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Monday, October 31, 2005

 

Could we learn something from india?

The Economist writes that the Indian economy has grown at around 7% or better for the past two years, and that it will in the future as well. It reads that Manmohan Singh, India's prime minister became every economist's darling when "tariffs were slashed, exchange controls scrapped, the licence raj that strangled business in red tape was largely abolished." His ease up on government regulation led to growth that the economist says, "tended to benefit everyone and harm no one." India definitely still has trouble, and it's democratic government gives it some advantage over china as far as being able to change things. Singh, when he was the finance minister deregulated industry to stimulate growth, and the magic of the invisible hand of economics went to work, increasing growth.

This India example is a classic example of how pareto improvements can be made to economies, as well as the economic health of a country. Lower taxes benefit growth. There is a quote in the magazine explaining the hard road ahead of India to sustain this growth. It states that the problems India is encountering "is a reminder of just how powerfully politics can constrain economics."

So, maybe we should lower taxes in America to increase growth and efficiency. Lower taxes would give more money to the people who are earning it in the U.S. More money in their hands would let them make their own decisions that would ideally put them on a higher indifference curve, and find a more efficient allocation of resources. This could be very useful considering that 50% of people in the U.S. don't pay income taxes, and the upper echelon of income earners find as many tax deductions and other advantages that they can. Economically speaking, if the government stopped taxing to pay for goods and services that aren't "public" in the economic sense, and gave people more money, there would be more incentive for growth, for development, for new products. This would enable people to achieve as much benefit as possible while stimulating the economy.

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