16 May 2011

Visit to Amana Colonies

Today it was a nice surprise as one of my friends from University of Hyderabad student days, Lakshmi who was doing her linuistics there, came over from Nebraska with her husband, Madhusudhan (Masa) and son, Miti who has entered his teen. It was nice because we did not interact much during our student days; of course, we have been in touch virtually in recent years. The hightlight was the gift with the tag 'good teachers think out of the box.' They came down with us to Amana colonies and it was a nice time spent.

Amana colonies, like the Amish villages we went yesterday, have a German origin. The Amaa colonies have a lot of handicrats - furniture, wollen, restaurant, brewery and other shops. It is a nice outing for a Sunday.

At the brewery we chatted up with people about American history, culture and politics. How it is perfectly right for an Iowan to talk about weather and pets but it is more about politics and who you claim to know at Washington DC and people will hardly have any time in New York leading to the saying that if you stop moving then you will be run over. Coming from a fast-paced Mumbai, one can empathise with this, as one has also heard umpteen times that the only place faster than  Mumbai is New York.

There was a discussion on taxation and how the rich can always get away by paying less. The emphasis on private property means that many people argue against taxes being used for distribution purposes. Instead, low taxes and investments are argues as alternatives for gererating employment and in that sense spreading out the reach of wealth through some trickle down.

On government expenditure, it is the defense that takes a larger pie and the rest are all from a small proportion. This limits the distributional outreach of the government. This means that we need to tax more, but we have been reducing taxes.

Another justification that one hears is the role of the market in fostering growth. One does not deny this, but observes that the relevance of the market as conveived by the founding fathers (to provide freedom in selling and buying goods and services) is missing. And in that sense, fostering freedom and an enhancement of capabilities of more and more individuals to participate in the market is also missing. The relevance and role of the market has been turned on its head. Market, instead of a being a means has become an end. The growth of the market (owned by a few) is given precendence over the freedom of the market.

In the economics sense, the relevance of the market and its justification as an efficient outcome comes from perfect competition. In this kind of a market the efficiency argument follows from an assumption that there are many buyers and sellers. If this is missing then the argument in favour of efficiency also falls. Does, this mean that we do away with the market. No, we do not. But we should be careful of the possible pitfalls. In particular,  the vested interests need to be kept out. This requires some structural differences in organising the market and regulating it witout stifling innovation. There is an increasing need to think out of the box.

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