Free markets a Silver Bullet?

In a detailed comment, Anirudh asked:

Is free-market or government non interference as much of a silver bullet to a country’s problems as some people would have us believe? While advocating for free-markets do people sometimes have a tendency to overlook other factors like the country’s demography, its history, its geopolitical situation etc…

There are no silver bullets when it comes making things work in an economy. What we have is a choice between imperfect means. The search for the perfect solution is a fool’s errand. All we can do is to choose the best and realize that the best may not be very good. Continue reading “Free markets a Silver Bullet?”

Anti-discrimination Laws

gb asked:

1. What is your opinion on Anti-Discrimination Laws on hiring and firing in a free market?

I have two, and only two, rules with regards to discrimination: First is that every entity (individual and collective) should have the freedom to discriminate to its heart’s content without interference from third parties. The second is that the government must be strictly forbidden to discriminate against any person or group. Continue reading “Anti-discrimination Laws”

Question on MSP

Vijey asked:

1.Why is MSP (minimum support price) all the rage in India for farm products?
2.Is there no trust in the market mechanism leading to an organic price discovery?
3. Is our Market manipulated by Corporates leading to a distrust in this mechanism , since this seems to be the common discourse in the public domain?

There are various justifications that people provide for laws and regulations, including those related to agriculture. All laws and regulations have consequences that are seen, unseen, beneficial, harmful, intended, unintended, immediate and future. The world is a complicated place and it is hard to do only one thing — which I call the first law of ecology. When you do something, not just one thing happens; lots of other things happen — most of which are hard to anticipate. Continue reading “Question on MSP”

A Bit of Economics — Part 5

{Read part 4 here.}

In the previous bit, we briefly discussed prices. Prices are important because without prices we will be incapable of economic calculations. Prices guide us to choose the best among alternative courses of action. Imagine going to a store in which there are no prices — just stuff that we pick up and at the checkout they charge some random amount for it. We have to know prices before we buy.

Firms face the same problem.

We will use the word “firms” to mean small (mom and pop stores, little hole in the wall joints), medium (a car dealership, a garbage collection service) and large businesses (corporations like Toyota, Apple and Google.)

What do firms do? They buy or hire inputs — materials, labor, technology, capital — and produce various goods and services. That involves costs and they have to use prices to guide what to produce and how. Should they make it in-house or would it be cheaper to buy from some other supplier? Continue reading “A Bit of Economics — Part 5”

A Bit of Economics — Part 4

{Read part 3 here.}

People produce and consume stuff. Division of labor and specialization require that they consume what they haven’t produced and produce what they don’t intend to consume. The bridge between production and consumption is the opportunity to exchange or trade. Trades happen in markets.

People are constantly being guided in their production and consumption decisions by prices. Prices convey information to all market participants. The price of a good — be it cars or carrots — tells us something about the world. The amount we buy depends on the price, and our willingness and our ability to pay for it. Continue reading “A Bit of Economics — Part 4”

A Bit of Economics — Part 3

{Read part 2 here.}

In ordinary speech we do not distinguish between “demand” and “quantity demanded.” We just say something like, “The demand for apples has gone up” to mean that more apples are being bought by people. But in economics, there is a clear and important distinction. When we say “demand has increased” we mean the relationship between prices and quantities has changed, and that people are willing to buy more than before at various prices.

In economics, demand and supply simply designates the relationship between quantities and prices. We demand specific quantities, not abstract relationships. So when we say “the quantity demanded” we are talking not about some abstract function but quantity of stuff.

If someone were to say, “the quantity demanded has gone up”, we could conclude that the price has fallen because we know that quantity demanded increases when the price falls. But that’s only true in case the demand — the relationship between prices and quantities — has not changed. Continue reading “A Bit of Economics — Part 3”

A Bit of Economics — Part 2

{Read part 1 here.}

The basics of price theory (microeconomics) are simple. First the law of demand. We know without being instructed that when the price of something falls, we tend to buy more of that.

At the grocery store, I may buy donuts at $5 a dozen but may not buy if they were $6 a dozen. At some price, I would not buy donuts, if the price drops, I will buy more and more up to some point. That’s my individual demand for donuts. But other people may buy at $6 and some others may not buy even at $5.

If you aggregate all those individual buying decisions, you notice a pattern: the store sells more when the price is low than when it is high. That’s the aggregate demand function which emerges out of the sum of various individual demand functions. Continue reading “A Bit of Economics — Part 2”

A Bit of Economics — Part 1

This week we will discuss some basic economics. What is economics? It’s the discipline that investigates how we humans go about making a living. Principally the three activities we engage in while making a living are production, consumption and exchange.

We have to produce stuff because we want to consume stuff. Want satisfaction motivates us to produce. Since we all differ in many respects — natural abilities, preferences, training, opportunities, etc. — we select different occupations and produce a variety of goods and services. We specialize to some extent and divide up various tasks. Specialization is a cause and consequence of the division of labor.  Continue reading “A Bit of Economics — Part 1”

Life Expectancy, Happiness, Etc.

Abhilash asked a number of questions:

We are repeatedly talking about life expectancy. But as per my understanding, long back there were many people who lived hundreds of years, right? Not only that in today’s world even if life expectancy has increased, are we living a happy and satisfied life? Probably because the resources available here are not enough or because we are not satisfied with that, we have started looking at other planets. This is what our forefathers were also doing, right? That is the reason why we have reached this level of comfort. It is true that, with the advent of technology things started evolving fast. But the process of evolution is there from the very beginning. Like Meet mentioned, since they were not aware of the comforts that will come in the future, they might not have felt that their life is detrimental. What is your thought on this?

Here are my thoughts on the matter in the order the questions were presented. Continue reading “Life Expectancy, Happiness, Etc.”