Saturday, April 26, 2008

The imbecile economic experts and the immaturities of a market economy

There is no doubt that in the last 17 years -- ever since the so-called economic reforms have begun -- India's stupid middle classes have been afraid to take a critical look at the private sector. The media, especially the English language media, has contributed much to this silly bias. Private sector can do no wrong is the undeclared mantra of the middle class and the middle class media.

In a free market economy, it is the follies of the private sector that create market crises. The US sub prime problem is because of the recklessness of banks and mutual funds that is behind the realty sector meltdown. It was the Federal Reserve that had to come to the rescue of Bear and Stearns as a first step to salvage the charred remains.

All those stupid economic experts who sing hosannas to the market are forced to maintain an embarrassed silence of the follies of the market players. Greed may be a good thing in revving up a market economy, but it can also be toxic if greed is allowed unfettered play.

The American experience in most of its economic downturns has been mainly due to the mistakes and blunders of the market players rather than that of ill-conceived economic policies of the state. It is usually the case in the US that the state has to step in to clean up the mess created by the private players so that market economy can get back on the rails.

All those economists who proclaim themselves to be unsullied worshippers at the altar of the market ought to know that they are literally lusting after an imperfect god. And that the state, which they hate so wholeheartedly is the one entity that comes in to save the market time and again.

The Americans have not fallen into the trap of choosing the opposite system of a state-managed economy, which is far worse. The communist and socialist economies from the 1950s to the 1990s have shown what a disaster such a system can be. Even today, Zimbabwe under Robert Mugabe is a shining example of the follies of a statist economy.

The moral in this economic story is a simple one. The market is a good system provided that you have a good regulating system, and that there is fair competition among the players, and the rules of the game are set out. These things can be done only by the state. That is why, the success of a market economy depends on a good government. There is no paradox or contradiction in this. The market cannot manage itself. It does not mean that market must be done away with. You need a government which allows for the market to flourish.

There have been two kinds of idiots who have been dreaming of the withering away of the state. The first are the marxists - for the moment we will ignore the anarchists because their dislike and hatred of state is based on moral and not on utilitarian grounds and therefore they need to be respected more -- who thought that with the closure of the class war, the state will vanish.

The second set of idiots is that of those who have been so overwhelmed by the success of the corporations and its sibling, the multi-national corporations, that they have been spinning imbecile futurist scenarios where the states will be replaced by the corporations and the multi-nationals.

The hiccups in the capitalist system are a steady reminder that the free market can never be left alone. It will never be a mature system. It will always indulge in excesses, and the state will have to intervene to save the free market from itself.

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