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Jun 10, 2009

Economics in One Lesson: A review


"The art of economics consists in looking not merely at the immediate, but at longer effects of any act or policy, it consists in tracing the consequences of that policy not merely for one group, but for all groups.”

Usually considered one of the most important books in economics, Henry Hazlitt's classic, Economics in One Lesson, is an easy-to-read introduction to the concepts of economic liberty. This manifesto of free market economics has taught millions sound economic thinking. Written in a very lucid manner and revolving around the central theme of free markets, the book is as simple to read and understand as compelling and profound it is in its logic. The hardheaded, sensible and resonable way used to deal with the basic economic principles makes it clear that economic idealism which entails in expansion of government's intervention in markets often results in tyranny,corruption and ultimately waste of resources, impoverishing the majority. The logics presented are based on the common senses and basic economic principles and hence even the most determined anti-free market activist can't afford to ignore them.

The book was written when Hazlitt was an editorialist at the New York Times with the hope of creating a book on economics that would boil down all the principles of economics into few simple lessons that even layman would understand and never forget. Fortunately, the book has proved to be successful in its intent.

The book was written based on some stories by Bastiat and it was the book that made the the idea of the "broken window fallacy" so famous.A must read book for anyone interested in understanding how economy works and thinking like an economist. Besides, after reading the book , you will think twice regarding the economic decisions being made around you.

May 24, 2009

Diary of just another Saturday!


I am not much of a socializer despite of being aware of the fact that Social skills are arguably the most important set of abilities a person can have. A social skill is any skill facilitating interaction and communication with others. Social rules and relations are created, communicated, and changed in verbal and nonverbal ways. The process of learning such skills is called socialization. So, i had a thought today, I am going to meet a lot of people today and interact with them. Fortunately, the day favored me.

Early morning, I met with a lawyer along with my family members and relatives to discuss over some legal matters. I usually did not use to interact with my relatives which I did today. After three hours of heated arguments and discussions , the meeting had a positive conclusion.

The early afternoon I went over to the Book fair being organized in Bhrikuti Mandap accompanying a friend telling him ( I had hoped it would be her but I couldn't ask her out ...lack courage..dammit) about the anecdotes and stories about the books that were there. Like what made Daphne du Maurier write the novel "Rebecca" , what compelled James Fenimoore Cooper to write "The Last of Mohicans" , who is Warren Buffett? How he started investing at the age of 11? His peculiar habits. Who was Dale Carnegie and how are his books? What are my most favourite self-help books? etc etc...I love looking at books and reading the blurb but am not much interested in buying them thaks to the public libraries and ebook torrents.

Then we went shopping for movies...(it reminds me that i haven't reviewes a movie for a long time but i will surely do it in near future)... Another series of story telling started ..only that this time the subjects were movies...which movie has what rating in IMDb, When was a movie released, Did it win any oscars or the Cannes? The shopkeeper where i always buy the DVDs greeted me with an apologetic smile for the third time for not having any new "old movies". I have exhausted his collection of movies that are on the IMDb top 250 and have been asking for more which he has been able to cater for. Anyway, how could i return empty-handed? So, I bought "Traffic" and "Jerry Macguirre" and asked my friend to buy "Million Dollar Baby" and "Cidade De Deus" for their second viewings.

Late afternoon, friend offered lift upto Baluwatar where the new office of Youth Initiative is situated. Connected and reconnected with some new people and lots of friends there. Sometimes I find it an easy and exciting job interacting with people or herd of people and sometimes I wish no one even looked at me (I am not talking about when I am feeeling down...)

Evening bought a pleasant and exciting surprise. Some friends suggested we go to Osho Gangotridham for Satsang. Boy, I had been to many Satsangs but never had so much fun before. Break dance at the fast track of "Om Nama Sivaye" and bhramar dhyan was so thrilling. Plan to be there again.Tired physically, alert mentally I reached home to watch "Once" an Irish musical and "City Lights" the Chaplin comedy. Both were great movies, loved watching both of them.

End of diary of just another day!!
Thank you for reading so patiently!

May 12, 2009

How voucher system can improve Nepalese Education?


Introduction:

"[I]n this century, the wealth and success of nations will depend like never before on the ability to produce and use knowledge." -Lawrence Summers, president of Harvard University

Photo by: asia-youth-leader.org
With the recent conflict of the private educational institutions and the government, the age-old battle between the two has begun once again. The newly declared “Education Tax” that was levied at 5% on private schools lit the spark of controversy this time. Though the ensuing conflict has been resolved for now, both the parties have been left alienated and rumors of nationalization of the private education institutions are rife, which is likely to cause further conflict in future as well and further deteriorate the already pathetic education level.

Despite of private educational institutions often being accused of profit-centred, culprits for commercializing education, they have been far superior in the quality of education as compared to the government run schools. As per the School Leaving Certificate exam results, more than 80% of the private schools pass their exams whereas, less than 40% of the students from public schools pass the exams. Had not the private institutions been in the picture the pass percentage would drop down to less than 20%. Due to the low level of performance of state-run schools, it wouldn't be unwise to say “Our government provides schools but not education.”

Right to education has been considered as a fundamental right in our constitutions. Our government has been spending huge amounts of funds and has tried various ways to ensure that every citizen receive the right education. But still, our educational system is bogged down by the traditional and unscientific approach. The poor performing public schools haven't helped to alleviate this scenario. So what exactly is wrong with our public schools?

To understand this, we need to look at the two different ways these two systems are operating. The government run schools get their funds from the government and are accountable to the government itself. They are in no ways accountable to the students, who are directly affected by the service provided and there isn't any incentive system designed to make these schools responsible and accountable towards the students.

The performance of such schools isn't linked with the funding and accountability linked to its primary stakeholders, that's why irregularity of teachers, lack of proper use of resources, lack of performance appraisal system, lack of responsibility, lack of competitiveness, lack of innovation are the major problems ailing these schools and the concern of parents or students over the poor performance is of no avail.

On the other hand, private schools generate their funds from students and are accountable to the students and their parents. The performance of a school is a strong determinant of the amount of profit or revenue it makes. If a school doesn't perform well or lives up to the expectations of the parents, the parents can choose to move elsewhere. This freedom of choice on the part of parents makes private schools perform better than public schools. Their funding is directly linked with their performance. No matter, how badly people may criticize private schools for being expensive and profit oriented, no person has ever moved their children to the state-run schools despite of having the choice to do so.

Therefore, if we analyze it clearly, state's policy of funding the schools not the students which has limited choice among students is the primary culprit of poor performance of state-run schools. Nationalization of schools would not only further degrade the quality of education but destroy the whole educational system infiltrating it with politics and vested interests of the decision makers.

Education Voucher: A way out

An education voucher also known as school voucher is a certificate issued by the government which the parents can use to pay for the education of their children at the school of their choice. The voucher may cover the full or partial cost of the education. The voucher is usually non-transferable and hence cannot be used by another person or for any other purpose other than education.

Under the system, the government issues education vouchers to the students which they submit to the school they want to study. The schools then deposit them in their bank accounts and the banks then credit the school accounts by equivalent money while debiting the account of the government. No money actually changes hands, only the voucher moves from the student to the school, and back to the government.

Nobel Prize winning economist Milton Friedman argued for the modern concept of vouchers in the 1950s, stating that competition would improve schools and cost efficiency. The view further gained popularity with the 1980 TV broadcast of Friedman's series "Free to Choose" for which volume 6 was devoted entirely to promoting "educational freedom" through programs like school vouchers. Vouchers have since been introduced in countries all over the world but are controversial as they reflect political and ideological splits as well as limiting the role of unions in education. (Wikipedia)

School vouchers provide the students with the ability to choose among schools. They can choose the schools. If a school fails to meet the expectations of the students or the parents, they can move to a better school with their voucher. The voucher system would transform the apathetic schools to competitors vying for competition, eager to please their consumers with quality service. The institutions are forced to operate at higher efficiencies when they are allowed to compete and any loss of supply and demand for public institutions would be offset and equalized by the increased demand for private institutions. The voucher system not only increases choice for students, it also promotes equality of opportunity to all students regardless of their age, caste or creed, which would help in creating the inclusive New Nepal we are talking about.

Implementation of the voucher system would not only promote quality education but also improve the public opinion of public schools with their increased efficiency. Besides, these voucher system also provides incentives for the schools to increase the student enrollment and improve quality to retain the number of students since the funding of the schools directly depends on the number of students they serve. Competition between schools, will lead to increased school accountability. And, increased school accountability, in turn, will encourage individual schools to experiment with different educational approaches in order to find those that work best for the students they serve.

Voucher system brings win-win outcomes as government school students who get a voucher are able to change schools and do better for them. Evidence suggests that even those students who stay in government schools also perform better. First, the student-teacher ratio improves and second, schools become more attentive to stop student numbers from going down further. All students achieve better learning outcomes.

Education Voucher and the enrollment campaign

Low school enrollment is another major problem our country is facing. Some eight percent children belonging to school-going age are currently staying away from schools in Nepal, according to DoE. Of the total children enrolled in schools, some 12 percent children drop out their studies.

The government has been organizing campaigns to increase the enrollment rate for more than five years in order to meet one of the Millennium Development Goals. i.e. Education for All. The campaigns have been moderately successful but haven’t been able to achieve satisfactory results.

Implementation of the voucher system would help in achieving this goal since voucher system provides incentives for the schools to organize similar campaigns themselves. The schools would spontaneously work towards increasing enrollment rate.

Evidences have shown that voucher system increases school enrollment rate significantly. Chile saw an increase of 30% in school enrollment rate with the introduction of the system. Similarly countries like Colombia, Czech Republic, and Italy also saw increase in enrollment rates.

Voucher system would surely help in increasing enrollment rates and reducing the drop-out rates in our country.

Education Voucher and Social Inclusion

Education is one of the most pre-requisite for fulfilling the Utopian dream of New Nepal and the education system should be able to cater to the needs of all the citizens of the country regardless of their caste, origins, and regions. Government’s recent decision to impose tax on private schools had been on the pretext of providing free education to children from backward regions, Dalits and Madhesi community.

Implementation of voucher system would help the government in this cause without alienating the private schools. As it’s clear that even if the government raises the so called education service tax all it can provide the target children with schools but not with the education. Voucher system would help to break the barriers that prevent the children from above mentioned communities from going to school.

Evidences have even suggested that students from marginalized communities benefit more from the voucher system by empowering them and making them feel confident and competent to their advantaged classmates.

Controversy

Like every sound idea, voucher system isn’t free from criticisms and most of the criticisms of the voucher system are ideological rather than practical considerations. Voucher system having its origins to free market capitalism is very prone to hostility from political leaders opposed to free markets and liberalism. Policy makers and state officials who have their interest safe guarded in the status qua would be very reluctant to listen to the arguments of voucher system let alone the implementation of such policy. Parties inclined to socialism would find the idea of promoting competition to improve education might find the idea against their ideologies.

Moreover, such a system would meet very hostile opposition from the parties benefiting from the present educational system. Education officials, government school teachers, labor unions of educational institutions are found to be vehemently opposing the education voucher system which seems natural as they are the only people who are being benefited from the current educational system and are likely to have adverse effects on their interest with the proposed new educational system.

Conclusion

Implementing the voucher system is the best possible way of improving the Nepalese education system. Education vouchers are the answer for the current ineffective and inefficient Nepalese education system especially the public education system which seeks to improve these institutions through the discipline of market. Education vouchers will remove the burden of providing education from the government, increase efficiency and accountability of the educational institutions, promote innovation through competition, bring down the cost of education children with more efficient use of resources, increase school enrollment rates to achieve one of the millennium development goals by creating incentives for schools to enroll more children, create a more inclusive Nepalese society by removing barriers for children of certain communities to go to school, promote freedom of choice among students and moreover empower the low-income students to receive education and thereby building an effective educational system for the free and prosperous New Nepal.

In a country like Nepal, where majority of population lives under the poverty line, education vouchers would come as a boon for the population under the poverty line as poor people are the only people who are trapped in the schools that don’t work for them and can’t afford to move to the schools that meet their expectations.

A strong political will, genuine concern for future of Nepal and a positive attitude towards free markets and freedom of choice are the necessary pre-requisites for implementing the education voucher system and thereby creating an educated and prosperous Nepal.

References:
  1. http://www.allianceforschoolchoice.org/UploadedFiles/ResearchResources/Competition-%20Hoxby.pdf
  2. http://schoolchoice.in/schoolchoice.php
  3. http://www.asiantribune.com/?q=node/16821
  4. http://www.asiantribune.com/?q=node/16821http://schoolchoice.in/globalexperience.php
  5. Elacqua, Gregory. “Enrollment Practices in Response to Vouchers: Evidence from Chile.” National Center for the Study of Privatization in Education (NCSPE). (2006) 7.
  6. http://schoolchoice.in/globalexperience.php
  7. http://www.nepalnews.com/archive/2008/sep/sep23/news14.php
  8. Herbet J. Walberg ,”School Choice the findings” Cato Institute 2007 p. 42

Apr 29, 2009

Common Sense Economics: A review


Though, my blog has readers almost next to none but still I must say it has been a long long time since I updated my blog and I was afraid that my blog was slowly going into oblivion. Looking around in search for something to post , i found a short review I had written about this book called "Common Sense Economics", which one of the first book i read in my quest for understanding free market economy and its importance. I present my readers my review .


Common Sense Economics

What Everyone Should Know About Wealth and Prosperity
By James Gwartney, Richard L. Stroup, and Dwight R. Lee

Economics and fun have long been an oxymoron to a layman. Economics has been accused of being too abstract, irrelevant, unrealistic and boring subject but here comes a book that defies all these notions. "Common Sense," subtitled "What Everyone Should Know About Wealth and Prosperity," contains a wealth of information about the major sources of economic progress, economic progress and the role of government, and important elements of practical personal finance. Written by three of the most prominent economists of today, this book acts as a bridge between common sense and the basic principles of economics. Its language is simple, clear and straightforward but not at the cost of any important insights and basic economic theories. It is a book with strong message justified by strong arguments- economic progress is the result of competitive & free markets, of individual initiatives and minimalist state.

The last section of the book contains finance principles on how to invest your money, using the principles of compound interest and how to get more out of your money. There's nothing in the book that goes beyond common sense, something rare these days.

Summary

Part I: The Key Elements of Economics

-Incentives matter
-No matter what people care about personal costs and benefits. Incentives play vital role when people make specific decisions
-Applies to economical, political and social situations, selfish and altruistic acts.
-There is no such thing as a free lunch.
-Productive resources that fulfill human desires are limited whereas human desires are virtually unlimited
-Everything has a cost, direct or opportunity cost. If a resource is free for a person, then the cost is being borne by someone else.
- Decisions are made at the margin.
-Decisions or choices always involve additions to, or subtractions from current conditions, rather than "all-or-nothing" decisions.
-Political actions also reflect decisions made at margin.
-Trade promotes economic progress.
-Trade moves goods from people who value them less to people who value them more.
-Trade makes larger outputs and consumption levels possible because it allows each of us to specialize more fully in the things that we do best.
-Voluntary exchange makes it possible for firms to achieve lower per-unit costs by adopting mass production methods.
-Transaction costs are an obstacle to trade.
-Costs incurred in transactions make trade costly.
-Not all middlemen are obstacles; sometimes they reduce transaction costs by brokering deals.
- Profits direct businesses toward activities that increase wealth.
-People earn income by helping others.
-Only if people value a person's service will they be paid
- High earnings come from providing goods and services that others value
-Economic progress comes primarily through trade, investment, better ways of doing things, and sound economic institutions.
-Investments in productive assets (e.g. tools and machines) and in the skills of workers enhance our ability to product goods and services.
-Improvements in technology spur economic progress.
-Improvements in economic organization can promote growth.
-The "invisible hand" of market prices directs buyers and sellers toward activities that promote the general welfare.
-Too often long-term consequences, or the secondary effects, of an action are ignored.

Part II: Seven Major Sources of Economic Progress

-Legal system: The foundation for economic progress is a legal system that protects privately owned property and enforces contracts in an even-handed manner.
-Private ownership encourages wise stewardship.-Private ownership encourages people to use their property productively.
-Private owners have a strong incentive to develop things that they own in ways that are beneficial to others.
-Private ownership promotes the wise development and conservation of resources for the future.
-Competitive markets: Competition promotes the efficient use of resources and provides a continuous stimulus for innovative improvements.
-Competition places pressure on producers to operate efficiently and cater to the preferences of consumers. Firms that fail to provide consumers with quality goods at competitive prices will experience losses and eventually be driven out of the markets.
-Competition gives firms a strong incentive to develop better products and discover lower-cost methods of production.
-Competition also discovers the business structure and size of firms that can best keep the per-unit cost of a product or service low.
-Limits on government regulation: Regulatory policies that reduce trade also retard economic progress.
-Many countries impose regulations that limit entry into various businesses and occupations.
-Regulations that substitute political authority for the rule of law and freedom of contract will tend to undermine gains from trade.
-The imposition of price controls will also stifle trade.
-An efficient capital market: To realize its potential, a nation must have a mechanism that channels capital into wealth-creating projects.
-To make the most of its potential for economic progress, a nation must have a mechanism that will attract savings and channel them into the investments that are most likely to create wealth.
-Monetary stability: Inflationary monetary policies distort price signals, undermining a market economy.
-Low tax rates: People will produce more when they are permitted to keep more of what they earn.
-High tax rates discourage work effort and reduce the productivity of labor.
-High tax rates will reduce both the level and efficiency of capital formation.
-High marginal tax rates encourage individuals to consume tax-deductible goods in place of nondeductible goods, even though the nondeductible goods may be more desirable.
-Free trade: A nation progresses by selling goods and services that it can produce at a relatively low cost and buying those that would be costly to produce.
-The people of each nation benefit if they can acquire a product or service through trade more cheaply than they can produce it domestically.
-International trade allows domestic producers and consumers to benefit from the economies of scale typical of any large operations.
-International trade promotes competition in domestic markets and allows consumers to purchase a wider variety of goods at lower prices.

Part III: Economic Progress and the Role of Government

-Government promotes economic progress by protecting the rights of individuals and supplying goods that cannot be provided through markets.
-Government is not a corrective device.
-The costs of government are not only taxes.
-There is the loss of private-sector output that could have been produced with the resources that are now employed producing the goods supplied by the government.
-There is the cost of resources expended in the collection of taxes and the enforcement of government mandates.
-There is the cost of price distortions resulting from taxes and borrowing.
-Unless restrained by constitutional rules, special interest groups will use the democratic political process to fleece taxpayers and consumers.
-Unless restrained by constitutional rules, legislators will run budget deficits and spend excessively.
-Government slows economic progress when it becomes heavily involved in trying to help some people at the expense of others.
-The costs of government income transfers are far greater than the net gain to the intended beneficiaries.
-An increase in government transfers will reduce the incentive of both the taxpayer-donor and the transfer recipient to earn income. Economic growth will thereby be retarded.
-Competition for transfers will erode most of the long-term gain of the intended beneficiaries.
-Programs that protect potential recipients against adversity arising from their imprudent decisions encourage them to make choices that increase the likelihood of the adversity.
-Central planning replaces markets with politics, which wastes resources and retards economic progress.
-Central planning merely substitutes politics for market verdicts.
-The incentive of government-operated firms to keep costs low, be innovative, and efficiently supply goods is weak.
-There is every reason to believe that investors risking their own money will make better investment choices than central planners spending the money of taxpayers.
-There is no way that central planners can acquire enough information to create, maintain, and constantly update a plan that makes sense.
-Competition is just as important in government as in markets.
-Constitutional rules that bring the political process and sound economics into harmony will promote economic progress.

Part IV: Twelve Key Elements of Practical Personal Finance

-Discover your comparative advantage.
-Be entrepreneurial. In a market economy, people get ahead by helping others and discovering better ways of doing things.
-Providing others with goods and services that are highly valued compared to their cost is the key to financial success.
-Spend less than you earn. Begin a regular savings program now.
-Don't finance anything for longer than its useful life.
-Two ways to get more out of our money: Avoid credit-card debt and consider purchasing used items.
-Begin paying into a "real-world" savings account every month.
-Put the power of compound interest to work for you.
-Diversify-don't put all of your eggs in one basket.
-Indexed equity funds can help you beat the experts without taking excessive risk.
-Invest in stocks for long-run objectives; as the need for money approaches, increase the proportion of bonds.
-Beware of investment schemes promising high returns with little or no risk.
-Teach your children how to earn money and spend it wisely.


Apr 8, 2009

Estonia: The little country that could!



Being a libertarian, I am always fascinated by the progress achieved by Estonia by transforming its its economy from a centrally planned structure under Soviet Communism to a free market economy. Estonia is currently the 41st country among the countries with the highest per capita income. It has rose from oblivion to recognition for its economic freedom,its adaptation of new technologies along with being one of the world's fastest growing economies for several years.

I was scanning through the Wikipedia and found these facts about Estonia, maybe we could learn something from her. Maybe, we (Nepal) could be a little hopeful about breaking this vicious circle of poverty.

In August 1940, Estonia was illegally annexed by the Soviet Union as the Estonian SSR. The provisions in the Estonian constitution requiring a popular referendum to decide on joining a supra-national body were ignored.

TheEstonian Sovereignty Declaration was issued on November 16, 1989 and formal independence declared on 20 August 1991, reconstituting the pre-1940 state, during theSpviet military coup attempt in Moscow. The first country to diplomatically recognize Estonia's reclaimed independence was Iceland. The last Russian troops left on 31 August 1994.

In 1994, Estonia became one of the first countries in the world to adopt a flat tax, with a uniform rate of 26% regardless of personal income. In January 2005 the personal income tax rate was reduced to 24%. A subsequent reduction to 23% followed in January 2006. The income tax rate will be decreased by 1% annually to reach 18% by January 2010.

A balanced budget, almost non-existent public debt, flat-rate income tax, free trade regime, fully convertible currency backed by currency board and a strong peg to the euro, competitive commercial banking sector, hospitable environment for foreign investment, innovative e-Services and even mobile-based services are all hallmarks of Estonia's free-market-based economy.

Estonia Ranks 22nd in the index of Civil and Political Liberties.

Although Estonia is in general resource-poor, the land still offers a large variety of smaller resources.

The Estonian energy market liberalization is in progress and should be completed before 2009, as well as all of the non-household market, which totals around 77% of consumption, before 2013.
Please share your comments!!



Apr 2, 2009

"Good artists copy... Great artists steal" Pirates of Silicon Valley : A Review


Pirates of Silicon Valley (1999)

Directed by:Martyn Burke
Runtime: 95 min

IMDb: 6.7/10
RottenTomatoes: 84%

I watched this documentary while screening it at a program about entrepreneurship. Being avid fan of information technology and internet, and entrepreneurship and a guy with dreams of changing the world, it was a feast for me. The documentary is an interesting look on how two of the most prominent personalities of IT industry Bill Gates of Microsoft and Steve Jobs of Apple Computers,started their ventures from basements and used their unique personalities to grow their businesses into empires and dominate the computer world. I was delighted to know the kind of businessmen they are today compared to how they began.

Besides this, the documentary also manages to capture the developments in computer industry which determined the nature of modern computing. Ignorance and lack of far sighted vision of Xerox and Hewlett-Packard, Steve Job's artistic vision and personality, Bill Gates ruthless business practices, innovative computer scientists are some of the most important things that shaped the computer industry and the documentary presents them well.

The documentary isn't very kind to its subjects, Bill Gates is portrayed as a ruthless,sociopath who is determined to destroy every enemy that comes into his way. Steve Jobs is shown as a visionary but at the same time a slave driver and a cruel person ( as he refuses to accept the young girl as his daughter). I think it adds to the neutrality of the documentary.

To talk about the negative aspects , the documentary is boring at times and historically inaccurate in some places.

Overall, a good watch for people with inclinations towards IT industry and for those who dream of changing the world.

Thank you reading patiently!

Apr 1, 2009