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June 2005

Tax the NRIs

(Via Secular-Right India and India Uncut),  this article by Financial Express revives the idea of taxing the emigrants from the developing countries:

According to the report, ‘India and the Knowledge Economy: Leveraging Strengths and Opportunities’, released on Tuesday, the World Bank says by imposing an exit tax on IIT graduates and other professionals, who leave the country after receiving subsidised education, the government can collect over $1 billion (about Rs 4,400 crore) per annum. This figure is from students going to the US alone. Take into account professionals leaving for the Gulf and other countries, and the total could well exceed the collection from the education cess, which was around Rs 5,000 crore.

I would rather levy a income-tax (however of very low rate) the NRIs (Non-resident Indians) who did their professional education through any publicly funded institution. Here is Jagadish Bhagwati supporting this idea.

However, the diaspora approach is incomplete unless the benefits are balanced by some obligations, such as the taxation of citizens living abroad. The United States already employs this practice. This author first recommended this approach for developing countries during the 1960s, and the proposal has been revived today. Estimates made by the scholars Mihir Desai, Devesh Kapur, and John McHale demonstrate that even a slight tax on Indian nationals abroad would substantially raise Indian government revenues. The revenue potential is vast because the aggregate income of Indian-born residents in the United States is 10 percent of India's national income, even though such residents account for just 0.1 percent of the American population.

Revenue thus generated can be used to continue funding the institutions and also can be used to give bonuses to the staff.

Be Corrupt or Perish

Many people have highlighted the stifling regulations in India. Jayant Bhandari points out that inefficient and arbitrary enforcement of regulations really makes it terrible:

Economists would argue that government rules and minimum wage laws are the biggest cause of unemployment and poverty; and that government control takes away the individual initiative to enter into voluntary contracts, restricting the growth of a sophisticated and efficient web of contacts that provides sustainable growth, and stability.

But such a lack of economic efficiency would result in places where the laws were effectively enforced. In India, as in a lot of developing countries, this has a marginal importance: in real practice there are no minimum salaries and no control by the government on the working conditions as my acquaintance now experiences.


In such an environment the distortions take place in a different way, and are much worse. What rules the roost is corruption and bureaucracy. It drives the decent and conscientious to the fringes of economic activity (and the best leave the country). For those who go into business, it becomes the biggest cost of operation, and a huge drag on growth. People get a corrupt mindset, and those who do not want to participate in corrupt behavior get sidelined economically.

I think many regulations in India and elsewhere are designed for corruption. The rules are designed so that they are almost impossible to follow. For bureaucrats and the "law" enforcement authorities it a license to steal. There is not even a pretense of morality in those rules and therefore people and officers do not even think twice before offering and demanding bribes.
But what really surprises and confuses me is that ordinary people grumble about having to pay the bribe but do not want to do anything to remove the unjust rules and regulations. There is an amazing lack of debate about these rules. When people do debate, they point out without a hint of irony that if police and other officers were not so corrupt then the rules would have worked. It is as if the God should have manufactured police and other officers using some special anti-corruption material. Why don't we realize that Govt. servants (or masters) come from the same pool as rest of us? How can they be more honest (statistically speaking) than the general public?
In fact, with so much noise about India being the world's largest democracy, not even in one election, national or local, were the rules an issue! It is absolutely stunning that people bring corruption, misery and poverty onto themselves for 50 years and still not realize the reasons for their lot!

Open Media 100

AO/Technorati introduce the first annual "Open Media 100", a who's who of Blogosphere.

Eminent domain abuse

Yahoo! News reports:

WASHINGTON - A divided Supreme Court ruled Thursday that local governments may seize people's homes and businesses against their will for private development in a decision anxiously awaited in communities where economic growth often is at war with individual property rights.

Link: Hit and Run.

You do wonder: Now that the "liberal" justices on the court have sided with the drug warriors against cancer patients, and with a plan to rob people of their homes for the benefit of wealthy developers, will some court-watchers on the left begin to question the wisdom of having let economic freedom become the red-headed stepchild of modern jurisprudence?

This is a good point and it goes both ways. Powers like Eminent domain and control over Inter-state commerce are double edged swords. The Left should be wary of giving the government and court powers in the name of social welfare and economic regulations as they can used for restricting personal freedom and civil liberties. The Right should also be wary of giving the government power with intention of controlling personal freedom and nationalistic sentiments (such as for preventing flag buring, mandator prayers and so on) as those same powers can be used for restricting and regulating the commerce and reducing the economic freedom.

As there are more or less equal number of left leaning and right leaning people there is a very little chance of libertarians getting political power through elections. Libertarians should thus focus on properly highlighting the fear of government and court power getting hijacked and unintended consequences resulting from that.

Fact that both Republicans and Democrats are currently fighting strongly over the confirmation of judicial nominees gives an interesting possibility. Taking advantage of such close fights libertarian judges should present themselves as a compromise candidates as they are not likely to abuse the power to harm personal freedom and economic freedom. If that works, we might have a liberal order (in the original European sense) without electing a single libertarian congress member.

I noticed that some of the liberal bloggers (such as dailyKos) are supporting the decision:

The city of New London had used its eminent domain power to condemn a large privately-owned piece of land (emphasis mine), giving it to a private development corporation for the purposes of economic development.
It would have sacrificed needed community power at the hands of the sort of property-rights extremism frequently displayed by right-wing libertarian types.

(This first comment at the above post neatly sums it up):

Visit your store where your neighbor used to be.

This is truly amazing! Notice the special mention that the property in question is "a large privately-owned piece of land". What if the case was about a small piece of land owned by a poor person?  Remember, this same people will even oppose WalMart opening up their big box store in any community without the local goverment support because it will destroy mom-and-pop stores and make the neighborhood ugly. Now all that WalMart needs to do is to have some local politicians who will argue "public use" and not only will they be allowed to build a store but they might even get the land they want without struggling for it! Amazing, how if you appeal to the people's  sense of community, things change so much!

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The Carnival of the Vanities #114 is up

This week's Carnival of the Vanities is hosted by Laurence Simon's cat, Edloe. No kidding!
Link: This Blog Is Full Of Crap: The Carnival of the Vanities #144.

When in the course of human events it becomes necessary for one people to dissolve the political bonds which have connected them with another, it's best to walk away from the table and let the cats deal with the picky details.

We can't increase employment by restricting trade

Link: Cafe Hayek: Free Trade's Darkest Hour.

today is the 75th anniversary of an economic catastrophe – President Herbert Hoover’s signing of the Smoot-Hawley tariff.

Thomas Sowell has an article on The Washington Times about the background and effects of that Smoot-Hawley tariff act.

The Hawley-Smoot bill raised American tariffs to record highs, in an attempt to protect existing jobs and in hopes of helping the unemployed find work producing things the United States previously imported from abroad. Many businesses favored the new tariffs, hoping to retain or expand their markets, and farmers were especially big supporters.
    Who was opposed? Most of the leading economists. A Page One headline in the New York Times of May 5, 1930, read: "1,028 economists ask Hoover to veto pending tariff bill." Those signing this public appeal against the new tariffs included many top economists -- 25 professors of economics at Harvard, 26 at the University of Chicago, and 28 at Columbia.
    If 9 percent unemployment was troublesome in 1930, when the Hawley-Smoot tariff was passed, it was nothing compared to the 16 percent unemployment the next year and the 25 percent unemployment two years after that. The annual U.S. unemployment rate never got back down to 9 percent again during the entire decade of the 1930s.
    American industry as a whole operated at a loss for two consecutive years. Farmers, who had strongly supported the Hawley-Smoot tariffs, saw their own exports cut by two-thirds as other countries retaliated against U.S. tariffs by restricting imports of American industrial and agricultural products.

Poor countries can take advantage of farm subsidies given by rich countries

I had written about agricultural subsidies before:

Third-world countries always protest against huge agricultural subsidies given by rich nations like US, Europe etc. They charge that subsidies are causing prices of farm products to drop, causing farmers in poorer countries to loose their livelihood. Without a hint of irony they cite these subisidies as example of exploitation by rich countries! These countries then go about erecting trade barriers against agricultural imports in the name of protecting their farmers. Given the fact that people in the poor countries are dying of hunger and malnourishment these protests against "cheap" imports do not make any sense.

Since, farm subsidies make farm products cheaper, poorer countries should welcome them. Poor countries should remove all import barriers against subsidized farm products without waiting for WTO negotiations. Subsidized farm products will reduce poverty and malnourishment and thus they should thank rich countries for the subsidies as they represent net transfer of wealth from tax payers in rich country to the poorest people in poorer countries.
Developing countries cannot use excuse of farm subsidies to erect import barriers. That will not be retialiation against rich countries but actually against consumers in developing countries.

Trent McBride at Catallarchy writes similarly on Agri-Subsidies.

…Commonly, in an exercise in overstating the case, free traders may argue that we should eliminate our farm subsidies to help poor farmers in developing nations. This would certainly help the poor farmers. But it ignores the fact that most inhabitants of the poorest nations are poor non-farmers who could use some cheap food. As it stands, our taxes that go to farm subsidies are very much simply redistributions to the world’s poorest. The charge that “dumping” cheap food into the nations is harmful is just as fallacious as when those certain parties state that “dumping” of cheap imports is not harmful to us (and free-traders rightly call this one out).

It’s pretty simple: subsidies for an exported commodity are helpful to the exporting producer and the importing consumer. They harm the exporting consumer and the importing producer. Free-traders seem to have fallen for the arguments of the politically connected farmers in the small countries, who happen to make the same arguments as the politically connected producers in this country who successfully impose tariffs…
…I have read around the ‘net some who oppose free trade claim that statements like mine above are some sort of qualification of free trade that underminds the case for it. This is not so. The simple fact is that the farm subsidizing policies in the US are not trade policies. This is important point. You can talk about these policies with regard to their international effects without commenting at all on trade policy. Subsidizing is simply a wealth transfer (in this instance, one from US taxpayers to US farmers and foreign consumers)….

Elder politicians are the result of paternalistic policies

Link: India Uncut.

I'm actually not sure if age is the problem here. The problem lies in the electorate of our country, which, largely poor and uneducated, continues to make the wrong choices. This will take decades to change.

Why blame the poor and the uneducated for making the wrong choices? Was Jawaharlal Nehru a wrong choice for the Prime Minister? Compared to other countries our poor and educated electorate generally gave us much better representatives than say Zimbabwe's Rober Mugabe! It was the educated elites that screwed us! Indian people elected politicians, such as Nehru, based on their character, integrity and sacrifice that they did during Independence struggle. People like Nehru, Indira Gandhi could have followed capitalism instead of socialism for all they cared! It was the fault of educated elites that they thought they could control, plan and regulate the life of a billion people. When Rajiv Gandhi was elected as the Prime Minister and he followed open market policy, do you think the poor and the uneducated electorate protested against globalization?
I am taking the case of free-market vs socialism simply as an example. Does anybody think that the decision to ban smoking scenes from the movies was based on the demands of the poor and the uneducated? I bet the decision reflects the elitist arrogance that still dominates our politics. In fact, one is more likely to support such stupid policies if one is "educated"! Because educated elites support such paternalistic policies our parliament looks like a assisted living facility. Who do you expect to implement paternalistic policies: a 30 year naive and inexperienced youth or a 75 year old geriatric?

A Problem of Plenty?

Link: The Tyranny of Mustard Toothpaste: Comments.

Critics of capitalism once predicted that free markets would wreak mass starvation, depletion of resources, pollution, and death.

They're now reduced to bitching about too many flavors of mustard.

We've won the debate.

Update: If some people so strongly feel that there are just too many varities of consumers goods, such as toothpaste, then why don't they get together and start a retail store which only sells a few chosen varities. Costco does that already.

Don't be afraid of trade

Brad DeLong cuts through the all the non-sense about fear of trade and explains that worst thing that can happen with open trade is no trade at all:

One--accurate--path through the swamp is to distinguish between (i) productivity improvements abroad that make foreigners more efficient at producing what we import and (ii) productivity improvements abroad that make foreigners more efficient at producting what we export.

The first set of productivity improvements is a boon for us: the prices of goods we import fall as foreigners become more efficient at producing them, and our standards of living rise. The second set of productivity improvements is a bane for us: as our exports face more competition, the prices we can charge for our exports fall, and so our exports buy less in the way of imports, and our standards of living fall. How bad can this second force be? Well, in the limit--in which foreigners become so good at making stuff that there's nothing we make they want to buy at a price at which we are willing to sell--we are as badly off as if there were no international trade at all. The worst thing that engagement with the international economy can yield is the same as... the no-trade autarky outcome. What's at stake isn't our absolute impoverishment: it's the loss of some (or most?) of what had been our gains from international trade.