Thoughts on economics and liberty

Tag: USA

The Keynesians will bury the West

I normally don't comment on Australian policy, particularly where it is somewhat related to my official work. But in areas where my official role is not directly involved, I am able to comment without violating Conduct Rules. And so this post deals with Australian policy. I would like to remind everyone that my views are purely my own and do not represent the official entity that I work for.

Remember that I have commented adversely against the bailouts and stimulus packages in the USA (here). The so-called "stimulus" package in Australia has proved the same point point closer to home: that  Keynesians are the greatest enemies of the West, along with Rawlsian social "liberals" or social democrats.

With NOT THE SLIGHTEST CLUE about how governments actually work (never having worked in the 'trenches' perhaps, inside government), these economists rush in where angels fear to tread, borrowing money in the billions and then throwing it into the ditch. 

I had read a lot of Stiglitz's work as a doctoral student and to an extent he talks sense, but I soon realised that he is among the economists best avoided. I am now very clear that Keynesians of all sorts are dangerous ignoramuses, with absolutely no clue about human incentives and capacities. If only they had the slightest idea of how governments actually work. But they also have an ego the size of the dung on top of the dung beetle: always confident about their reckless "plans" for the economy. Socialists at heart, they are not bothered about things like individual freedom and the limits of a government's role. The whole society is theirs to experiment with, it would appear, with taxpayers' money. If money doesn't exist, they'll print it. 

The following article in The Age today is a breath of fresh air, putting out the key arguments against the reckless destruction of wealth and damage to incentives caused by Keynesians (and he has left out: the welfare socialists) to Australia.

Have a read: "ALP's knight is a thief in rusty armour" by Niall Ferguson

(I just visited Ferguson's website (here) and found a bunch of interesting articles such as "End of the Euro" – the end of which seems inevitable unless strong enforcement mechanisms are devised. The monetary union is turning out to be a cartel where penalties can't be enforced. Ferguson is an economic historian at Harvard – definitely worth reading more of his work.)

Key point from his article:

"Joseph Stiglitz … praised the government's debt splurge as "one of the best-designed Keynesian stimulus packages of any country"." "But is Stiglitz sure — I mean graduate-seminar sure, as opposed to Fairfax-press sure — that this was really due to the government's $52 billion cash splash?" 

(Clearly Stiglitz is imagining things, of that one can have not the slightest doubt).

The "more plausible explanations for Australia's relative outperformance" include: "1. Lady Luck 2. The Howard government 3. The RBA 4. China 5. The mining industry".

Indeed, I have argued at length on internal forums on FTI that Australia's financial system, reformed after the Wallis Review of 1997 (during the Howard government) significantly reformed the financial system and created checks and balances. There remain a few gaps which I believe can be eliminated without significant additional regulation but by better focusing of attention by the regulators.

There does exist a significant further phase of financial reform (for India but equally applicable to Australia – see DOF) which will include dissolution of the central bank and splitting its function into the private sector or independent regulators – as appropriate. Once that happens, all major risks to the financial system will be eliminated.

The government must ONLY regulate. It must NOT directly manage the financial system. And (in relation to the 'stimulus') while infrastructure funding is valid, reckless burning of tax-payer funds is not. 


Must read this related article:

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Socialist USA: lessons for the world

Nicole Gelinas's article in City Journal is an absolute must-read. The gist of this long but well-argued article is this:

"Over the two decades leading up to 2008, financial markets were anything but free. The nuts-and-bolts government infrastructure that free markets require to thrive—healthy fear of failure, respect for the rule of law, and fair rules for everyone—was crumbling. The crisis books make clear, too, that Washington’s extraordinary rescues of Wall Street have eroded much of what’s left of free-market infrastructure in finance. Worse, Congress’s efforts to reform the industry will do yet more damage. The next time the financial world implodes, it will hurt the economy even more severely."

This article entirely confirms my views published in Freedom First  in January 2009. It is obvious that the USA is no longer the kind of society that the world can look up to. The freedoms of its citizens are on the back foot. It has aped the worst of Europe (welfare state) and the Keynesians have destroyed all semblance of economic sense. Their simplistic arguments (that display ZERO understanding of human incentives and human nature) have created massive amounts of moral hazard in the American monetary and financial systems, education and welfare systems,  and soon its health system. People like Greenspan, whom Ayn Rand at one time regarded highly as a votary of freedom, have bent over backwards to destroy freedom. The free market is almost dead. The heavy hand of the stupid gorilla – the state – now controls the levers of the American economy. 

What are the lessons from this for India? – That socialism is a dangerously attractive but guaranteed to be fatal mental disease. Even America, the great bastion of freedom, could not avoid this mental disease. It is therefore hurtling downwards into ignominy: and in the next 50 years if India and China become genuinely free, the power of the USA would be history. It is not Osama who has destroyed USA. It is Keynes; it is Rawls; it is the soft-touch American 'liberals' (not classical liberals like Hayek who no one listens to in America).

Each bout of 'saving' those who are too big to fail – by stealing from the tax payer – creates a guaranteed Ponzi game where even greater risks are taken. Finally, when the day of reckoning comes (and it always does come), the Emperor is found to have no clothes.

India was denuded by Nehru. The Keynesians and Rawlsians  have denuded the once great USA. A hollow shell remains. Images from Detroit reflect the end of America as  the once great nation of the past 200 years. Socialist ideal are ruinous beyond imagination. The most dangerous poison the human mind can create. If India has been a C-rated  economy for most of the past 60 years (on a sovereign risk scale of the S&P variety), USA has now clearly fallen from A to B. If India manages to follow some of the advice in BFN and gets its house in order in the next 10 years, and USA continues its downhill journey, then expect the tables to be easily reversed in the next 30 years. 

There is only ONE LESSON in economics: that there is no free lunch. Period. If you have  understood this lesson (and the subsidiary lesson of accountability – that I talk about at length in BFN and DOF) then you are done. Then you can govern and never fail. 


GELINAS, NICOLE, "Surveying the Wreckage: What can we learn from the top books on the financial crisis?", City Journal, Summer 2010, Vol. 20. No. 3.

ADDENDUM. The social security debacle in USA

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Is USA still a free nation?

Is US still a beacon of liberty in the world? A lot of people believe it is no longer free (or free enough). Since this debate occurs so frequently, I'm extracting from a recent Facebook discussion and an article I recently wrote for Freedom First (to be published on 1 August), to illustrate the position I have formed regarding liberty in USA – even as I believe that India should go well beyond its levels of freedom.

Patriot Act and the 'end of liberty' in USA

A Facebook friend suggested that USA is no longer free, arguing thus: "The reason I signal out "The Patriot Act" is because of many basic violations of civil liberties and norms of democracy. It was passed within 45 days after 9/11 with not an ounce of debate. This act treats all it's citizens as suspects there by creating a new standard "Guilty until proven Innocent". Neither the opposition nor the so called liberal media dare appose it. In theory the US authorities can legally tap conversations of Journalists, Opposition Politicians and even innocent civilians. Some of the measures are so powerful that they will not pass even the Indian parliamentary system. US is no more the land of the free. It has become the land of the paranoid, the recent Arizona law requiring all immigrants to carry documents with them at all times is a good case in point."

In response I suggest that while I agree (in principle) with such concerns, the Patriot Act is nothing. Try living in India where you can be liquidated without trace by the police. 'Encounters' with 'terrorists' are rife. If perfect liberty is 10 then US is at 8 and India is at 2. That's the issue. All relative. Yes, US is not perfect, but where are we!

Note, also, that no believer in liberty can tolerate anyone from within the nation colluding with others to declare war on the nation from within. Under circumstances of war, civil liberty must always rank second. There is no obligation for the USA to give Al Qaeda activists civil liberties on par with those enjoyed by the rest of its citizens. And yes, while theoretically, while "the US authorities can legally tap conversations of Journalists, Opposition Politicians and even innocent civilians", is this law put in practice in that manner? How many innocents have been tapped or arrested? Note that whatever happens in USA is authorised by the delegated of the people under a system of laws. If the people of USA, through their law makers, chose to enact the Patriot Act, and the circumstances were such that at least a case can be made for such action, then I have no reason to dilute my belief that the USA continues to be a free nation

Flag burning

We must also take a lesson in liberty from the US which has ruled out the criminalisation of flag burning. In 2006, an amendment to the US Constitution was proposed by someone to prohibit flag burning. But the US Senate rejected this amendment. Senator Daniel K. Inouye, who lost an arm in World War II, fighting for USA, said that flag burning ‘is obscene, painful and unpatriotic’, … ‘[b]ut I believe Americans gave their lives in the many wars to make certain that all Americans have a right to express themselves – even those who harbor hateful thoughts.’ 

Such unequivocal commitment to freedom is what America teaches us. Our heart goes out to America for clarifying the standard of liberty even on such an evocative issue. Hundreds of its own soldiers die in wars to protect the American flag, but these very same soldiers insist on defending the right of their fellowmen to burn that flag. That is why they fight. For freedom. The true flag we must fight for is the flag of freedom.

Yes, liberty in USA is on the decline

There is no doubt that the USA can do better. I have myself criticised its unfair treatment of Vikram Buddhi (see my blog post on the subject). I have also criticised its financial system which is almost nationalised, statist, and badly regulated, as well as its monetary system which includes a central bank that deliberately distorts the price of money (see my blog post here).

I also see the acceleration of the decline in liberty in the USA through the political victories of Keynesians and social democrats who believe in the welfare state and protectionism. It is becoming moribund, uncompetitive, and fretful, unable to lead the world unequivocally to the higher realms of liberty. It has lost its way. Its government, armed forces, and intelligence agencies increasingly display significant incompetence. In choosing philosophies that oppose freedom, the USA is becoming its own enemy. It will, in my view, if it continues down this path and if, simultaneously, countries like India seriously raise their own level of liberty, severely decline in relative terms to the rest of the world. This is a turning point for the USA, and it is not defending liberty as it should.

It is, in consequence, no longer the people magnet it was a few decades ago. The smartest Indians were ALL (or almost all) found in the USA at one time. That rush to migrate to the USA has subsided in India, even as India has increased its own levels of freedom and increased economic opportunities within the nation. Despite all this, the USA still remains, sufficiently free in my view to rank as the largest free nation on earth. Yes, there are other countries similarly free, but none as large, complex, and difficult to govern. So let's learn from the USA and take from it what is good, rejecting the bad. 

Those who think US is not good enough are obliged to create something better

Indians who raise concerns about liberty in US can't just pat themselves on the back at the first sign of American shortcomings. They must do betterNote that the US model is NOT what I advocate for India, but a much higher standard of liberty. Read Breaking Free of Nehru. Read The Disovery of Freedom (early draft). I want India to be the world's greatest beacon of liberty, not a cesspool of corruption, misgovernance, and police killings of the innocent. 

If you are concerned about liberty then it is time for YOU to do something to increase liberty in India. Are you a Freedom Partner? If not then join up right away!  Join the Freedom Team. And write your theses on liberty and publish your books and blogs on liberty. That's the only way out for us, not bothering so much about those who may be imperfect but still remain heaps better than India.

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The Vikram Buddhi case

I have been made aware of Vikram Buddhi's case over the past few months (please search Google for details if you haven't heard of it yet). But I was hesitant to comment publicly on this matter, for upon a (relatively cursory) examination of public documents available in this case, I found it too complex for me to form a judicious view one way or the other. However, in my recent trip to India I met Somnath Bharti who explained this case to me, and I'm now ready to write about it.

Somnath is an IIT-Delhi engineer who later took a degree in law and now works as a lawyer in the Indian Supreme Court. A few months ago, this case somehow came to Somnath’s notice. He did not know Vikram or his family before taking up this case, but after examining the facts of the matter he was convinced that Vikram has been denied justice in the USA. He therefore took up Vikram’s case on a pro-bono basis.

After my detailed discussion with Somanth I am now convinced that Vikram is innocent, noting that my conclusion is not based on first hand examination of all the facts personally, but on the explanation of key issues provided by Somnath. Hence this blog post that seeks to inform the public of India (and USA) about the injustice meted to Vikram Buddhi.


Somnath being an ex-IITian possesses certain expertise in technical matters. He has formed a view after examining the facts of the case that the US investigators did not offer a fool-proof case to prove that Vikram wrote the alleged threatening emails. The case was built primarily on suspicion by certain persons in the University for reasons which are totally unrelated to the case against Vikram.

The facts of authorship of the emails are extremely weak. Many others could have very well written this email. THERE IS NO DIRECT LINK TO VIKRAM. Vikram almost certainly didn’t write them, leave alone remotely threaten the US President in any form or manner (even assuming that the emails were considered a direct threat – which is a matter I believe irrelevant to the case against Vikram if he did not even write the emails in the first place).

To convict someone of a crime there must be a direct proof (that excludes others entirely) linking the facts of the crime to the person who is alleged to have committed the crime. NO SUCH PROOF EXISTS. To thereafter convict Vikram based on such a flawed basis is a travesty of justice. I am now convinced by the explanations provided by Somnath that on the balance of probabilities, Vikram has been unjustly treated by the law in USA.


Vikram's defence lawyers provided by the US Government (Somnath was yet to even hear about this case) chose to provide a very weak defence which did not seek to dismiss the case on the grounds that the basic allegation – that Vikram had drafted these emails – had not been conclusively proved. They argued second order and essentially irrelevant issues, such as where was a threat implied by the emails. Why they did not argue that the case be thrown out entirely because of a lack of direct link of emails to Vikram is not known. Possibly incompetence.


By the time Somnath got to the Vikram Buddhi case, it had been mangled to an extent that made it extremely difficult to fix it. The main obstacle now is that an appeal cannot introduce new evidence (if such evidence were allowed, Somnath should be readily able to demonstrate that Vikram did not draft the emails). 

Somnath is now constructing a much weaker (technical) appeal the chances of success of which are significantly lesser than would have been the case had a competent lawyer argued the initial defence, or the initial judge been more inquisitive about the facts. It is also possible that in order to avoid public humiliation of its justice system and damage to its human rights record, the US could well compound the mistakes already made in this case during the appellate process.

One can only hope that the US system will uphold ITS HIGHEST CONCEPTIONS OF LIBERTY AND JUSTICE for the defence of which the US came into existence. I suggest that the US Government deploy its best experts to study the case carefully and seek to confirm for itself beyond doubt that Vikram did indeed author the emails he is being convicted for given that it is almost certain that he did not.


Even if the position of the US Government does not change during the appellate process and the original (wrong) conviction against Vikram is upheld, I do hope that Vikram will, upon his release which is set for 6 May 2011, write a book that tells the world of the misjustice against him and the consequent loss of liberties he suffered in USA, the alleged greatest free nation on earth. One only hopes he does not harbour any personal bitterness against the USA or any individual during this process.


I would like to wish Somnath (and Vikram) success in the appellate process, and trust that Vikram is finally given justice and not only his reputation reinstated, but due compensation awarded by the US Government for the many years of wrongful imprisonment he has undergone (and will still undergo for the next 14 months).

I would also like to urge you, dear reader, to explore the case carefully and provide comments on this blog. I’ll seek Somnath's comment on issues that I am unable to address.

My comment added on 13 April 2010, being an extract from my draft manuscript, The Discovery of Freedom: "The USA became the first nation to comply with the rule of law, with the USA constitution insisting on the ‘due process of law’. It is a moot question whether the USA actually delivers the rule of law today."

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