Is allowing FDI in multi-brand Retail good for the
country? What is the true impact of raising diesel prices or restricting LPG
subsidy on the people? Should telecom spectrum and coal mines be auctioned to the highest
bidder, or should they be allocated cheaply so that the price paid by the
ultimate consumer (for telephone services and electricity) is kept low? Should rail
fares be raised? Should the Central Bank reduce interest rates to stimulate
industry and make loans cheaper? Should the government act against airlines who
fleece passengers by charging exorbitant fares during peak season? Should the
government explicitly promote export oriented industries that earn precious
foreign exchange? Should cheap imports from countries like China
How does one take a stand on all
these? How does one decide what is right and what is wrong? How does one assess
the impact of these decisions – beyond the immediate fallout that we can see
(such as, for example, that one would pay more for diesel if diesel prices are
raised)? Do these decisions have implications that are beyond the obvious? How
do we know what will work out best for us in the long run?
“Economics in One Lesson” by Henry Hazlitt is a remarkable book by any means. Written in such a simple
language that even a layman can understand, Hazlitt unravels the mysteries of
economic decisions and their long run effects on the health of the economy and welfare
in general. Hazlitt explains how markets work, how people behave, how
governments decide and what they do to the very people they seek to assist.
Hazlitt gives a framework that enables the reader to analyze the long run impact
of such decisions, including that which is not so obvious but nevertheless
very important.
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| Hazlitt's remarkable book should be compulsory reading for all |
The book is divided into twenty
five chapters, each dealing with a distinct topic such as taxation, effects of mechanization,
import tariffs, export promotion, government price fixing, inflation, and so
on. Hazlitt explains the basic principles underlying these actions and the
impact of these on the economic activity as a result. Hazlitt uncovers not only
that which is seen, but also that which
is not seen.
In Hazlitt’s own words, “The art of
economics consists in looking not merely at the immediate but at the longer
effects of any act or policy; it consists in tracing the consequences of that
policy not merely on one group but for all groups”
It is amazing how much ignorance
about economic issues is prevalent even among the policymakers today. Take
the following paragraph from the chapter on government price fixing, for
example. You might want to read it in the context of the current mess in India
Hazlitt writes, and I quote, “We cannot hold the price of any commodity
below its market level without in time bringing about two consequences. The
first is to increase the demand for that commodity. Because the commodity is
cheaper, people are both tempted to buy, and can afford to buy more of it. The
second is to reduce supply of that commodity. Because people buy more, the
accumulated supply is more quickly taken from the shelves of merchants. In
addition to this, production of that commodity is discouraged. Profit margins
are reduced or wiped out. Marginal producers are driven out of business….if we
did nothing else, therefore, the consequence of fixing a maximum price of a
particular commodity would be to bring about a shortage of that commodity. But
this is precisely opposite of what the government regulators originally wanted
to do…. Some of these consequences in time become apparent to the regulators,
who then adopt various other devices and controls in an attempt to avert them.
Among these devices are rationing, cost-control, subsidies and universal price
fixing.” Hazlitt then goes on to systematically demolish each of these.
As we all know, relying on the
promise of deregulation, billions of dollars were spent on all
stages of the oil & gas value chain in India, from exploration to refining to
pipelines to storage & distribution. But the country still doesn’t have enough
of what it needs. Most of the capacity in the private sector has been shut or is on the
verge of closure, the public sector survives on huge doles of support from tax
payer’s money. People don't have enough of what they want and the private
producers have all but fled, all because of faulty price fixing.
It is remarkable that such a
storehouse of knowledge can be crunched in such a small book and explained so
lucidly. This book should be compulsory reading
for all the lawmakers who decide our future, and for all of us who choose them.
