Bastiat von Mises : Capitalism manages resources better through prices which are a signal for scarcity and abundance. The laws of supply and demand are at work at all times
Critic 1: In the above context, it is not an accurate reflection of market forces but of price gouging.
Bastiat von Mises : Jet airways and other private carriers have made air travel cheap for many ordinary Indians. They need to stay profitable or they will go out of business.
Price 'gouging' is perfectly acceptable as long as they are not using fraud or force to prevent others from providing the same goods and services. Jet airways (and other private companies and individuals) also have to pay the taxes needed to keep Air India running despite its colossal losses.
Critic 1: It is not that the private airlines are doing charity to help ordinary folks experience flying but are forced by the same market forces that you vouched for earlier. In addition to shareholders, businesses have moral and ethical obligations to customers they serve. Exploiting helplessness caused by extraneous events is fraud in those dimensions. This is not an opportunity to compensate private airlines for taxes they pay assuming they make profit or subsidizing Air India.
Critic 2 : Bastiat von Mises, this is first time I've heard anyone say price gouging in acceptable. Kool-aid anyone ? 😂😂
Critic 2 : Bastiat von Mises, proponents of unregulated free-markets forget some basic problems with the application of the theory in the real world -- markets do not have perfect information, markets can and are manipulated, and real humans use markets -- not perfectly rational and self-interested beings. That is why all sensible financial markets are regulated to some degree. Case in point --
http://america.aljazeera.com/opinions/2015/5/free-market-dogma-has-jacked-up-our-electricity-bills.html
Bastiat von Mises : Critic 1, Yes it is not charity that forces private airlines to cut prices. It is market forces , i.e competition. The same argument applies when they jack up prices. You win some, you lose some.
Air India is able to provide fares below market prices during crisis times not because they are charitable either but because they are slow to respond to the market situation. They are also cheap during these times but costly for the rest of the year as compared to private carriers. Even if they are cheap it is not because they are efficient in the operations but because they are subsidised by tax money.
The only moral and ethical obligation a business has to it's customers is to not commit fraud or default on a service.
Those who criticise private carriers should refuse to take their services even when it is cheaper - if you are paying from your own pocket as opposed to your employer's pocket. No point in making others pay for one's own ideals. The opportunity is not to compensate them but for the private operators to make hay when the sun shines. I see nothing wrong with it . They are not charitable organisations.
Bastiat von Mises : Critic 2, the unregulated free market drives efficiency and minimises waste. Adam Smith calls it the invisible hand of the market.
https://en.wikipedia.org/wiki/Invisible_hand
Free markets are not a theory to be applied on an engineering problem. They are a law of nature like physics - immutable. We ignore them at our peril.
Markets do not have perfect information, true. The premise here is that IF they did, they would automatically take the best possible decisions. Nope. Each participant will make the best decisions for themselves based on game theory. Everyone is afraid of the future and wants to somehow trust something. We are all desperate for someone to rip us off by giving us assurances. Sometimes it is a parent, sometimes a religious person, sometimes a god, politician, movie maker, etc. What markets have is free agents who interact with each other freely. Suggesting that an all knowing central authority whether a religious one or a political one or an economic one or of any other nature knows and will make rules for all is totalitarian.
Humans have an inability to face the future that only an intelligent and sentient species that depended in it's evolutionary past on a reliable climate for a stable supply of nutrition has. BTW that explains any calendar of any civilization.
Critic 1 : Bastiat von Mises, If you go back to the snapshot I put you will realize that Air India is also engaged in price gouging. Moreover I don't believe government should be in airline business. Since I had been an extensive domestic air traveler during 92 ~ 97 I have seen the dark side and enjoyed the choices and freedom offered by liberalization of airline industry.
However there is nothing called an unregulated competitive economy optimal for everyone. In the context of airlines engaging in price gouging:
"Current economic theory does recognize that if there is an "externality" the outcome won't be optimal, and most economists would agree that in such cases we need government intervention". This is a link to a recent article titled 'Faith in an Unregulated Free Market? Don't fall for it' -
http://www.nytimes.com/2015/10/11/upshot/faith-in-an-unregulated-free-market-dont-fall-for-it.html?_r=0
Bastiat von Mises : The only function of a government is to protect individual and property rights.
Externalities like the environment are commonly held property and so a company violating it beyond the accepted levels of that jurisdiction are guilty of trespassing. As regards those who sold fake drugs or drugs with only placebo effects are guilty of fraud or misrepresentation. Regarding protecting people from their own stupidity, I believe the government has no role to play. Protecting them from fraud - yes.
Critic 2: Bastiat von Mises, you're missing the point. Markets are not free in the real world. Powerful players will and do interfere in the market all the time. Take for instance high speed trading, highly leveraged equities and do on. Trusted sources lie. People are irrational. That's why the free market ideal is a disaster.
Critic 2: Same thing with communism.
Critic 2: Unregulated, pure ideology driven economics leads to false expectations and bad results.
Critic 2: Your idea of a government as a police force and nothing else is quite Orwellian. It does not exist today for a very good reason. Society suffers badly under such systems.
Bastiat von Mises : Critic 2 , As regards the electricity article, some of the higher costs may be due to various reasons. There is no such thing as a market failure. Only to a failure to meet the desired conditions of the critic.
Bastiat von Mises : I cannot comment on this as I do not have the data available with me and I only have first principles to start with .. however I would like to speculate a few possible reasons.
1. The states' govt run companies found it hard to produce electricity in a manner that is cost effective and so passed the buck (or should I say the lack of ability to make one) on to the private sector to avoid losing favour with the electorate.
2. The companies running the electricity generating facilities were a cartel and rigged prices. But this is possible only in a economy where you have to ask permission to a govt to produce anything' . i.e where there is a license and permit raj.
3. I strongly suspect that states where the costs to end customer are lower are those with a budget deficit
Critic 2: I give up.
Bastiat von Mises : Markets I agree are not free in the real world today. That is why I ask for them to be freed. Powerful players can interfere in the market in a way that is detrimental to customers ONLY with the force of government backing. No one can force us to part with our money or health with our full knowledge unless they use force.
Bastiat von Mises : Trusted sources do lie - like governments that bail out banks and car manufacturers who are 'too big to fail'. Many Individual people may be irrational. But they pay the cost for their follies themselves and serve as a signaling mechanism to peers and others in their vicinity. This is society becoming more rational over generations and how a system becomes anti-fragile over time - through evolution and not through intelligent design.
Bastiat von Mises : Government driven policies by an elite chosen few are in a true sense leverage on a national level as opposed to at a smaller corporate or individual level. That is the real Orwellian mechanism at work and not the free market - which is not ideology driven as asserted earlier. Government as a police force is a necessary evil and needed only to protect private property and individual rights. Not for anything else.
