple, the biggest problem is debt and debt hampers economic growth which in turn makes the world a shittier place. Unless you run a surplus, you're not gonna get anywhere with development. Look at Greece! They've gone to shit because they're racking up debt! Seems commonsensical enough, but it isn't.

Because people in general are fuckwits who are unconcerned about what happens to 90% of Indians as long as they get that high-paying job and are relatively well-off, it's alright to believe in widely debunked economic policies. That's how some people are and unless one can demonstrate that short-sighted idiocy is a problem for the 'growth rate', big businesses and industrialisation, they don't give a shit.

But think about it from a different very commonsensical angle, what do you think drives growth? Your entrepreneurial enterprises need labour, and where will you get that from? The need for skilled labour is perpetually on the rise, as industries become more technologically oriented and where will you get that if you do not bother ensuring that the masses receive free education? Unless you can ensure social mobility, security and welfare, where will you get the labour which you require?

If you've already made it, there's nothing much to say, but most of you reading this haven't. You might think that this idea of entrepreneurial India gives you a better chance of 'making it', but it doesn't. Not all of you will be making it that far, and chances are, you won't be making it because the limited skilled labour force that you can tap into, has been drained by corporations much larger and more powerful than yours. If you want to set up a new business, in this day and age, you will need skilled labour and for that, the Government needs to ensure that people have access to education. If you do not have a social security net, why do you even suppose anyone would take the risk of trying to educate themselves when they don't have access to the bare essentials? 

This is something that I hope none of us disagree with, but assuming you're one of those who piggishly believe that narrowly focusing on GDP growth(by incentivising corporations at the cost of social security), name a few countries that have achieved overall development without having comprehensive social security programmes? I do not know of any. The much touted example of South Korea as a corporate capitalist haven of sorts, also incidentally, had massive government spending in the critical areas of education and healthcare during the '60s and '70s. Without these, mobilising a skilled labour force would be nigh impossible. Even America's apparent lack of social security is a rather recent phenomenon that gained momentum during the Reagan era, what people forget is that 'The Great American Dream' is something that rested on programmes of social security for the masses.

The notion that social development at the cost of incentivising corporations hampers GDP growth in the long run is a myth even outside Heterodox paradigms.

Now, let's turn to the more jargon-y matter of deficit, because even when most people agree with the argument concerning the need for welfare and development, the right comes up with the reasoning that we're in debt and that implies that spending money will lead to financial collapse.

The thing is, that is not really true. Deficit scaremongers often use analogies with households to convince you into equating any debt that a person may have, with that of the government. It's really not the same thing.

For one thing, India's external debt is 23.2% of its GDP meaning we do not owe much of the 60%-ish of the GDP debt to anyone else but ourselves. Moreover, the debt is not out of control yet. Since nobody bothers with reading Keynes anymore, I'm going to argue this from what seems to be a more accepted view, that the current account deficit does indeed need to be reduced.

Now, there are multiple ways of reducing deficit, one way, as the Government currently is practicing, is austerity, that is to reduce public spending. As I pointed out earlier, reducing public spending however, in a country as underdeveloped as India, is risky for sustained economic growth, unless you're okay with India turning into an oligarchy(which more radical critics may argue has already happened, and not unreasonably).

The other way, is to bring in both progressive tax reform and tax compliance. While service tax has been increased, which is a step in the right direction, corporate tax rates have fallen and wealth tax has been abolished in favour of a modest 2% surcharge in the taxation of the superrich bumping it up to 12%.

However, if we are to believe that the deficit is that big a problem, it surely stands to reason that larger tax increases should have been implemented instead of cutting back on essential spending. Furthermore, middle-class populism has resulted in a number of subsidies that only serve the middle-class.

Take a look at these two simplistic pie charts from the ToI

The thing is, there still is enough wiggle-room to increase returns from both corporate as well as income taxes. And once again, I reiteriate that the defence sector is bloated beyond belief. Furthermore, both the Customs and Excise duties on a variety of things could be increased to compensate for spending. The fabled black money also helps.

Coming back to my original salacious claim, the fact is, India Inc. would never agree to increasing taxation. They're more than happy keeping what they have in their pockets while the poor be damned.

The Modi Sarkar has a clear choice here, they can keep corporations happy by slashing their tax rates and implementing deregulations while cutting back on welfare and social spending, or they could increase social spending while increasing tax rates and regulating businesses. By recent trends, it is obvious what they've chosen.