By Russ Nelson, on May 26th, 2010
A bunch of people are tweeting and retweeting the question “I didn’t look today, did the free market clean up the oil yet?”
I have a couple of responses to that. First that there is no such thing as a free market. You’re not free to sell something unless someone else is willing to buy it. That points to the conclusion that there are only customer-regulated markets and government-regulated markets. And that poses the question: who’s the customer here, and if they’re not regulating
why not?
If customers can’t regulate the behavior of sellers, then it’s not even close to being that-thing-which-is-called-a-free-market. So that points to this: when governments regulate, they don’t regulate in a vacuum. Their regulation displaces customer regulation. If you look at the oil industry, you’ll find that it’s regulated up the wazoo and back down again.
Customers can’t regulate because they’re being prevented from doing so by government regulation.
Thus, to my friends who are asking this question, I suggest that since a free market isn’t present in the oil industry, it’s silly to expect that something which doesn’t exist is capable of taking action.
And my second response is to ask what would have hap;pened had this oil spill happened on private property. It’s certainly the case that the property owner would have a contract with BP, and the contract would specify remedies. One way or the other, the property owner is going to be compensated for the risk of oil risks.
Who is the property owner here? Why, it’s the federal government, which claims to own the seas off our coast. What does their contract with BP say? If it doesn’t hold BP’s feet to the fire for enough money to clean up the
oil, then why did the government allow the drilling?
So the question is not why the free market hasn’t cleaned it up yet, but instead why the government screwed up. Private companies fire incompetent executives, and if they don’t do that, they go out of business. Who’s going to lose their job over the irresponsible handling of the BP drilling? And if they don’t, will the government go out of business?
The answer is obviously “no” to the second, and probably “nobody” to the first. And that, my friends, is exactly why you want to limit the things you let your government do.
By Ajay Shah, on April 2nd, 2010
The `Right of Children to Free and Compulsory Education Act 2009′ (RTE Act) came into effect today, with much fanfare and an address by Prime Minister Manmohan Singh. In understanding the debates about this Act, a little background knowledge is required. Hence, in this self-contained 1500-word blog post, I start with a historical narrative, outline key features of the Act, describe its serious flaws, and suggest ways to address them.
Historical narrative
After independence, Article 45 under the newly framed Constitution stated that The state shall endeavor to provide, within a period of ten years from the commencement of this Constitution, for free and compulsory education for all children until they complete the age of fourteen years.
As is evident, even after 60 years, universal elementary education remains a distant dream. Despite high enrolment rates of approximately 95% as per the Annual Status of Education Report (ASER 2009), 52.8% of children studying in 5th grade lack the reading skills expected at 2nd grade. Free and compulsory elementary education was made a fundamental right under Article 21 of the Constitution in December 2002, by the 86th Amendment. In translating this into action, the `Right of Children to Free and Compulsory Education Bill’ was drafted in 2005. This was revised and became an Act in August 2009, but was not notified for roughly 7 months.
The reasons for delay in notification can be mostly attributed to unresolved financial negotiations between the National University of Education Planning and Administration, NUEPA, which has been responsible for estimating RTE funds and the Planning Commission and Ministry of Human Resource and Development (MHRD). From an estimate of an additional Rs.3.2 trillion to Rs.4.4 trillion for the implementation of RTE Draft Bill 2005 over 6 years (Central Advisory Board of Education, CABE) the figure finally set by NUEPA now stands at a much reduced Rs.1.7 trillion over the coming 5 years. For a frame of reference, Rs.1 trillion is 1.8% of one year’s GDP.
Most education experts agree that this amount will be insufficient. Since education falls under the concurrent list of the Constitution, financial negotiations were also undertaken between Central and State authorities to agree on sharing of expenses. This has been agreed at 35:65 between States and Centre, though state governments continue to argue that their share should be lower.
Overview of the Act
The RTE Act is a detailed and comprehensive piece of legislation which includes provisions related to schools, teachers, curriculum, evaluation, access and specific division of duties and responsibilities of different stakeholders. Key features of the Act include:
- Every child from 6 to 14 years of age has a right to free and compulsory education in a neighborhood school till completion of elementary education.
- Private schools must take in a quarter of their class strength from `weaker sections and disadvantaged groups’, sponsored by the government.
- All schools except private unaided schools are to be managed by School Management Committees with 75 per cent parents and guardians as members.
- All schools except government schools are required to be recognized by meeting specified norms and standards within 3 years to avoid closure.
On the basis of this Act, the government has framed subordinate legislation called model rules as guidelines to states for the implementation of the Act.
A critique
The RTE Act has been criticised by a diverse array of voices, including some of the best economists. MHRD was perhaps keen to achieve this legislation in the first 100 days of the second term of the UPA, and chose to ignore many important difficulties of the Act. The most important difficulties are:
- Inputs and Outcomes
- The Act is excessively input-focused rather than outcomes-oriented. Even though better school facilities, books, uniforms and better qualified teachers are important, their significance in the Act has been overestimated in the light of inefficient, corrupt and unaccountable institutions of education provision.
- School Recognition
- The Act unfairly penalises private unrecognised schools for their payment of market wages for teachers rather than elevated civil service wages. It also penalises private schools for lacking the infrastructural facilities defined under a Schedule under the Act. These schools, which are extremely cost efficient, operate mostly in rural areas or urban slums, and provide essential educational services to the poor. Independent studies by Geeta Kingdon, James Tooley and ASER 2009 suggest that these schools provide similar if not better teaching services when compared to government schools, while spending a much smaller amount. However, the Act requires government action to shut down these schools over the coming three years. A better alternative would have been to find mechanisms through which public resources could have been infused into these schools. The exemption from these same recognition requirements for government schools is the case of double standards — with the public sector being exempted from the same `requirements’.
- School Management Committees (SMCs)
- By the Act, SMCs are to comprise of mostly parents, and are to be responsible for planning and managing the operations of government and aided schools. SMCs will help increase the accountability of government schools, but SMCs for government schools need to be given greater powers over evaluation of teacher competencies and students learning assessment. Members of SMCs are required to volunteer their time and effort. This is an onerous burden for hte poor. Payment of some compensation to members of SMCs could help increase the time and focus upon these. Turning to private but `aided’ schools, the new role of SMCs for private `aided’ schools will lead to a breakdown of the existing management structures.
- Teachers
- Teachers are the cornerstone of good quality education and need to be paid market-driven compensation. But the government has gone too far by requiring high teacher salaries averaging close to Rs.20,000 per month. These wages are clearly out of line, when compared with the market wage of a teacher, for most schools in most locations in the country. A better mechanism would have involved schools being allowed to design their own teacher salary packages and having autonomy to manage teachers. A major problem in India is the lack of incentive faced by teachers either in terms of carrot or stick. In the RTE Act, proper disciplinary channels for teachers have not been defined. Such disciplinary action is a must given that an average of 25 percent teachers are absent from schools at any given point and almost half of those who are present are not engaged in teaching activity. School Management Committees need to be given this power to allow speedy disciplinary action at the local level. Performance based pay scales need to be considered as a way to improve teaching.
- 25% reservation in private schools
- The Act and the Rules require all private schools (whether aided or not) to reserve at least 25% of their seats for economically weaker and socially disadvantaged sections in the entry level class. These students will not pay tuition fees. Private schools will receive reimbursements from the government calculated on the basis of per-child expenditure in government schools. Greater clarity for successful implementation is needed on:
- How will `weaker and disadvantaged sections’ be defined and verified?
- How will the government select these students for entry level class?
- Would the admission lottery be conducted by neighbourhood or by entire village/town/city? How would the supply-demand gaps in each neighbourhood be addressed?
- What will be the mechanism for reimbursement to private schools?
- How will the government monitor the whole process? What type of external vigilance/social audit would be allowed/encouraged on the process?
- What would happen if some of these students need to change school in higher classes?
Moreover, the method for calculation of per-child reimbursement expenditure (which is to exclude capital cost estimates) will yield an inadequate resource flow to private schools. It will be tantamount to a tax on private schools. Private schools will endup charging more to the 75% of students – who are paying tuitions – to make space for the 25% of students they are forced to take. This will drive up tuition fees for private schools (while government schools continue to be taxpayer funded and essentially free).
Reimbursement calculations should include capital as well recurring costs incurred by the government.
By dictating the terms of payment, the government has reserved the right to fix its own price, which makes private unaided schools resent this imposition of a flat price. A graded system for reimbursement would work better, where schools are grouped — based on infrastructure, academic outcomes and other quality indicators — into different categories, which would then determine their reimbursement.
What is to be done?
The RTE Act has been passed; the Model Rules have been released; financial closure appears in hand. Does this mean the policy process is now impervious to change? Even today, much can be achieved through a sustained engagement with this problem.
- Drafting of State Rules
- Even though state rules are likely to be on the same lines as the model rules, these rules are still to be drafted by state level authorities keeping in mind contextual requirements. Advocacy on the flaws of the Central arrangements, and partnerships with state education departments, could yield improvements in atleast some States. Examples of critical changes which state governments should consider are: giving SMCs greater disciplinary power over teachers and responsibility of students’ learning assessment, greater autonomy for schools to decide teacher salaries and increased clarity in the implementation strategy for 25% reservations. If even a few States are able to break away from the flaws of the Central arrangements, this would yield demonstration effects of the benefits from better policies.
- Assisting private unrecognized schools
- Since unrecognized schools could face closure in view of prescribed recognition standards within three years, we could find ways to support such schools to improve their facilities by resource support and providing linkages with financial institutions. Moreover, by instituting proper rating mechanisms wherein schools can be rated on the basis of infrastructure, learning achievements and other quality indicators, constructive competition can ensue.
- Ensure proper implementation
- Despite the flaws in the RTE Act, it is equally important for us to simultaneously ensure its proper implementation. Besides bringing about design changes, we as responsible civil society members need to make the government accountable through social audits, filing right to information applications and demanding our children’s right to quality elementary education. Moreover, it is likely that once the Act is notified, a number of different groups affected by this Act will challenge it in court. It is, therefore, critically important for us to follow such cases and where feasible provide support which addresses their concerns without jeopardizing the implementation of the Act.
- Awareness
- Most well-meaning legislations fail to make significant changes without proper awareness and grassroot pressure. Schools need to be made aware of provisions of the 25% reservations, the role of SMCs and the requirements under the Schedule. This can be undertaken through mass awareness programs as well as ensuring proper understanding by stakeholders responsible for its implementation.
- Ecosystem creation for greater private involvement
- Finally, along with ensuring implementation of the RTE Act which stipulates focused reforms in government schools and regulation for private schools, we need to broaden our vision so as to create an ecosystem conducive to spontaneous private involvement. The current licensing and regulatory restrictions in the education sector discourage well-intentioned `edupreneurs’ from opening more schools. Starting a school in Delhi, for instance, is a mind-numbing, expensive and time-consuming task which requires clearances from four different departments totaling more than 30 licenses. The need for deregulation is obvious.
Please support our efforts towards ensuring Right to Education of Choice through some of the activities suggested above. Join our RTE Coalition.
By Trace Mayer, on February 4th, 2010
H.R. 627 The Credit Card Act of 2009 is a sweeping reform of credit card law. Many consumers are concerned over how this act will affect their spending capacity throughout the new year. The act is called into effect in February, meaning consumers will have very little time to determine how to use the act to their advantage.
While there are advantages to the consumer in 2010, the act may also adversely affect the economy, according to some analysts. However, conclusions are anything but cut and dried. For those that need a little more information, here are some details about the way the first serious credit card reform in history may affect you—and the economy at large—in 2010 and beyond.
WHAT IS H.R. 627 – THE CREDIT CARD ACT OF 2009
H.R. 3639 The Expedited Credit Card Accountability, Responsibility, and Disclosure Act of 2009, also known as H.R. 627 The Credit CARD Act of 2009, will dramatically affect regulations on credit cards beginning in 2010. The act aims to improve transparency between credit card companies and the American public, many of whom hold credit cards, under what the government calls an “open-end consumer credit plan.”
The act requires first and foremost for credit card companies to give consumers a month and a half (45 days) of notice if any increases in interest rates are going to be enacted. It also gives card owners the right to cancel their credit cards and pay any outstanding balances once these hikes are enacted.
Credit card companies are prohibited from retroactively increasing their interest rates for cardholders in good standing with the company, and the act does not allow credit card companies to arbitrarily change their agreement with cardholders. Finally, the act prevents companies from imposing unfair or excessive fees on cardholders, which will likely effect those with subprime and secured credit cards.
In summary, the bipartisan measure is meant to protect cardholders from unfair or unclear actions on the part of credit card companies and the big banks like Bank of America (BAC), JP Morgan Chase (JPM), Citigroup (C), Wells Fargo (WFC), and etc. along with their nefarious cohort Visa (V).
POSITIVE EFFECTS OF H.R. 627
It is no secret that some credit card companies and big banks have been acting unfairly for years, like Monex, and that the fees they collect from the general public are not clear and reasonable. Unfair fees and interest adjustments have been banned, meaning that consumers will be given information on how credit card companies are changing their terms at least 45 days in advance.
“Overdraft” coverage will also be opt-in instead of opt-out, which means that over limit charges may not be incurred automatically due to consumer unawareness, and that the card may be denied if you are over the limit and this may have a positive effect with credit cards and identification with potential credit report issues.
The terminology of credit card companies must be made clear in advance, with promotions being disclosed in plain and simple language, and terms that do not change during the first year of a contract. Terms of credit cards marketed to youths and college students must be plainly stated by both the company and the university. Finally, fees may not be placed on store credit cards and gift cards which have not been used for a period of time.
NEGATIVE EFFECTS OF H.R. 627
Unfortunately, as with any piece of legislation the CARD act is not without its drawbacks. The reason that companies are able to keep interest rates so low is that they are not accountable to a governing body for the terms of the contracts and promotions that they use to entice customers. Under the credit card act, it is likely that interest rates will rise substantially. This will make new credit cards unobtainable for many individuals with poor or no credit.
No-fee credit cards will likely disappear as a result, and credit score checks, especially on the best credit cards, will probably become stricter, limiting the number of individuals who can apply for new cards. Although many Americans expect a freeze on interest rates until the act takes effect, most credit card companies will continue to raise rates until they are prohibited by law.
The result may be a slowing economy—many individuals expect to buy and borrow on credit; if they cannot, they will not buy at all. Without consumer purchases stimulating economy, the slump could last longer and consumers could end up frustrated with the lack of options. Less spending means less stimulus, and less spending may be the result of the act. This is a good example of credit contraction.
IMPACT ON BANK EARNINGS
Andrew Martin of The New York Times recently wrote an extremely high quality article about the ginormous fees Visa (V) charges and nefarious practices in the credit card industry between Visa, Mastercard and the banks. He wrote:
Competition, of course, usually forces prices lower. But for payment networks like Visa and MasterCard, competition in the card business is more about winning over banks that actually issue the cards than consumers who use them. Visa and MasterCard set the fees that merchants must pay the cardholder’s bank. And higher fees mean higher profits for banks, even if it means that merchants shift the cost to consumers.
Seizing on this odd twist, Visa enticed banks to embrace signature debit — the higher-priced method of handling debit cards — and turned over the fees to banks as an incentive to issue more Visa cards. At least initially, MasterCard and other rivals promoted PIN debit instead.
As debit cards became the preferred plastic in American wallets, Visa has turned its attention to PIN debit too and increased its market share even more. And it has succeeded — not by lowering the fees that merchants pay, but often by pushing them up, making its bank customers happier.
In an effort to catch up, MasterCard and other rivals eventually raised fees on debit cards too, sometimes higher than Visa, to try to woo bank customers back.
“What we witnessed was truly a perverse form of competition,” said Ronald Congemi, the former chief executive of Star Systems, one of the regional PIN-based networks that has struggled to compete with Visa. “They competed on the basis of raising prices. What other industry do you know that gets away with that?”
Visa has managed to dominate the debit landscape despite more than a decade of litigation and antitrust investigations into high fees and anticompetitive behavior, including a settlement in 2003 in which Visa paid $2 billion that some predicted would inject more competition into the debit industry.
The Visa, Mastercard and the big banks like Bank of America, Citigroup, etc. are profiting tremendously while charging outrageous fees to merchants and consumers. The populist call is to “Starve the vampire squids!” and that is precisely what this legislation is intended to do. But legislation has an interesting way of working unintended consequences.
This act will likely contribute to a decline in fees and profits for the large banks like Bank of America, Citigroup, Wells Fargo, etc. while also increasing their exposure to credit risk with debtors that are carrying balances and interest rate risk by not being able to maneuver as efficiently in response to interest rate increases by the Federal Reserve. According to Bloomberg Wells Fargo already raised rates while sacrificing about $1B on a bet that interest rates will rise.
CONCLUSION
The banking industry and credit card companies are facing a public relations nightmare; after all, they get to privatize the gains with massive bonuses while socializing the losses through multi-billion dollar bailouts. Matt Taibbi described it best:
The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.
H.R. 627 and H.R. 3639 are intended to be the Nanny State coddling the American public and protecting them from the evil big banks. But this type of legislation will most likely have unintended consequences such as raising the cost of credit, decreasing its availability and preventing the savers, not that there are any real savers and producers in the economy anymore as they have all left for Galt’s Gulch, from being able to efficiently allocate their capital to the entrepreneur.
While I am no fan of the big banks and their vampire squid blood funnel there is an easier way to blunt their beak and starve them while at the same time providing a sound foundation for the American economy: buy gold, silver or platinum, use them as currency and pass H.R. 4248 The Free Competition In Currency Act of 2009 which would repeal the capital gains on the precious metals that is the major deterrent to their circulating as currency in ordinary daily transactions.
DISCLOSURES: Long physical gold and silver with no interest in BAC, JPM, WFC, C, V or the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.
By D H Smith, on January 19th, 2010
Ann Elk: Where? Oh, what is my theory? This is it. My theory that belongs to me is as follows. This is how it goes. The next thing I’m going to say is my theory. Ready?
TV Interviewer: Yes.
Ann Elk: … This theory goes as follows and begins now. All brontosauruses are thin at one end; much, much thicker in the middle; and then thin again at the far end.
(From Monty Python’s Flying Circus)
I too have a theory, which is to say it is a theory and it is mine. I hope it’s a bit less silly than Ann Elk’s theory, but in any case let’s try it on. The next thing I’m going to say is actually not my theory, but another theory, which is someone else’s and got me to thinking about my theory.
This other theory is something called Dutch Disease, which is an economic diagnosis of the Netherlands’s loss of competitiveness in goods producing industries following a 1959 discovery of natural gas off its North Sea coast. In the simplest terms, this led to inflows of investment, which pumped up the exchange rate and altered terms of trade in such a way that exports became uncompetitive. In this perverse fashion, Dutch Disease describes how a lucky strike in natural resources creates not employment and growth but unemployment and stagnation.
America, my theory proposes, has a version of that, only the resource is money. I want to name the problem “American Disease,” but I read in an article by Bryan Caplan that that’s the name of a syndrome of Americans living beyond their means. Actually the problem I pose is closely related, just as H1N1 influenza is closely related to other strains of the flu. Perhaps I can say “American Disease, 2010” to differentiate it from old established strains, or should I call it “California Disease” to reflect the fact that the disease has advanced furthest in the Golden State?
America is a country with real natural resources, of course, but the high costs of extraction and environmental compliance and restrictions on land use places them increasingly out of reach. In the days when the country did produce resources and processed them into manufactured goods which foreigners bought, the U.S. generated a vast amount of wealth, much of which was invested in buildings and infrastructure. These remain visible in the present day, residual wealth as monuments to our peak of economic power.
(Exactly the same is true of Argentina, by the way, which was the wealthiest country in the world 100 years ago and still has the buildings and boulevards to prove it, even though Mr. Juan Peron and the generals set the country on an unusual course from first world to third world status.)
Now, even after the financial crisis, America’s most important industry is finance, broadly defined. The financial industry differs from the auto industry and the chemicals industry in one interesting respect. The auto industry inputs steel, glass, and plastic and outputs autos; the chemicals industry inputs primary and intermediate materials and outputs finished chemical products – in other words, they work on raw and intermediate goods and change them into something else. Most industries do this. But the finance industry has money both as input and output – it changes money’s form but not its nature in its processes. Money is both the input and the output, the resource base and the finished product.
The American finance industry is competitive, one of the nation’s success stories in terms of services exports. Our political class, which increasingly impedes us from taking coal out of our mountains, irrigating our farmlands, and manufacturing products with processes that are not squeaky clean, has long promoted clean, non-polluting financial services, and it has prospered as the industry prospered.
However, I believe that too much money in an economy based on financial services has given us a condition akin to Dutch Disease. It could probably be shown that the maintenance of the U.S. as a financial center has made the American dollar stronger than it would otherwise have been, reducing our competitiveness in global markets for tradeable goods and services. Moreover, the high level of compensation in the financial industry and supporting services has probably driven up wages and benefits right across the U.S. labor economy, another blow to the competitiveness of any entrepreneur bold enough to defy the odds and manufacture a product for sale in America.
While the American political class stands in the way of development of our (real) natural resources and domestic manufacturing, it does see the residual financial wealth of the nation as a resource that it can cut and drill and strip mine – endlessly, in fact, as it recognizes no restraint on the size of resource, but treats it as effectively infinite. The people entrusted to run the country give no thought to the necessary diminution of the resource as taxes, penalties, and compliance costs leave less and less to reinvest, even as the potential returns on investment are inevitably being reduced. They use static models that fail to capture the fact that producers will not produce – or innovate, or hire – out of sheer altruism and public spirit while the returns on their capital and labor are collapsing.
The impoverishment of the United States by the Argentine model is thus well under way.
Oh, and why do I say California has the most advanced case of the “American Disease, 2010?” Well, just look at the Golden State. There is oil offshore, but its development is not permitted. Manufacturing is being driven out. And the Central Valley is experiencing 40% unemployment in agriculture in order to protect mudfish habitat; but California’s fiscal position continues to deteriorate as its political class absolutely will not live within its means, as dictated by the state’s reduced economic circumstances.
As California is the United States only more so, California’s political class is America’s in microcosm, with all its pathologies subjected to magnification.
The mindlessness with which the American money resource is to be run down puts me in mind of a passage from Atlas Shrugged:
As they proclaim their right to consume the unearned, and blank out the question of who’s to produce it—so they proclaim that there is no law of identity, that nothing exists but change, and blank out the fact that change presupposes the concepts of what changes, from what and to what, that, without the law of identity no such concept as ‘change’ is possible. As they rob an industrialist while denying his value, so they seek to seize power over all of existence while denying that existence exists.
By Ajay Shah, on December 24th, 2009
Shifting away from central planning
Traditionally, Indian socialism has involved government control of all aspects of financial products or processes. As an example, government specified the time of day at which trading starts and the time of day where it stops. The RBI committee process on currency futures and interest rate futures specified that trading must start at 9 AM and stop at 5 PM.
In most areas of the Indian economy, goverment no longer controls the economy in such fashion. The government does not specify what time a shop opens or closes. There was a time when the Indian government did not permit the use of aluminium for making cans of soft drinks. A large fraction of such meddling in the economy has been dismantled (though not in finance).
A few weeks ago, SEBI came out with a liberalised policy: Exchanges could open anytime afer 9 AM and stop trading anytime before 5 PM. If NSE or BSE opt for longer hours, securities firms will face the decision about the time at which the shop opens for business and the time at which it closes. Staying open longer will involve somewhat higher costs and in return will yield somewhat higher revenues. Each shop will make its own decision about choosing a starting and a closing time.
What do we gain?
If Indian markets to be open from 9 AM to 9 PM, there are two benefits. First, consumers should have maximal choice on when they can achieve their trading needs. Recall that internationally, many grocery stores choose to stay open for 24 hours a day.
Second, in the late evening in India, the ADR market opens in the US, and it is important to link up the closing Indian prices to the opening US prices.
How will exchanges and their members cope?
If securities firms have to stay open for 12 hours a day, this will require process modification, including multiple shifts for certain employees.
These changes might seem burdensome. But similar changes have taken place before. With floor trading at the BSE, trading only lasted for two hours a day; but when NSE came along, trading moved up to 5.5 hours a day. Members doing commodity trading are already running to almost midnight.
Securities firms and exchanges will need to change their process design to achieve longer hours. If a securities firm has to trade from 9 to 9, this will require two shifts. The first shift will probably come to work at 8 AM, and stay till 3 PM, while a second shift will probably come to work at 3 PM and stay till 10 PM. Some firms will find that this does not make sense for them and they will choose to only keep their shop open for shorter hours.
The operation of securities markets in India is held back by infirmities of the payment system. A shift to longer trading hours will encounter frictions owing to problems with payments.
At first, clumsy solutions will be found because of problems of the payments system. But at the same time, when the industry demands more from the payments system, we set ourselves on the course for deeper surgery of the payments system. In this 21st century, we can and should have a payments system which processes 100,000 messages per second and runs for 24 hours a day. When the industry complains enough about the infirmities of what is in place, the existing payments system will be questioned, which could ultimately lead to improvements in the payments infrastructure.
A messy situation?
NSE and BSE have gone through a series of announcements. First, BSE said they would start at 9:45. Then NSE said they would start at 9 AM. Then both said they would think about this after the holidays.
These activities seem messy and confusing in the public eye. These tactical details are an inherent part of the market economy. When government control is withdrawn, and a license-permit raj is scaled down, we go from a tranquil and stable environment — the silence of a graveyard — to a dynamic environment where firms are thinking and reacting. This should be welcome.
Doing more on moving away from central planning
SEBI needs to move forward on many fronts in terms of getting away from government control of product features. There is no reason to restrict exchanges to the zone from 9 to 5. Similarly, many other product features on the derivatives market need to be decontrolled: what underlyings to use, whether cash settlement or physical settlement, the expiry dates, the contract sizes, etc. Government control of these product features is as legitimate as government control over the design of a bicycle.
There is a difference between regulation and control. The role of government is to specify pollution standards for cars and to require seat belts or airbags. It is not to design cars.
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By Ajay Shah, on November 25th, 2009
MOF has setup a working group on foreign investment:
To review the existing policy on foreign inflows, other than Foreign Direct Investment (FDI), such as foreign portfolio investments by Foreign institutional investors (FIIs)/ Non Resident Indians (NRIs) and other foreign investments like Foreign Venture Capital Investor (FVCI) and Private equity entities and suggesting rationalisation of the same with a view to encourage foreign investment and reducing policy hurdles in this regard while maintaining the Know Your Customer (KYC) requirements.
To identify challenges in meeting the financing needs of the lndian economy through the foreign investment. Foreign investment for this purpose to be understood broadly and can include investment in listed and unlisted equity, derivatives and debt including the markets for government bonds, corporate bonds and external commercial borrowings.
To study the arrangements relating to the use of Participatory Notes and suggest any change in the policy if required from KYC and other point of view.
To reexamine the rationale of taxation of transactions through the STT and stamp duty.
To review the legal and regulatory framework of foreign investment in order to identify specific bottlenecks impeding the servicing of these financing needs.
To suggest specific short, medium and long term legal, regulatory and other policy change; in respect to foreign investment keeping in view of the suggestions expert committee reports such as the Committee on Fuller Capital Account Convertibility, the Committee on Financial Sector Reforms and the High Powered Expert Committee on Making Mumbai an lnternational Financial Centre.
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By Thersites, on August 25th, 2009
“Government is the great fiction through which everybody endeavors to live at the expense of everybody else.” – Frederic Bastiat
Pundits, pontificators and plebeians all have polarized around the issue of national healthcare. Many have spoken wisely on the pros and cons of the proposed system, a heartening fact given the relative deafening silence when it came to the other government boondoggles of the last few years (really the last hundred to be exact). At the heart of the matter is a debate fundamental to our liberty that the public has failed to have. This regards the broader ramifications of a government-granted right to health.
Aristotle said that man seeks pleasure while avoiding pain. Healthcare is a means to prevent physical pain, and thus I would argue secure pleasure. However, a need for healthcare is dictated by one’s physical condition. One’s physical condition is attributable to a variety of factors. First, there is the question of diet. Then, there are one’s living conditions, namely shelter and clothing. Surely there is a psychosomatic factor as well. Finally of course, there is the question of one’s physical activity level.
If we are to allow healthcare to fall under the purview of government, then certainly it must follow that all things that contribute to one’s health must also be regulated by the government.
Thus, necessarily each and every citizen will have a responsibility to provide ample food, sufficient shelter and clean clothing for each and every other citizen. Likewise, it should follow that the types of food be regulated to ensure an optimal diet, and the shelter and clothing be comfortable enough and of high enough quality to meet government standards. Since one needs a stable living environment, should not the government also have a say as to how children are raised within their homes? Naturally one’s mental health might also be tied to access to diversions, so should not all entertainment such as the arts, film and sports also be government-controlled and taxpayer-subsidized? Should not exercise be mandated, with government-run physical fitness centers for all? What scares me most is that in writing this list, government already controls many of these things in one way or another.
Naturally, a government-run system of healthcare will lead to arbitrary, whimsical intrusions into our daily lives. Who is to set the bounds as to what constitutes proper controls to make the system “competitive” and “affordable,” when the Ezekiel Emanuel’s of the world will influence the system?
Much like the Necessary and Proper Clause, nationalized healthcare will serve as a Trojan horse; it will lead to the greatest infringement on our natural rights of all, infringement on our lives. You’d think the state would already be satisfied having devoured our liberty and property (pursuit of happiness if you prefer), but always hungry for more power, under this system it will get personal.
Perhaps scarier than the details of this system, devilish as they may be is the principle that from the first day we spend on this Earth, given a right to health for all, our responsibility will be to provide for our fellow man, valuing the community above ourselves. If one were to choose to dedicate one’s life to supporting others, of one’s own volition, than this would be fine. The merits of sacrifice for others are numerous and in many cases commendable. However, under a national healthcare system, because of a handful of politicians, we will be forced from day one to work to support everyone else, because the state says so. In the end, we will all be enslaved to each other. Our common lot will be one of misery.
Call me selfish. Call me greedy. Call me immoral. I value my life above yours, insofar as the Leviathan is forcing me to subsidize your eating habits, drinking habits, smoking habits mental health and genetic predisposition. I do not want to be forced to pay for your healthcare by government decree, nor should I. The Founders guarantees my right to life, liberty and the pursuit of happiness. To presuppose that the collectives’ right supersedes my own destroys these very rights. It ensures pain for all and pleasure for none.
I leave you with some prescient words from Grover Cleveland – the last respectable Democrat – regarding his reasoning for rejection of an act to appropriate federal funds for drought-stricken Texas farmers. He declared:
The friendliness and charity of our countrymen can always be relied upon to relieve their fellow-citizens in misfortune. This has been repeatedly and quite lately demonstrated. Federal aid in such cases encourages the expectation of paternal care on the part of the Government and weakens the sturdiness of our national character, while it prevents the indulgence among our people of the kindly sentiment and conduct which strengthens the bonds of a common brotherhood.
By Ajay Shah, on August 17th, 2009
Somasekhar Sundaresan has written in Business Standard on the proposed Financial Services Appellate Tribunal (FSAT). Deepshikha Sikarwar has written in Economic Times on the proposed movement towards Regulatory Impact Assessment (RIA). These ideas come from the Mistry and Rajan reports.
These words — financial services appellate tribunal; regulatory impact assessment — sound like true bureaucratese, and these kinds of issues tend to get ignored by both practitioners and economists. However, this is where the rubber hits the road, this is where economic reform actually gets done.
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