Thursday, January 20, 2011

Myth: Governments can create employment

Yesterday, Minister of State for Shipping Nabeel Gabol resigned. According to Dawn his reason for doing so was that he failed to provide his voters with jobs. Herein lies one of many myths that politicians try to sell to people when they need their votes.

Governments cannot create jobs. This is a false notion. It stems from having a shallow understanding of economics and the job markets. Governments can't create jobs because they don't produce anything. If governments do take over certain sectors of service and production, as is the case in Pakistan, the result is inevitably inefficiency and loss. There is ample evidence of this from history. The collapse of communism/socialism should be enough to convince anyone that this model does not work.

If the government chooses to run the ports, they will inevitably be run inefficiently. Depending on political pressure, the government run institutions will be expected to hire regularly. Even if the institution suffers losses, and does not need any more employees, politicians will continue to force recruitment. In addition, politicians in an inevitably corrupt democracy, will push through incompetent people who will not only be useless for the job they are hired for, but will lead to the institution's downfall. Thus we see in the case of PIA and the Railways.

This will also lead to a culture of lethargy and inefficiency, where instead of investing time and effort to learn skills, people will simply depend on these government sanctioned jobs. Hard work will give way to paper pushing. Jobs will be invented just to satisfy the publics lust for employment without introducing any meaningful gains in the service or product manufactured.

Not only is this bad for the particular institutions, it is also bad for the general public. Hard working individuals working in the private sector will be expected to pay these government workers' salaries. After all, the various taxes we pay go to the government, and then into the pockets of its workers. And if taxes are not enough, they will be raised. In addition loans will be taken from international organizations further burdening the private, hard working individual who will be expected to pay them back. In the meantime, politicians will bicker and quarrel about whether or not to close down or privatize the monstrous, inefficient near-bankrupt institutions they helped create.

This is not creating employment. Employment is only created through private endeavor. A private individual (or group of individuals) invests his money into a plant, factory, restaurant, shop etc. which brings something new to the market, or increases the existing products' supply. This entity then hires employees paying for them out of the profits it makes, or expects to make. The public benefits because it has a new product to buy, or cheaper existing products to buy. This is economic activity that overall increases the wealth of the community.

When governments meddle in the creation of products and economics, the management is handed over to government employees or politicians who don't care about profit or loss. A private company that was taking losses would eventually have to shut down. This would remove an inefficient drain on resources out of the market. The capital thus freed would be invested in newer more efficient avenues and the employees would be able to move on.

Ideas like this that governments can possibly allow people to be gainfully employed are based on narrow thinking. People need to look at the whole picture. Otherwise more harm will be done.

The only job of a government is to avert injustice and settle disputes. When governments become too big, they become a burden on the civilians they claim to serve. This is why the Khulafa-ar-Rashidoon did not interfere in peoples' matters, or the markets, or production. This is not the way of the Prophet (S.A.W.S). Everyone needs to be gainfully employed, meaning they should use their skills to serve some economic purpose. When the beggar came to the Prophet (S.A.W.S), he made him buy an axe. Why? So that the beggar could cut wood and earn a living. Not only does this make a person feel independent and restores his honor, but it also serves the public. The wood he sold at the market helped someone stay warm at night.

We should oppose all actions to increase the size of the government and try our utmost to bring back the fair and just system of Khilafah that Allah and His messenger (S.A.W.S) ordered us to establish.

I advise anyone who is interested in really learning economics to read the book "Economics in One Lesson" by Henry Hazlitt, in which he exposes this and other myths perpetrated through ignorance and short-sightedness.

I pray that Allah may grant us the wisdom and vastness of thought to understand and implement fairness and justice.

Saturday, January 15, 2011

Weekend Reading

Gonzalo Lira argues that democracies inevitably destroy themselves with debt. In light of which, we must ask ourselves: why do we want democracy?. Why do we want to impose un-payable debt on our children and grandchildren by imposing a regime that is by its very nature flawed and ripe for corruption? This is for those people who blindly follow the West's lead to democracy without considering all the consequences.

"I have the argument that explains why fiscal deficits happen. Moreover, I can explain why fiscal deficits occur in a democracy in a manner which is different from any other sort of regime. My theory can explain why fiscal debts in a democracy grow once they start, and I can explain why this growth in debt inevitably, inexorably leads to the bankruptcy of the democratic regime.
In fact, I did my civic duty: I listened to all the arguments, and I voted for all the bills. I think we should cut taxes—so when it came to a vote, I voted in favor of the Lower Taxes Bill, which passed. But I also want more government services—so when it came to a vote, I voted in favor of Mary’s More Government Service Bill, which also passed.
This is the democratic fiscal incoherence, a situation unique to democracies.

"We can regress to smaller and smaller groups—from oligarchy, to technocracy, to committee, to triumvirate—but the Bankruptcy Paradox will always happen, unless there is a single man who decides the issue of fiscal policy—and that man’s name is Dictator." -- Author (emphasis mine)

Well, not necessarily "dictator". A khalifah is not a dictator even though he is the sole decision maker in a Khilafah. He is accountable to the public for his actions. The decision making right is his alone, which resolves the paradox, but he is still answerable in the Dar-al-Mazalim.

The article is a bit involved as it goes into logic and philosophy, but it is definitely worth a read. It is as relevant to Pakistan as to the US for which it was written.

Read more here

Friday, January 7, 2011

Weekend Reading

Vladimir Putin and the US duke it out
" One state and, of course, first and foremost the United States, has overstepped its national borders in every way. This is visible in the economic, political, cultural and educational policies it imposes on other nations. Well, who likes this? Who is happy about this?" --- Putin
"Where do we see any evidence that the UN prevents wars or that international law serves any purpose other than to provide an excuse for future aggression by the US or Israel?" --- Author

Read more here.

The reality of the threat of Al-Qaeda. Although I do not completely agree with the solutions offered (there can be no utopia in the world because "most of them are rebellious" --- Quran). It is still a good read to catch up with facts and statements.

"Bin Laden was, though, a product of a monumental miscalculation by western security agencies. Throughout the 80s he was armed by the CIA and funded by the Saudis to wage jihad against the Russian occupation of Afghanistan. Al-Qaida, literally "the database", was originally the computer file of the thousands of mujahideen who were recruited and trained with help from the CIA to defeat the Russians." --- Robin Cook

"In reality, the problem of terrorism originates directly from within Western governments, mainly the United States, England, and Israel - governments that are not democratic, but authoritarian, and rely on secrecy, misinformation, and deception to promote policies that enrich a few well-connected individuals who are powerful and immoral enough to negatively influence government legislation and government policy." --- Author

Read more here

An economic look at the US' future

“We’re not going to allow our American friends to melt the dollar,” said Mr. Mantega, [Brazil’s finance minister] who views the US government’s move to pump $600bn (£387bn) into its economy as an unfair attempt to help exports."

Read more here

Wednesday, January 5, 2011

Salman Taseer shot and killed

I have been to taught to say

when someone dies. I am not an Aalim and I do not have the authority to say if someone is a kafir. So I said the above when Salman Taseer's death came on the news. To Allah do we belong and to Allah is our return.

Understanding just that one line can move mountains. No matter what we do, no matter how we may try to hide from the fact, one day we will die. And that day will our life be judged. We cannot escape it. It doesn't matter how many security guards we may have, or how thick our fortresses may be, or how powerful our weapons. When Allah wants something done it happens. All the armies of Nimrod and all it took was a mosquito for him to meet his Maker. All the power and glory of Pharoah and it was all gone in a moment's rage of the Nile.

Be careful all you who hold power over the meek. You will have to answer for all your excesses one day. And nothing can protect you from Allah's wrath. Not even the US. Even Holbrooke met his death.

What is the point of having "Islamic Republic of" in front of "Pakistan" if governmental leaders regularly enjoy wine and women. Anyone who says Pakistan is an Islamic state is a liar.

But remember,

"Remember how the Unbelievers plotted against thee, to keep thee in bonds, or slay thee, or get thee out (of thy home). They plot and plan, and Allah too plans; but the best of planners is Allah." ---[TMQ (Yousuf Ali), 8:30]

The pieces are fast falling into place now and insha Allah it will not be long.

Saturday, January 1, 2011

Regulation of oil prices

Today's Dawn ran a story about the price of oil in Pakistan. What caught my eye was the language of the headline

Petrol prices raised by 9pc Ogra’s New Year gift to nation

Hidden in this sarcastic comment is the reflection of a nation's way of thought. People in Pakistan have succumbed to the illusion that government is supposed to keep prices in check. This is one among a number of myths about governments that have entered deep into the minds of the Pakistani people (and indeed the minds of the world's people in general).

What people don't realize is that government is not supposed to fix prices, or build houses, or make jobs. These claims are motivated only by political posturing, and are used by politicians to gain campaign success. They have nothing to do with reality.

The fact of the matter is that oil prices are going higher throughout the world! All oil producing nations are raising the price of oil and are predicting even higher rates. There seems to be no lowering of oil rates in the foreseeable future. Look at the history of oil prices. Do you see them getting lower? Yes there's a spike in 2008 when the US financial crisis hit, but that's about it. In fact, predictions are hot that oil might pull a $150 in the near future, possibly next year. And this time it will be a sustained price increase!

Here's a simple logical argument that anyone would be able to follow. Let's say even though the government of Pakistan purchases oil from Arab nations at an increasing cost, it does not raise domestic rates for oil and keeps them low. The domestic consumer is happy and thinks the government is the best they've ever had and would probably vote for them again. But look a little deeper. The government has to make up the cost. It is selling oil to the citizens at a lesser price than it costs the government to purchase it. So where does the extra money come from? The government does not make money because it doesnt produce anything!

Taxes! The money the government uses to bring up the shortfall in the petrol prices comes from taxes. That is, the money the government takes from you, the ordinary citizen by force! Sales tax, income tax, Withholding tax, RGST... you name it, they'll tax it.

In effect the citizen pays for the rising price of oil! There is no difference in price of oil between the international market and the local market. Because the difference is being made up by stolen money in the form of taxes. We are merely duped into believing that we are paying less for oil, while in reality we are paying exactly what we should be paying. In effect, price fixing has no effect whatsoever.

This is not to say that the increasing oil prices are a good thing. Of course not. This will definitely lead to a crisis! Think about it. Once the price of oil increases, the price of food increase, because oil is used to fill up the trucks that bring food from interior Sindh and Punjab to your city. Doesn't matter about gas prices because diesel trucks don't run on gas. Neither do freight ships (which are used to cover up shortfalls in crop production). Not only this, but increasingly we are dependent on oil derived products like plastics, asphalt and tar for roads, wax, lubricants and the list goes on. Here's a complete list by the way.

Expensive petroleum is bad bad news. For everyone.

But so is thinking that government can keep a lid on prices. It can't. It merely acts as if it can. Its an illusion. A smoke and mirrors show. Wake up and smell the putrid industrial effluent folks, you're being conned!