Scarcity and Socialism

Life means reproduction and survival up to the age of reproduction. That survival requires energy that we receive by consuming various goods. There are two types of these goods. One that we use directly to satisfy our needs and second that indirectly satisfies our needs. The first one is called consumer goods and the second producer goods. The problem that we all face is that the supply of these goods, in relation to its demand by all of us, is scarce. Scarcity is the basic condition of our lives.

Now, if we want to improve our material life, which is a fundamental necessity and basis of all other needs, then we will have to reduce this scarcity as much as possible. If there are abundant goods available to fulfill our various needs then the quality of our life will definitely be better than a situation where those goods are not abundant. Riches is better than poverty.

The fundamental question that arises from this fact of life is, which system will help us in increasing the supply of those two types of goods and remove the scarcity as much as possible? The economic science, which deals with this question, gives us an unambiguous answer. According to the laws of economic science, only the system of Capitalism, with its private property rights and free markets, can help us in removing this scarcity. No other system can achieve this feat.

If Capitalism can reduce scarcity then its opponent system of Socialism (in all its colors like communism or interventionism aka mixed economy) does exactly the opposite i.e., it exacerbates naturally existing scarcity. The Chicago economist Milton Friedman very rightly said that,

If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand.

The classic example of this economic fact is recently passed policy of hiking wheat import duty by the Indian government to allegedly support local farmers. Reuters news reported,

India has raised its import duty on wheat to 40 percent from 30 percent, the government said late on Friday, as the world’s No. 2 producer of the grain tries to support local farmers.

And,

The step comes as Prime Minister Narendra Modi’s party looks to contain rural discontent due to lower crop prices amid voting in a general election that began on April 11 and ends on May 19.

Local wheat prices have fallen over 11 percent in 2019 due to ample supply from last year’s crop and forecasts of record output.

The hike in duty is likely to make imports of wheat unviable for flour mills even after recent declines in global prices, potentially dragging further on global grain markets.

“Local wheat production is higher. The government is now trying to ensure prices remain above support levels,” said Harish Galipelli, head of commodities and currencies at Inditrade Derivatives & Commodities in Mumbai.

This is typical government functioning where it is artificially creating scarcity to allegedly help some group of people by harming everyone in the end. As Henry Hazlitt said,

The art of economics consists in looking not merely at the immediate but at the 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.

This policy of hiking import duty is going to increase the price of wheat and that will harm all consumers. We have to remember that we all are consumers in the end, but we all are not producers. This policy might help some farmers get rich in the short run, but in the long run everyone will get poor because government is busy increasing scarcity.

When there is ample supply of wheat removing some of our scarcity, the government got busy increasing scarcity again via its duty hiking policy. They are doing this not to benefit farmers, as they are saying, but to benefit themselves in the form of more farmer votes and an election win. Basically, Narendra Modi is making all of us poor so he can remain in power for five more years.

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