![]() | #316 | |
BHPian Join Date: Sep 2010 Location: Bengaluru
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| Re: Understanding Economics Quote:
One, once the resource is mined and sold, it no longer is nation's wealth but private wealth. This is what leads to cronyism and scams like the coal scam. Secondly and more importantly, the nature of resources keeps changing. Oil and gas which is a much needed resource now, hopefully may not be in a couple of decades, if renewables/battery tech grow as predicted. Would you agree if a government spends thousands of crores now setting up oil/gas fields? I most certainly will not. | |
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![]() | #317 | ||
Senior - BHPian ![]() Join Date: Apr 2007 Location: LandOfNoWinters
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| Re: Understanding Economics Quote:
Each one tries to increase his earnings by outdoing other workers eg by working additional hours. Gradually we reach a situation of saturation where the workers are limited by their biological limitations (e.g need to sleep at least 4 hours daily) making their lives hell. But because of competition - everyone is doing the same and the net result is that no one is better off compared to the initial starting condition. Quote:
2. Right. But you speak as if you trust the general public more. ![]() | ||
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![]() | #318 | ||
BHPian Join Date: Sep 2010 Location: Bengaluru
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| Re: Understanding Economics Quote:
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Also note that politicians have a big corruption incentive to continue subsidies and not go for UBI type solution; and that is, huge contracts are given for Food canteens like schemes. They siphon off a lot of money by giving these construction/procurement/operations contracts to their cronies. Yes, in a UBI solution there will be few irresponsible people who will use the money for liquor or drugs or gamble it away, but that can be reduced by education. At least the responsible people will not suffer the vagaries of the politicians. | ||
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![]() | #319 | ||
BHPian Join Date: Aug 2009 Location: Bangalore
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| Quote:
The way to fix democracy is to actually take part and fix it, rather than offloading what a democracy does to any other entity. There is something fundamentally wrong with all the assumptions that businesses run by private enterprises would be more efficient by definition. The world has proven over and over again that it is not the case. Air India was mentioned at one point. Of course inefficient and of course needs some work. In an ideal world the way that should have been sold off was to retail investors who are people ( so the funds are raised) and still be maintained with sufficient control by government. I would like to bring up that thing of convenience fee that is going around in Airlines now. Every single airline is charging a 100 convenience fee for internet booking. I have not seen anybody able to explain why. With only private players I dont see why it cant be 1000 Rs. People usually compare the flight prices from two decades ago to now and then assume the competition brought it. That is totally untrue. The infrastructure for all these airports, the roads, Air traffic control, all of that is invested by people. So, when the lone govt player is not there anymore, the private sector is open to competition in the beginning, and then they go into an agreement mode with each other. Either the employees, or the customers are bound to suffer at one point. Airlines is classic example. Dead peasant insurance was widely used in Airline companies in US. There are many news items about pilots working two jobs etc in most of the low cost airlines in US. A profit seeking machinery is at one point supposed to bring unpleasant effects in society; that is for sure. Does that mean all the businesses should be run by Govt ? No, not even partially. The only businesses which must have govt hand would be the ones that would require high amount of infra spending upfront. Which means that the huge business can never wring the common man's neck for profit. People these days talk about the private players altering the communication landscape of India. While that is true to some extent, who paid for the satellites ? All the "public" businesses in India could never provide bottled water for anything less than Rs. 15. And railway did it for Rs. 10. When the business is not run for profit, it benefits people. In some cases, that is the only way it can benefit people. The talk about "inefficient" and "unwanted" subsidies -- I will give it to you that some of the subsidies are unwanted. But who decides ? The best entity to decide would be a collective of people. The only reason why we are still into this century with ICE engines is because the businesses had their clutch on capital movement. A company that is invested in a dead technology would not want to move away just because it benefits people -- by definition what the company cares about is profit and profit only. The large Auto corps around the world are proving that. The biggest scam about the "evil" government theory in India is the PSU's real estate assets. Take a walk around any of India's big cities and I can guarantee why the large real estate that is supposedly "wasted" in the centre of the city should make sense. In an ideal world they should be children's parks or grounds. But the talk about auctioning them off is just putting words to some private player smacking his lips. Businesses by definition cannot understand open space. It is just wastage of resource for them. Well, not so much for the people. I really think the air we breath is more important than the market. Quote:
If there is inefficiency and corruption, we can work on correcting it. It will get corrected in future. If there is wrong policy implemented, however efficient it is, there is no come back. This is what happened with the 60 years lease that we see in some of the ports right now. However efficiently they run it, they have no incentive to follow the nation's interests by foregoing their profit. Last edited by Samurai : 6th February 2018 at 18:18. Reason: B2B post | ||
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BHPian Join Date: Sep 2010 Location: Bengaluru
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| Re: Understanding Economics Quote:
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![]() You seem to be confusing between the role of the government in regulating businesses and running businesses. Following points illustrate the difference: Quote:
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BHPian Join Date: Aug 2009 Location: Bangalore
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| Re: Understanding Economics Warning: Long post ahead There is so much to say here, I am not sure where to begin. But, let me start with a scenario. Lets say there is no SBI or other state owned banks. All we have are private banks. At a point, the banks decide they need the money loaned to India to make their balance sheet look good. So they talk with government. Government says no, and banks say Yes, and government threaten action. What do the banks do ? They say all banks remain shut until government submits to their demands. So if the banks do not open even for a day, and the ATMs do not dispense money, what happens to the country ? Bank runs, riots, mobs and what not ! The government has no option but to budge. Sounds too hypothetical ? Well, no. This actually happened in Greece in 2015. Its well documented. The basic point that is being missed by the Capitalist utopia you are explaining below is that the leverage that a government has over private businesses is completely dependent on the amount of economic activity they control. Quote:
It may take 15 years(very ambitious) for the electrification of villages and getting everybody access to Electricity for cooking. It may take 5 years to provide a substantial population of these villages a PNG pipeline to get rid of the coal and wood based cooking. I am sure a business would choose to conveniently forget about the present of this population. A government( of course, a well run one) can never conveniently forget such stuff. The democracy decides here. The interest of those people who can immediately get access to better standard of living while the future arrives also matters. All you see is the balance sheet of numbers. But that is not the Government's intention. The sooner you make peace with this concept, government activities would start making sense. Quote:
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Govt has no need to run a hotel in say Bangalore. Pointless. Even at the stage where there are two major hotel giants in India only ( all others eaten by them), if some sort of cartelization comes in, it doesnt take much for a smalltime business to start out. The situation as a whole changes when the location is Nagarhole water park which is an eco-sensitive zone. Government presence is not just beneficial, it would be important as well. Aviation, Heavy machinery, Oil and natural gas, and 90% of the PSUs run on industries which require huge infra spending. What needed to be spent by the people is already spent. If there is monopoly in making blue jeans, no problem. Why would anybody care ? If there is monopoly in Internet, well, that is a totally different thing. Point in case, what the giants tried to do with "free internet". Quote:
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And no, as an institution Railways cannot take a decision to compromise safety. But a private business can, and Volkswagen in US would be exhibit A. Your thought that Railway would stop it when it doesnt break even ( note that it is not profit) is because you are expecting it to be run exactly like a business. No, at a stage where it wouldnt break even, IRCTC would have to borrow money to do it. Why ? Its people's interest in question and the government should be forced to act. It wouldnt make sense to business accounting. But that is not what railways is for. Quote:
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The second sentence is true, but that does not account to a reason for the first. Quote:
The renewed interest in renewable energy sources are anything but marketing economics at play. Quote:
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So now, at this stage, the businesses decide to increase price to improve their profits ( they always do that, they have always done that around the world ). Now, the Govt has to increase taxes to provide more amounts in UBI. Or it borrows on the basis of people. Lets just say, Rs 1000 is accounted in UBI to provide for Mobile payments. At one point when the private players ( imagine absence of BSNL) are settled enough, they can increase the prices so that Rs. 1500 is required. UBI has to be adjusted for this. How does the govt do it then ? Increase taxes from people ( no, businesses cant be taxed more, because they simply pass on the burden to consumers) or take loans. Ultimately the people end up financing the businesses profit. Can government put its foot down and clutch the business ? No. The leverage that the businesses have when they are the sole players is too large to be ignored by wishful thinking. This simply runs into a cycle where the people's money goes into profiting the businesses. When the motive of the business is to make more and more profits, they only have to focus on that. Nothing wrong with their perspective. I have explained above it is not just a balance sheet thing when it comes to subsidy.(PNG ~ Electricity). People's interest is more complicated than that, and democracies should decide that. Government supports PNG at this moment for example, because it has reasons. It is easy to look at the numbers on the whole thing and take a call with zero interest on people. Quote:
Railways in UK are a comparable example I guess. Recent polls have all shown that the people majorly favor re nationalization because of the various impacts. I am sure the railway companies have great balance sheets, but whether people's interest is taken care or not is very clear from the opinion poll results. Curbing excessive profit is a fallacy. Who decides the profit level when government is not in the business ? What one thinks as excessive profit is not so from another perspective. So, the only thing government can ever force is to take care of people's interest -- for example, safety norms. Businesses can stifle governments by denying service to people. In each case, it finally comes to a judgement call by government at the moment. | |||||||||||||
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![]() | #322 | |
BHPian Join Date: Sep 2010 Location: Bengaluru
Posts: 204
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| Re: Understanding Economics
I don't want to prolong the discussion by giving a point by point rebuttal. Your premise seems to be that if there is no government running a business in any sector, the private businesses will gang up and keep increasing prices. My contention is that private businesses are multiple entities and competition among the businesses will keep prices down. Airtel dropped prices, not because of BSNL but because of Reliance Jio. A full service airline like Vistara generally has lesser fares than Jet or Air India, because of competition. Anyway, you are entitled to your opinion. Quote:
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![]() | #323 | |
BHPian Join Date: Aug 2009 Location: Bangalore
Posts: 169
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| Re: Understanding Economics Quote:
Private entities are multiple entities alright, but history has examples where they join hands as a strategy for continued performance. These are examples on which the opinion should be framed by anybody rather than any style of economics. But I understand what you are saying (even if I dont agree). Let's not hog the thread in a direction. Completely agree on this. | |
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![]() | #324 |
BHPian ![]() Join Date: Nov 2015 Location: Saxony<>TVM
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| Re: Understanding Economics What is the definition of Giffen goods? Is the definition in Wikipedia correct ? Im an engineering student and this term came in the context of engineering economics and have conflicting explanation in various references. Google has added to the confusion. |
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Team-BHP Support ![]() ![]() | Re: Understanding Economics Giffen goods are hard to understand because there are extremely few examples of it. For one thing, those goods should not have alternatives. Take a family that consumes 50% rice and 50% meat. Let's also assume meat costs 4 times rice. Numerical example: Total consumption quantity = 1Kg rice + 1Kg meat (2Kg) Total food budget: ₹100 for rice + ₹400 for meat. (₹500) That means the family is spending 20% food budget on rice and 80% on meat. Now let's double the price of rice to ₹200 per KG of rice. To maintain eating 2Kg of food with the same budget, what must change? You got it, they must reduce the meat consumption and increase the rice consumption. 1.5Kg rice (₹300) + 0.5Kg meat (₹200) = ₹500 for 2Kg food. Now the family is spends 60% of food budget on rice and 40% on meat. That's the Giffen effect. Happens only with essential items without alternatives. Most of the time people switch from rice to wheat or millet as alternatives. So Giffen Goods are rarely encountered in reality. Last edited by Samurai : 19th February 2018 at 13:58. |
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![]() | #326 | |
Team-BHP Support ![]() ![]() | Re: Understanding Economics Quote:
1) Poor men and rich men drinking in the same bar, drinking same quality drink. Hmm, in which society does that happen? Usually the rich guy drinks something 10-50 times more expensive compared to the poor guy. Stays in homes that cost 10-100 more expensive. That is why rich guy pays more, and while enjoying 10-100 times more valuable benefits as the poor guy. Do you want Ambanis to pay the same amount of tax as you? Do you think you are enjoying same benefits as Ambanis? 2) Rich man will leave. Can he really leave? He is making his riches by the help of all the people around him. If Ambani leaves the country to escape the taxes, most of his business empire can't leave with him. His businesses are making huge profits off Indian citizens and Indian resources. So one shouldn't be under the assumption that the rich man can leave, when his income depends on being here. | |
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![]() | #327 | |
BHPian Join Date: Sep 2010 Location: Bengaluru
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| Re: Understanding Economics Quote:
Having said that, a fair tax system would be 1. Low, and non-progressive, direct tax rates 2. Differential indirect tax rates with "luxury" and "sin" goods having higher tax rates; and day-to-day consumption goods having low tax rates This would reward the honest, hard-workers to keep most of their earnings, and punish the big-spenders (as opposed to earners). | |
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![]() | #328 | |
Distinguished - BHPian ![]() | Re: Understanding Economics Quote:
Quite a few countries have some tax differentiation on day to day goods versus other goods. Such as food, children clothes etc. could come into varous lower tax brackets But again, it's in the eye of the beholder what should be in the lower bracket. Untill recently in the Netherlands, barbers and for instance books were all in the low 6% VAT bracket as opposed to the regular 21% on most goods. Jeroen | |
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![]() | #329 |
BHPian Join Date: Jun 2012 Location: Traveller
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| Re: Understanding Economics
Apologize for delay as saw this today. What is a 'Giffen Good' A Giffen good is a good for which demand increases as the price increases, and falls when the price decreases. A Giffen good has an upward-sloping demand curve, which is contrary to the fundamental law of demand which states that quantity demanded for a product falls as the price increases, resulting in a downward slope for the demand curve. A Giffen good is typically an inferior product that does not have easily available substitutes, as a result of which the income effect dominates the substitution effect. Giffen goods are quite rare, to the extent that there is some debate about their actual existence. The term is named after the economist Robert Giffen. https://www.investopedia.com/terms/g...#ixzz5EK5TG0Vx My example will be Gaur gum used in shale-gas drilling. https://qz.com/258292/how-americas-s...ng-taken-away/ |
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![]() | #330 | |
BHPian Join Date: Sep 2010 Location: Bengaluru
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| Re: Understanding Economics
That is true. I should have mentioned "in my opinion" in my post. Quote:
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