Articles from mint

Hi guys, yesterday I was reading mint news paper and I got some very interesting articles. So today I am posting some highlights from these articles.

A myth about high inflation

There is widespread belief that inflation is largely a result of the rise in oil and food prices in the international market. Such a line of reasoning is, however, dangerously flawed.

All consumers are subject to budget constraints; if they have to spend more on some goods, say oil and food, then they will have to spend less on others. A lower demand for non-oil non-food goods would in turn lower their prices. Of course, consumers may borrow to spend, but their borrowing would be limited by their ability to pay back; and when borrowers spend more than their income, lenders by definition spend less than their income. In short, a rise in the price of oil and food cannot explain a general price rise (or inflation), because income-constrained consumers exert equal and opposite pressure on the prices of other goods, neutralizing the impact of a rise in oil and food prices on the overall price level.

As Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon.” A general rise in prices is a reflection of the fact that there is too much money chasing too few goods. In 2005-06 and 2006-07, reserve money grew at 17.2% and M3 (broad measure of money supply) at 17.0% and 21.3%, respectively. In short, the monetary base has grown at rates much faster than real goods and services (which grew at around 15% in nominal terms).

There are then two ways to deal with inflation. First, reduce the “too much money” part by a hike in the interest rate. Second, increase the “too few goods” part by liberating the Indian economy and unleashing its entrepreneurial spirits. The former policy approach would indeed have an adverse effect on growth, while the second sees growth as the solution to inflation.

Some statistics of Olympic Games

Ø The world’s second most populous country has one of the worst Olympic legacies, winning just 17 medals since 1900.

Ø Only 5% of India’s 1.1 billion people have access to sports facilities, says youth affairs and sports minister Mani Shankar Aiyar.

Ø India, the second fastest growing major economy after China, budgeted the equivalent of $280 million (Rs1,176 crore) for sports this year. It won a single medal at the 2004 Athens games, silver in double trap shooting, and plans to send 57 athletes to Beijing.

Ø By contrast, China created a network of national sports schools to nurture talent and spent an average of $450 million a year on sports for the past decade. China won 63 medals in Athens and will have 639 athletes in Beijing — 43 more than the US.

Ø The nation’s only victories came in field hockey, where the men won a record eight tournaments. India won its last Olympic title in 1980 and failed to qualify this year, ending a run stretching back to 1928.