Saturday, August 15, 2015

People misunderstand mainstream libertarian position but socialism is actually quite a different beast

Tweets by @harsh___gupta
August 14, 2015
Whether you go by J Rawls or DD Upadhyaya, both talk of helping the weakest in society. Question is over what time-frame? Makes a big diff.
People misunderstand mainstream libertarian position. A strong and effective state is absolutely key. Just needs to be limited state as well.
The key is to first facilitate markets - through courts (quick justice), police/army (peace), infra like roads, public health, v. basic edu.
Once markets facilitated & country has politically decided to have welfare state that is OK - it must be Re-for-Re as efficient as possible.

Tweet by @sabhlok
August 13, 2015
Good riddance to bad rubbish. The end of the pretend ‘economic science’ called Nudge.

This is my further comment on Kanishka Sinha's FB post, that I referred to here.
In this I show Kanishka that the laws of economics are INVIOLABLE. They never change, no matter where you go or live. I will also, by the end of this post, more clearly distinguish socialism from capitalism.

There is no doubt that on most economic benchmarks Scandinavian countries (Denmark, Norway, Sweden) are highly successful. They are up there among the richest 20 nations in the world, their national debt is manageable (not like the Greek socialist state, for instance), and their people even claim to be happy. 

This doesn't mean that these are free societies in every respect. They have a strong egalitarian focus, implemented through redistribution. This welfare system has led to some rather extreme negative consequences, as outlined in Manipulism and the Weapon of Guilt: Collectivism Exposed by Mikkel Clair Nissen. I've provided key extracts from this book here.

I won't go into details of this, but it is clear that the welfare state is both unsustainable and harmful to human motivation and dignity. There is no doubt that these states will pull back on the excesses of their welfare state as people realise it is not going to work. There is no free lunch. The sooner these countries understand that, the better for them. While they may not go down the path of failed states like Greece, they will face increasing challenges in maintaining their standards of living if their most productive people start working less (or migrate to other, less taxing countries).

So what are we to make of this?
Well, to understand this, we need to go back to thetwo fundamental theorems of economics.
First you must recognise that free markets ALWAYS work best. That's what the first theorem states. The market ALWAYS creates the most efficient allocation and thereby maximiseswealth. Once that has been achieved, you can, if you so wish, transfer funds to meet your egalitarian objectives. You can redistribute "endowments" to create any pareto optimal outcome you wish, through the market. That's the second theorem.

All economics graduates are taught these basic theorems early in their graduate year. These theorems take tens of pages of non-trivial formal proofs. Kanishka, you perhaps learnt these theorems, as well, didn't you? (Or does ISB not teach theoretical economics?). 

But note clearly that reallocation as part of a welfare state is NOT socialism. It is redistributionwithin capitalism. Socialism involves denial of property rights, denial of the price system, denial of free trade. Clearly the Scandinavian countries are extreme-CAPITALIST societies on these indicators. These capitalist institutional features allow them to generate vast amounts of wealth; which they then redistribute.

The excesses of their welfare state have undoubtedly reduced their potential wealth by harming incentives at two levels: at the top, where high taxes reduce incentives to work; and at the bottom, where excessive welfare reduces incentives to work. The documentation of the adverse effects of welfare makes clear that the welfare system is NOT a good idea and should be curtailed.

However, it is fundamentally incorrect to talk of Scandinavian countries as being socialist. Yes, in casual talk, even I refer to excesses of welfare state as socialism, but socialism is actually quite a different beastp. To identify socialism, look at India, Kanishka. Look at PROPERTY RIGHTS. Look at PRICES. Look at LABOUR MARKETS. Look at TRADE. 

The Hour of God by Sri Aurobindo (free ebook)

Mainstream-Saturday 15 August 2015by Anand Kumar
Independence Day is the annual occasion of remembering the ideals and events of our freedom struggle. It gives the opportunity of assessing the successes and failures in realising the vision of Swaraj which evolved during the national movement since the days of Tilak, Sri Aurobindo, Gandhi, Nehru, Subhas and Ambedkar. From this point of view, 2015 has been an interesting year in the democratic journey of India around the goals of Swaraj. There were interesting developments about political alternatives as well as alternative politics.
It has definitely expanded beyond the frontiers of the AAP. It has also retained the reputation of being an initiative of idealists among the anti-corruption crusaders. The presentation of a new ‘agenda for India’ draft is not an ordinary break- through in these times of power politics.

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