[DigitalOne]

Originally Posted by smartcat

In an ideal world -> mining of resources like iron ore, coal, oil & gas etc should be done by PSUs. It is nation's wealth after all. Prospecting can be done by private players and a handsome fee paid for it, perhaps even a royalty (percentage of revenues)

That's a debatable topic.
One, once the resource is mined and sold, it no longer is nation's wealth but private wealth. This is what leads to cronyism and scams like the coal scam.

Secondly and more importantly, the nature of resources keeps changing. Oil and gas which is a much needed resource now, hopefully may not be in a couple of decades, if renewables/battery tech grow as predicted. Would you agree if a government spends thousands of crores now setting up oil/gas fields? I most certainly will not.

[alpha1]

Originally Posted by Samurai

Until 20th century, most countries practiced unfettered capitalism, irrespective of their political ideology. There were no regulations to stop businesses from causing harm to the society, as long as they paid taxes to the ruling authorities.

In fact one doesn't need to think deep to understand that unbridled competition among worker class itself may lead to their own harm. The business owners actually need to sit back and enjoy the show (and ensure that there are no unions): with growing population the supply side of worker will always increase - putting a downward pressure on their wages.

Each one tries to increase his earnings by outdoing other workers eg by working additional hours. Gradually we reach a situation of saturation where the workers are limited by their biological limitations (e.g need to sleep at least 4 hours daily) making their lives hell. But because of competition - everyone is doing the same and the net result is that no one is better off compared to the initial starting condition.

Originally Posted by DigitalOne

1. Recently TN increased bus fares for govt buses and private buses. Why? So that private players who may be more efficient should not undercut govt bus. Karnataka government has been trying to increase taxi fares for a couple of years because Ola/Uber were undercutting their "licensed" (read, cronies) cabs. So the government does not always work for public benefit.

2. How do you make sure that the tax you pay gets spent only for the right causes? What if the government decides to spend on a bullet-train and not on pensions?

3. Who decides what has to get subsidized? Please remember that the resources/money are limited. Any subsidy on one sector takes away the money from another sector. The only way to subsidize all sectors is to keep printing money. This just increases inflation which is a tax on everybody, and a big burden on the poor.

1. From what I gather, the state transport in TN is subsidized and fares are cheapest in the region (vote bank politics). This made the state companies bankrupt. The fares were increased to address this issue. In fact the private players must be breathing easy now - at least they will find it financially viable to compete with State player. (Similar analogy is petrol pumps in India: Reliance, Essar, Shell)

2. Right. But you speak as if you trust the general public more. The same public that gets swayed by impulsive immediate emotional needs (worst example = riots, mildest example = cleanliness) and then regrets years later about their actions / inactions.

[DigitalOne]

Originally Posted by alpha1

1. From what I gather, the state transport in TN is subsidized and fares are cheapest in the region (vote bank politics). This made the state companies bankrupt. The fares were increased to address this issue. In fact the private players must be breathing easy now - at least they will find it financially viable to compete with State player. (Similar analogy is petrol pumps in India: Reliance, Essar, Shell)

Yes, they may be breathing easy, but the act of increasing and fixing the minimum fares by the government means that no private operator (however efficient they are) can offer lower fares. This is clearly anti-competitive and anti-people.

Originally Posted by alpha1

2. Right. But you speak as if you trust the general public more. The same public that gets swayed by impulsive immediate emotional needs (worst example = riots, mildest example = cleanliness) and then regrets years later about their actions / inactions.

Yes, I trust the general public more than any government. Any "government" is made up of politicians who can't see beyond the next election. More money with the public, using Direct cash transfers or Universal basic income mechanisms, is much better than the politicians taking decisions on our behalf. A poor urban family, senior citizens, rural families all have different needs. It is better to let the people what they want to spend on instead of government spending on food canteens (for example), or transport subsidy or fuel subsidy etc.

Also note that politicians have a big corruption incentive to continue subsidies and not go for UBI type solution; and that is, huge contracts are given for Food canteens like schemes. They siphon off a lot of money by giving these construction/procurement/operations contracts to their cronies.

Yes, in a UBI solution there will be few irresponsible people who will use the money for liquor or drugs or gamble it away, but that can be reduced by education. At least the responsible people will not suffer the vagaries of the politicians.

[ashokrajagopal]

Originally Posted by DigitalOne

Yes, I trust the general public more than any government. Any "government" is made up of politicians who can't see beyond the next election. More money with the public, using Direct cash transfers or Universal basic income mechanisms, is much better than the politicians taking decisions on our behalf. A poor urban family, senior citizens, rural families all have different needs. It is better to let the people what they want to spend on instead of government spending on food canteens (for example), or transport subsidy or fuel subsidy etc.

Its fancy you speak about Government as not "public", but businesses as somehow public. Government is the one thing "public" has to keep anybody who is not "public" within reins.
The way to fix democracy is to actually take part and fix it, rather than offloading what a democracy does to any other entity.
There is something fundamentally wrong with all the assumptions that businesses run by private enterprises would be more efficient by definition. The world has proven over and over again that it is not the case.

Air India was mentioned at one point. Of course inefficient and of course needs some work. In an ideal world the way that should have been sold off was to retail investors who are people ( so the funds are raised) and still be maintained with sufficient control by government. I would like to bring up that thing of convenience fee that is going around in Airlines now. Every single airline is charging a 100 convenience fee for internet booking. I have not seen anybody able to explain why. With only private players I dont see why it cant be 1000 Rs.

People usually compare the flight prices from two decades ago to now and then assume the competition brought it. That is totally untrue. The infrastructure for all these airports, the roads, Air traffic control, all of that is invested by people. So, when the lone govt player is not there anymore, the private sector is open to competition in the beginning, and then they go into an agreement mode with each other. Either the employees, or the customers are bound to suffer at one point.
Airlines is classic example. Dead peasant insurance was widely used in Airline companies in US. There are many news items about pilots working two jobs etc in most of the low cost airlines in US. A profit seeking machinery is at one point supposed to bring unpleasant effects in society; that is for sure.

Does that mean all the businesses should be run by Govt ? No, not even partially. The only businesses which must have govt hand would be the ones that would require high amount of infra spending upfront. Which means that the huge business can never wring the common man's neck for profit. People these days talk about the private players altering the communication landscape of India. While that is true to some extent, who paid for the satellites ?

All the "public" businesses in India could never provide bottled water for anything less than Rs. 15. And railway did it for Rs. 10. When the business is not run for profit, it benefits people. In some cases, that is the only way it can benefit people.

The talk about "inefficient" and "unwanted" subsidies -- I will give it to you that some of the subsidies are unwanted. But who decides ? The best entity to decide would be a collective of people.
The only reason why we are still into this century with ICE engines is because the businesses had their clutch on capital movement. A company that is invested in a dead technology would not want to move away just because it benefits people -- by definition what the company cares about is profit and profit only. The large Auto corps around the world are proving that.

The biggest scam about the "evil" government theory in India is the PSU's real estate assets.
Take a walk around any of India's big cities and I can guarantee why the large real estate that is supposedly "wasted" in the centre of the city should make sense. In an ideal world they should be children's parks or grounds. But the talk about auctioning them off is just putting words to some private player smacking his lips. Businesses by definition cannot understand open space. It is just wastage of resource for them. Well, not so much for the people. I really think the air we breath is more important than the market.

Originally Posted by DigitalOne

Yes, in a UBI solution there will be few irresponsible people who will use the money for liquor or drugs or gamble it away, but that can be reduced by education. At least the responsible people will not suffer the vagaries of the politicians.

UBI solution is supposed to be over and above everything that is going on now. If the subsidy on LPG is stopped and the companies privatised, what makes you think UBI would be able to cover buying LPG in future ? The private player who provides LPG, or petrol or whatever only has a reason to look for profit, not the well being of those they sell to. When a government hand is there, that is not the case.

If there is inefficiency and corruption, we can work on correcting it. It will get corrected in future.
If there is wrong policy implemented, however efficient it is, there is no come back. This is what happened with the 60 years lease that we see in some of the ports right now. However efficiently they run it, they have no incentive to follow the nation's interests by foregoing their profit.

[DigitalOne]

Originally Posted by ashokrajagopal

Its fancy you speak about Government as not "public", but businesses as somehow public.

If the subsidy on LPG is stopped

I didn't say that. What I said was that I trust the general public (not government, not businesses) to act in their self-interest. They are the best to know what they individually need and what they should spend on. Government should not decide whether there should be an LPG subsidy. What when (not, if) renewable power is so cheap and the preferred method of cooking becomes electric. Why should the whole country suffer the losses government has spent on setting LPG plants and distribution infrastructure?

There is something fundamentally wrong with all the assumptions that businesses run by private enterprises would be more efficient by definition. The world has proven over and over again that it is not the case.

If a private business is inefficient and shuts shop, the loss is for the companies, and its shareholders, not the entire country. When a government-owned PSU shuts shop, the loss is for the entire country. Why should the poor of the nation suffer because of a PSU inefficiency?

Air India was mentioned at one point. Of course inefficient and of course needs some work. In an ideal world the way that sho d have been sold off was to retail investors who are people ( so the funds are raised) and still be maintained with sufficient control by government.

A small set of "retail investors who are people" own the airline, participates in the profit/loss of the airline, and the government no longer provides budgetary support from the Union of India funds. This is privatization. Please go ahead and do this

You seem to be confusing between the role of the government in regulating businesses and running businesses. Following points illustrate the difference:

Every single airline is charging a 100 convenience fee for internet booking. I have not seen anybody able to explain why. With only private players I dont see why it cant be 1000 Rs.

So, when the lone govt player is not there anymore, the private sector is open to competition in the beginning, and then they go into an agreement mode with each other. Either the employees, or the customers are bound to suffer at one point.

Such cartelization is prevented in India by the Competion Commission. In case of airline charges, DGCA also acts if airlines form such illegal cartels. There are regulatory bodies for many sectors - TRAI, IRDA etc.

Dead peasant insurance was widely used in Airline companies in US.

Yes, a Google search tells me that it seems to have been used by many companies in the US in the 90s, not only airline companies. But also that this immoral practice has been clamped down upon by tighter regulation and greater disclosure norms.

There are many news items about pilots working two jobs etc in most of the low cost airlines in US.

Again regulatory issues. DGCA has strict regulations on how many hours a pilot can work in a day/continuously.

Does that mean all the businesses should be run by Govt ? No, not even partially. The only businesses which must have govt hand would be the ones that would require high amount of infra spending upfront.

Fine. So it can sell off Air India, Ashok Hotels,HMT, BEML and 90% of the PSUs. The only business I can think of government continuing to run is nuclear power. (Which again may turn into waste when renewable power generation becomes cheap).

People these days talk about the private players altering the communication landscape of India. While that is true to some extent, who paid for the satellites ?

Is mobile telephony using satellites? Even if it does and government has paid for the satellites, the government charges the private players in terms of usage licences and spectrum auctions.

And railway did it for Rs. 10.

Railways used to provide water for free . Now they provide it at rs.10/-. When 10/- becomes unprofitable for them, they will silently stop supplying or the cost is borne out of some other account. Some thing else will be compromised - either safety (God forbid) or new railway infrastructure or salaries to employees.

When the business is not run for profit, it benefits people.

Yes, but it also kills the incentive to run a business and supply things/services to people.

The talk about "inefficient" and "unwanted" subsidies -- I will give it to you that some of the subsidies are unwanted. But who decides ? The best entity to decide would be a collective of people.

Nope. The best entity would be the individual who can decide given an amount (UBI) what he/she wants to spend on. Every individual/family needs are different.

The only reason why we are still into this century with ICE engines is because the businesses had their clutch on capital movement. A company that is invested in a dead technology would not want to move away just because it benefits people -- by definition what the company cares about is profit and profit only. The large Auto corps around the world are proving that.

Can't clearly understand what you are trying to say. All large companies are investing/researching massively on electric. Any company which doesn't will be dead in a decade. This is market-economics at play.

The biggest scam about the "evil" government theory in India is the PSU's real estate assets.
Businesses by definition cannot understand open space. It is just wastage of resource for them.

Again regulation issue. There are FSI rules in every city. For PSU auctioned lands, these could still be further enhanced to keep 70-80% land (just example) as open spaces. Completion certificates can be withheld if rules not adhered to.

If the subsidy on LPG is stopped and the companies privatised, what makes you think UBI would be able to cover buying LPG in future ?

There are ways to calculate what is optimum UBI required per person. And I have discussed enough why government shouldn't support one type of subsidy over other.

If there is wrong policy implemented, however efficient it is, there is no come back. This is what happened with the 60 years lease that we see in some of the ports right now. However efficiently they run it, they have no incentive to follow the nation's interests by foregoing their profit.

Again, there are regulatory ways to curb excessive profits by 'monopoly' businesses. For example, Delhi/Mumbai/Blr/Hyd airports, despite being 'monopoly' businesses cannot charge usurious charges on users. It is regulated by DGCA.

[ashokrajagopal]

Warning: Long post ahead

There is so much to say here, I am not sure where to begin. But, let me start with a scenario.
Lets say there is no SBI or other state owned banks. All we have are private banks.
At a point, the banks decide they need the money loaned to India to make their balance sheet look good. So they talk with government. Government says no, and banks say Yes, and government threaten action.
What do the banks do ? They say all banks remain shut until government submits to their demands.
So if the banks do not open even for a day, and the ATMs do not dispense money, what happens to the country ? Bank runs, riots, mobs and what not !
The government has no option but to budge.

Sounds too hypothetical ? Well, no. This actually happened in Greece in 2015. Its well documented.

The basic point that is being missed by the Capitalist utopia you are explaining below is that the leverage that a government has over private businesses is completely dependent on the amount of economic activity they control.

Originally Posted by DigitalOne

I didn't say that. What I said was that I trust the general public (not government, not businesses) to act in their self-interest. They are the best to know what they individually need and what they should spend on. Government should not decide whether there should be an LPG subsidy. What when (not, if) renewable power is so cheap and the preferred method of cooking becomes electric. Why should the whole country suffer the losses government has spent on setting LPG plants and distribution infrastructure?

I mentioned before also I guess. Business minds do not understand that concept. Assuming Renewable energy is round the corner, what you are stating here is that stuff like the Gail Gas pipelines are not okay because there is a soon to be obsolete technology being invested on. This is where the government differs.
It may take 15 years(very ambitious) for the electrification of villages and getting everybody access to Electricity for cooking.
It may take 5 years to provide a substantial population of these villages a PNG pipeline to get rid of the coal and wood based cooking.
I am sure a business would choose to conveniently forget about the present of this population.
A government( of course, a well run one) can never conveniently forget such stuff. The democracy decides here. The interest of those people who can immediately get access to better standard of living while the future arrives also matters.
All you see is the balance sheet of numbers. But that is not the Government's intention. The sooner you make peace with this concept, government activities would start making sense.

Originally Posted by DigitalOne

If a private business is inefficient and shuts shop, the loss is for the companies, and its shareholders, not the entire country. When a government-owned PSU shuts shop, the loss is for the entire country. Why should the poor of the nation suffer because of a PSU inefficiency?

The definition of inefficient and loss obviously must be set to numbers for somebody to arrive at this conclustion. In government run business, the end result is not a balance sheet that looks good. That takes very low priority. Of course, if the government is selling shirts and it is making loss, obviously it must be shut down. But the PSUs people are eyeing are not that kind. Its the assets everybody is after.

Originally Posted by DigitalOne

A small set of "retail investors who are people" own the airline, participates in the profit/loss of the airline, and the government no longer provides budgetary support from the Union of India funds. This is privatization . Please go ahead and do this

Nope. Not at all. It would look like SBI. The only question is about controlling interest in the company. If the Government controls the business with retail investors, it is just disinvested and not privatised.

Originally Posted by DigitalOne

You seem to be confusing between the role of the government in regulating businesses and running businesses. Following points illustrate the difference:


Such cartelization is prevented in India by the Competion Commission. In case of airline charges, DGCA also acts if airlines form such illegal cartels. There are regulatory bodies for many sectors - TRAI, IRDA etc.

Yes, a Google search tells me that it seems to have been used by many companies in the US in the 90s, not only airline companies. But also that this immoral practice has been clamped down upon by tighter regulation and greater disclosure norms.

Again regulatory issues. DGCA has strict regulations on how many hours a pilot can work in a day/continuously.

No, I know the definitions. But you should look into history as to how it has panned out in reality. It is only in a utopia that the government cannot control the economic activity and still have regulatory powers. Why do you think government agencies like DGCA would have real power to control the businesses if the government has zero involvement. Lets assume Aviation is completely privatised, airports are, and air traffic control is also privatised. In a few years its going to be 2 or 3 major investors in this sector, with a handful of brand names. At a point when these players are controlling it, cartelization is right there for them to take. Either out in the open or otherwise. DGCA can try to regulate, but what if the businesses do a blackmail to shut down operations ? What does the government do then ? To think that such a thing would not happen would be completely naive. I actually pointed out something from recent history to show that happens. And you cant blame a business for trying to do that. They are there for profit, and thats what they do.

Originally Posted by DigitalOne

Fine. So it can sell off Air India, Ashok Hotels,HMT, BEML and 90% of the PSUs. The only business I can think of government continuing to run is nuclear power. (Which again may turn into waste when renewable power generation becomes cheap).

It would be nice if you do not try to arrive at a template. Each business, in each location is different and there is a case to case basis for it. And I am totally surprised that the Infra spending upfront could be found only in Nuclear ?
Govt has no need to run a hotel in say Bangalore. Pointless. Even at the stage where there are two major hotel giants in India only ( all others eaten by them), if some sort of cartelization comes in, it doesnt take much for a smalltime business to start out.
The situation as a whole changes when the location is Nagarhole water park which is an eco-sensitive zone. Government presence is not just beneficial, it would be important as well.
Aviation, Heavy machinery, Oil and natural gas, and 90% of the PSUs run on industries which require huge infra spending. What needed to be spent by the people is already spent.
If there is monopoly in making blue jeans, no problem. Why would anybody care ?
If there is monopoly in Internet, well, that is a totally different thing. Point in case, what the giants tried to do with "free internet".

Originally Posted by DigitalOne

Is mobile telephony using satellites? Even if it does and government has paid for the satellites, the government charges the private players in terms of usage licences and spectrum auctions.

Its about satellites and communication, not necessarily Mobile phones only. Government charges private players for license and hence forth everything is private property ? Well, no. Not at all. If this is a business, the initial investment is made by the public and the public interest has to be taken care of. Businesses run after shareholders interest. Its not like you sell off a car.

Originally Posted by DigitalOne

Railways used to provide water for free . Now they provide it at rs.10/-. When 10/- becomes unprofitable for them, they will silently stop supplying or the cost is borne out of some other account. Some thing else will be compromised - either safety (God forbid) or new railway infrastructure or salaries to employees.

They still provide water for free where ever possible. The case I was talking about is bottled drinking water, it is very obvious from the words.
And no, as an institution Railways cannot take a decision to compromise safety. But a private business can, and Volkswagen in US would be exhibit A.
Your thought that Railway would stop it when it doesnt break even ( note that it is not profit) is because you are expecting it to be run exactly like a business. No, at a stage where it wouldnt break even, IRCTC would have to borrow money to do it. Why ? Its people's interest in question and the government should be forced to act.
It wouldnt make sense to business accounting. But that is not what railways is for.

Originally Posted by DigitalOne

Yes, but it also kills the incentive to run a business and supply things/services to people.

Killing people's interest vs killing an incentive to business. That is not a tough choice for a democracy. There are some things you need more than others.

Originally Posted by DigitalOne

Nope. The best entity would be the individual who can decide given an amount (UBI) what he/she wants to spend on. Every individual/family needs are different.

The first statement is just a statement without any study behind it. The opposite of that however is proven in human experiments around the world with democratic governments. Democracies have pulled real good decisions for its people.
The second sentence is true, but that does not account to a reason for the first.

Originally Posted by DigitalOne

Can't clearly understand what you are trying to say. All large companies are investing/researching massively on electric. Any company which doesn't will be dead in a decade. This is market-economics at play.

Solar energy was here for a long time. Photovoltaics got a rejuvenation when some of the governments around the world started seriously thinking about global warming and the need to make fossil fuel based energy obsolete. The auto majors hung on to their investment for as long as they could until governments started taking a stand. Even right now, the Indian govt has taken some radical directions and the businesses did not really like it.
The renewed interest in renewable energy sources are anything but marketing economics at play.

Originally Posted by DigitalOne

Again regulation issue. There are FSI rules in every city. For PSU auctioned lands, these could still be further enhanced to keep 70-80% land (just example) as open spaces. Completion certificates can be withheld if rules not adhered to.

The power of regulation is completely dependent upon controlling economic activity, this is mentioned above.

Originally Posted by DigitalOne

There are ways to calculate what is optimum UBI required per person. And I have discussed enough why government shouldn't support one type of subsidy over other.

This whole theory breaks down when you just think from the business's angle. So as of now, the case you are mentioning is that Govt just collects taxes, and uses that money to provide UBI. The UBI obviously has to be based on X amount as derived by the current price levels. And the businesses go about their way, collecting their profits.
So now, at this stage, the businesses decide to increase price to improve their profits ( they always do that, they have always done that around the world ).
Now, the Govt has to increase taxes to provide more amounts in UBI. Or it borrows on the basis of people.
Lets just say, Rs 1000 is accounted in UBI to provide for Mobile payments. At one point when the private players ( imagine absence of BSNL) are settled enough, they can increase the prices so that Rs. 1500 is required. UBI has to be adjusted for this. How does the govt do it then ? Increase taxes from people ( no, businesses cant be taxed more, because they simply pass on the burden to consumers) or take loans.
Ultimately the people end up financing the businesses profit.
Can government put its foot down and clutch the business ? No. The leverage that the businesses have when they are the sole players is too large to be ignored by wishful thinking.

This simply runs into a cycle where the people's money goes into profiting the businesses. When the motive of the business is to make more and more profits, they only have to focus on that. Nothing wrong with their perspective.

I have explained above it is not just a balance sheet thing when it comes to subsidy.(PNG ~ Electricity). People's interest is more complicated than that, and democracies should decide that. Government supports PNG at this moment for example, because it has reasons.
It is easy to look at the numbers on the whole thing and take a call with zero interest on people.

Originally Posted by DigitalOne

Again, there are regulatory ways to curb excessive profits by 'monopoly' businesses. For example, Delhi/Mumbai/Blr/Hyd airports, despite being 'monopoly' businesses cannot charge usurious charges on users. It is regulated by DGCA.

This is because of the control government has now because of the investment in the current Aviation scenario. Everything from Air traffic control to security is done by government and they need the government to run their business. It is also because currently the government has Air India under control.
Railways in UK are a comparable example I guess. Recent polls have all shown that the people majorly favor re nationalization because of the various impacts.
I am sure the railway companies have great balance sheets, but whether people's interest is taken care or not is very clear from the opinion poll results.


Curbing excessive profit is a fallacy. Who decides the profit level when government is not in the business ? What one thinks as excessive profit is not so from another perspective.
So, the only thing government can ever force is to take care of people's interest -- for example, safety norms. Businesses can stifle governments by denying service to people. In each case, it finally comes to a judgement call by government at the moment.

[DigitalOne]

Originally Posted by ashokrajagopal

Warning: Long post ahead

I don't want to prolong the discussion by giving a point by point rebuttal. Your premise seems to be that if there is no government running a business in any sector, the private businesses will gang up and keep increasing prices.

My contention is that private businesses are multiple entities and competition among the businesses will keep prices down. Airtel dropped prices, not because of BSNL but because of Reliance Jio. A full service airline like Vistara generally has lesser fares than Jet or Air India, because of competition.

Anyway, you are entitled to your opinion.

Curbing excessive profit is a fallacy. Who decides the profit level when government is not in the business ? What one thinks as excessive profit is not so from another perspective.

There are cost-plus/inflation-indexed and other formulas to determine this. For example, please read about how gas prices that can be charged by Reliance from the KG basin are determined. There are ways to do it in 'monopoly' businesses.

[ashokrajagopal]

Originally Posted by DigitalOne

I don't want to prolong the discussion by giving a point by point rebuttal. Your premise seems to be that if there is no government running a business in any sector, the private businesses will gang up and keep increasing prices.

My contention is that private businesses are multiple entities and competition among the businesses will keep prices down. Airtel dropped prices, not because of BSNL but because of Reliance Jio. A full service airline like Vistara generally has lesser fares than Jet or Air India, because of competition.

Anyway, you are entitled to your opinion.



There are cost-plus/inflation-indexed and other formulas to determine this. For example, please read about how gas prices that can be charged by Reliance from the KG basin are determined. There are ways to do it in 'monopoly' businesses.

My premise is not that government should be in all businesses. It is a case to case basis, based on again what the government decides, not exactly based on a disinvestment template.
Private entities are multiple entities alright, but history has examples where they join hands as a strategy for continued performance. These are examples on which the opinion should be framed by anybody rather than any style of economics.

But I understand what you are saying (even if I dont agree). Let's not hog the thread in a direction. Completely agree on this.

[--gKrish--]

What is the definition of Giffen goods? Is the definition in Wikipedia correct ? Im an engineering student and this term came in the context of engineering economics and have conflicting explanation in various references. Google has added to the confusion.

[Samurai]

Giffen goods are hard to understand because there are extremely few examples of it. For one thing, those goods should not have alternatives.

Take a family that consumes 50% rice and 50% meat. Let's also assume meat costs 4 times rice.

Numerical example:
Total consumption quantity = 1Kg rice + 1Kg meat (2Kg)
Total food budget: ₹100 for rice + ₹400 for meat. (₹500)

That means the family is spending 20% food budget on rice and 80% on meat.

Now let's double the price of rice to ₹200 per KG of rice. To maintain eating 2Kg of food with the same budget, what must change? You got it, they must reduce the meat consumption and increase the rice consumption.

1.5Kg rice (₹300) + 0.5Kg meat (₹200) = ₹500 for 2Kg food.

Now the family is spends 60% of food budget on rice and 40% on meat. That's the Giffen effect. Happens only with essential items without alternatives.

Most of the time people switch from rice to wheat or millet as alternatives. So Giffen Goods are rarely encountered in reality.

[Samurai]

Originally Posted by peus017

And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. ":

I saw this ancient parable show up again in the price myth thread. I see this every couple years in defense of republican tax cuts. But this is a simpleminded parable that makes couple of false assumptions.

1) Poor men and rich men drinking in the same bar, drinking same quality drink. Hmm, in which society does that happen? Usually the rich guy drinks something 10-50 times more expensive compared to the poor guy. Stays in homes that cost 10-100 more expensive. That is why rich guy pays more, and while enjoying 10-100 times more valuable benefits as the poor guy. Do you want Ambanis to pay the same amount of tax as you? Do you think you are enjoying same benefits as Ambanis?

2) Rich man will leave. Can he really leave? He is making his riches by the help of all the people around him. If Ambani leaves the country to escape the taxes, most of his business empire can't leave with him. His businesses are making huge profits off Indian citizens and Indian resources. So one shouldn't be under the assumption that the rich man can leave, when his income depends on being here.

[DigitalOne]

Originally Posted by Samurai

But this is a simpleminded parable that makes couple of false assumptions.

The biggest false claim/assumption in the parable is not distinguishing between Direct and Indirect taxes (Difference). The patrons of the bar, whether rich or poor pay the same rate of indirect tax (Excise, or VAT, or GST).

Having said that, a fair tax system would be
1. Low, and non-progressive, direct tax rates
2. Differential indirect tax rates with "luxury" and "sin" goods having higher tax rates; and day-to-day consumption goods having low tax rates

This would reward the honest, hard-workers to keep most of their earnings, and punish the big-spenders (as opposed to earners).

[Jeroen]

Originally Posted by DigitalOne

Having said that, a fair tax system would be
1. Low, and non-progressive, direct tax rates
2. Differential indirect tax rates with "luxury" and "sin" goods having higher tax rates; and day-to-day consumption goods having low tax rates

This would reward the honest, hard-workers to keep most of their earnings, and punish the big-spenders (as opposed to earners).

Fair being in the eye of the beholder. Most direct tax rates in quite a number of countries are not low and often progressive. The more you earn, the more, progressively, income tax you pay. There are a lot of folks who think that is extremely fair.

Quite a few countries have some tax differentiation on day to day goods versus other goods. Such as food, children clothes etc. could come into varous lower tax brackets But again, it's in the eye of the beholder what should be in the lower bracket. Untill recently in the Netherlands, barbers and for instance books were all in the low 6% VAT bracket as opposed to the regular 21% on most goods.

Jeroen

[ritz3645]

Originally Posted by --gKrish--

.

Apologize for delay as saw this today.

What is a 'Giffen Good'
A Giffen good is a good for which demand increases as the price increases, and falls when the price decreases. A Giffen good has an upward-sloping demand curve, which is contrary to the fundamental law of demand which states that quantity demanded for a product falls as the price increases, resulting in a downward slope for the demand curve. A Giffen good is typically an inferior product that does not have easily available substitutes, as a result of which the income effect dominates the substitution effect. Giffen goods are quite rare, to the extent that there is some debate about their actual existence. The term is named after the economist Robert Giffen.

https://www.investopedia.com/terms/g...#ixzz5EK5TG0Vx


My example will be Gaur gum used in shale-gas drilling.

https://qz.com/258292/how-americas-s...ng-taken-away/

[DigitalOne]

Originally Posted by Jeroen

Fair being in the eye of the beholder.

That is true. I should have mentioned "in my opinion" in my post.

Most direct tax rates in quite a number of countries are not low and often progressive. The more you earn, the more, progressively, income tax you pay. There are a lot of folks who think that is extremely fair.

The problem I see with progressive tax rates is that people start resorting to loopholes and workarounds to save up on tax. For e.g. in India there is a different tax slab for personal income tax - 20% below 1,000,000 INR, and 30% above 1,000,000 INR. People at the threshold levels now do workarounds to get below threshold levels - leads to corruption, inefficiency. Same for corporate taxes. Companies create subsidiaries only to get into lower tax slabs. Only the lawyers and accountants are benefited.