Before proceeding to Rajan's opinions, let me illustrate what I mean by OPEN ARGUMENTATION with a gem from recent Indian History - when RC Dutt, one of the first Indians to make it to the Indian Civil Service (ICS), published an article critical of government policy in a Calcutta daily. The Viceroy Curzon responded to this critique with an article in the same newspaper, written in thunderous prose, and with such clear argument, that a historian has recorded, "Curzon blew Dutt's ship right out of the waters." The air of public opinion was thus cleared. Everyone knew that on the matter under debate, Curzon's government was doing the right thing. There was nothing left to debate after this.
There are many interviews with Raghuram Rajan in the papers today, saying many foolish things, but let me pick just two of these: first, that QE3 in the West will be "good for India"; and second, inflation in India has to do with incomes rising, and with the production and supply of goods, especially agricultural commodities.
Let me begin with QE3 - and how it can never be anything good, not just for India, but for the West as well. This is what Rajan's boss, prime minister Manmohan Singh said about QE2 a few months ago at the Rio+20 environmental meet, as I have quoted in a previous post:
Like other countries, we too allowed the fiscal deficit to expand after 2008 to impart a stimulus. We are now focussing on reversing the expansion.
Note: During the QE2 debates in 2008, my DISSENT was published in Mint under the title "What pumps up the economy" in which I discussed "classical" Say's Law of Markets, dating back to the 1820s, as a DISPROOF of this Keynesian EVIL that is actually nothing but INFLATIONISM, and which IMPOVERISHES the vast masses.
There are also a great many posts under the label Say's Law on the right-hand bar, including a series explaining various aspects to its innumerable implications.
Therefore, today, I will not go into Say's Law of Markets again. Instead, I will discuss the STOCK MARKET INDEX, which will surely rise with QE3, as it did with QE2 and QE1, and why these numbers in a fiat paper money scenario are illusory; mere delusions of prosperity.
I first refer my reader to a series of posts published some months ago in which I have already discussed the History of the "share bazaar" - how it all began as the promoters of a speculative venture sought "public subscriptions" that would entitle shareholders to a SHARE IN THE PROFITS should the venture succeed. I also discussed how this "sharing of profits" among all shareholders is really "distributive justice" - while socialist "redistributive justice" is nothing but "legal plunder" and FALSE PHILANTHROPY as well. Incidentally, Rajan is also in favour of "land acquisition" and a new Companies Act!
Of course, if lots of QE3 fiat paper dollars and euros come into Dalal Street the BSE Sensex will rise - but these do NOT mean any rise in PROFITS! These do not mean any rise in PRODUCTION based on SAVINGS and INVESTMENT.
Thus, when Rajan says inflation in India is happening because we are supposedly getting more prosperous, and because of supply constraints, then either he is woefully IGNORANT, or he is LYING.
In any case, his boss has plainly stated just a few months ago what QE2 was all about:
Like other countries, we too allowed the fiscal deficit to expand after 2008 to impart a stimulus. We are now focussing on reversing the expansion.
Obviously, WE are NOT "focussing on reversing the expansion."
WE are going to go on and on repeating the same error.
The classical economists talked about their discipline as one that explained to all men and women, rich and poor, as to where exactly their "rightly understood interests" reside - and one of these is SOUND, HONEST, HARD MONEY.
The rightly understood economic interests of even the richest "listed corporation" do NOT lie in inflationism because, as Say's Law explains so clearly, when the small players in The Market - who are the VAST MASSES - are impoverished, when these vast masses find their precious capital eroded, and when they find their ability to save, invest, and produce reduced, all these big corporations ultimately suffer, because they are all engaged in "mass production for mass consumption."
Only because Say's Law of Markets is MISTAUGHT worldwide today, none know the "true source of demand."
The endless rise of every stock market index in the world, or the endless escalation of real estate values, or salaries, for that matter, and NOT a "sign of economic health" at all - just as endless salary increases that have nothing to do with "productivity" or even "promotion" are not.
In fact, during any HYPERINFLATIONARY situation the prices of anything you STOCK in your shop, or in your house would rise even faster - and it would mean nothing but the "death of paper money."
We are headed that way.
We can contrast our current inflation, and hyperinflation, with DEFLATION, when prices fall, and see how the constantly falling prices of mass produced electronic consumer goods is GOOD for business because consumption rises. This is happening today despite INFLATIONISM, which must be adversely affecting many input costs, particularly that of labour.
Thus, in India today, while the share prices of ITC Ltd. are always rising, this mass producer of cigarettes is a protected duopolist in an inflation-ridden nation in which the vast masses consume BIDIS!
Ditto with United Breweries, which mass produces bottled beer in a protected and stifled market as inflationism rages - while the vast masses quaff the harsh grogs of desi sharaab.
The socialist Indian State is OVERLOADED with "economists" only because its very purpose is to sit atop the "commanding heights of the economy." The prime minster is an "eminent economist" with a PhD from Cambridge - and he has his Prime Minister's Economic Advisory Council (PMEAC). Sonia Gandhi has her own National Advisory Council (NAC). There is Raghuram Rajan now as Chief Economic Advisor - and there is an entire Indian Economic Service bureaucracy as well to "serve" this State in achieving its objectives.
But MASS POVERTY persists.
In a previous post titled "What is a REAL ECONOMIST" I contrasted the careers of Manmohan Singh and Ludwig "King" Mises. The latter NEVER worked for any government - and to him the Science of Economics is "a study of market phenomena."
None are actually studying The Market - and none know The Law of Markets which dates back to the 1830s.
Once again I must repeat that only ONE SOLUTION exists:
