Recently, Rahul Bajaj1 expressed his frustration about the possibilities of Indian government bailing out the Kingfisher Airlines.
He clearly said,
“I am a proud private sector man and I don’t see any logic of bailing out any private sector company either for sake of employees or customers, “If it’s a free market economy, those who die must die.”
Obviously, he is suggesting the right way of action. No private sector company should be bailed out or offered any help by the government. In fact, government should not bail out anything, anyone.
Is there a way to oppose and restrict the government from offering any stimulus, help to Vijay Mallya so that he may save the sinking boar of Kingfisher Airlines?
Why bailing out is wrong?
Bailing out is simply wrong because of the fact that a business in a free market fails only if it is not viable. Since Kingfisher Airlines is suffering, it certainly means that the manner in which this business is being managed is not appropriate and the money invested in Kingfisher Airlines is actually bad investment. If government will add more money in Kingfisher Airlines, it will increase the amount of bad investment. Bad investment always creates further loss. The United States is already suffering the burden of similar bad investment or malinvestment which often causes business cycles, boom and bust and economic meltdown. Then the economic slump leads to further economic stimulus by government which raises the situation of inflation and hyperinflation. Currently, India is suffering inflation; it is the result of the economic stimulus offered by the government in 2008.
However, Keynesian economists like Paul Krugman and our own Prime Minister Manmohan Singh oppose such ideas. They believe that in times of economic meltdown, spending more is beneficial. That is, why there are chances of government offering bailout for Vijay Mallaya’s Kingfisher Airlines.
Argument for Bailing Out Kingfisher Airlines
Arjun Parthasarthy at Firstpost2 suggests that Kingfisher Airlines should be bailed out. Obviously he seems to be unaware of the economic consequences of government interference in the market.
His argument for bailing out Kingfisher AI are too naïve. He suggests that Vijaya Mallya should be provided stimulus because in 2008, government bailed out many defaulting companies and sectors (including financial sector). He also gives example of Satyam Computers which was offered help by government. The writer makes good points when he claims that the Reserve Bank will never let any bank in India to fail and will provide a bailout without asking for anybody’s approval.
At the end, the writer concedes that bailout and economic stimulus are immoral3 in a free economy society but then he asks a genuine question, Are current economies really free, or are they ready to let markets let their own course? And his answer is ‘of course not.’
Bailout is not only Immoral, it is economically irrational
Bail out are certainly immoral, but bail out should be avoided because they cause further malinvestment and creates havoc in the market making economy tumble. We have seen how the huge economic stimulus of the United States of America failed to create any positive vibe in the market. Unemployment rate of the US was around 10% in 2008 and it is nearly 9.1% in current month4 . So bailout failed to make any difference. However, the American economy became weaker. American citizens became poorer and they are under a huge national debt. Same is the result of Indian bailout offered by government in 2008. Economic growth in 2008 was around 6% and in 2011, it is expected to be around 6% so no change. However, Indian citizens are poorer and they are suffering huge inflation.
Why Kingfisher AI should not be offered any Bail out?
Bail out by the government is immoral. Since the government is in practice of doing wrong things all the time, we cannot say that it should also do the same wrong again. Economic stimulus and bail outs actually harm the Individual citizen and make him poor.
It is the right time for Indian government to support the call of free market and to change the pattern of Indian economy from Corporatism to Free market capitalism. Corporatism is certainly evil and the cause of all economic problems. However, free market not only means that government should not bail out any private company, free market also means that the government should not take any corporate tax, business tax and income tax5 from any company, any Individual.
If government is not ready to reduce and remove all compulsory taxes, the defaulting companies also have a right to ask for economic stimulus.
Is it Possible for Indian Citizens to restrict government from Bailing out the Kingfisher airlines?
No, there is no way by which Indian citizens can restrict the government from doing such immoral act. In fact, there is no way by which citizens will ever come to know if the government has already offered some kind of backup for Vijaya Mallya.
Today Vijaya Mallya commented that his company will bounce back and he also criticized the government for not bringing down the tax on high cost ATF6 . Obviously, I agree and sympathize with Vijay Mallya and support his call and criticism of government for not bringing the taxes down. In fact, I support the idea that government should not tax any company any Individual. Taxes are nothing but robbery.
But yes, government should also not provide any bailout package. But we will never come to know if he already has made it up with politicians. We can never know how much stimulus was offered by RBI to market during the last three year because while we can read news, we cannot demand a neutral insight in the working of RBI; we cannot demand a transparent audit of RBI. We are forced to believe that our governmental institutions are the epitome of honesty and we should question their validity. However the truth is the idea of centralized bank and a monopoly of government/RBI over currency itself is a fraud7 , a form of corruption. Politicians are no less than gods in current world. Once Gods are elected in a democracy they cannot be questioned. I think democracy is almost autocracy but the ruler is elected by the mass.
Ron Paul in the United States is demanding for a proper auditing of FED, I wonder if we Indians can raise the similar calls for auditing RBI to establish honesty.
FDI in Aviation Sector: Indian Government has allowed 49% FDI in Aviation Sector. Obviously, this is a huge releif for Vijay Mallya and it seems to be genuine too. But, is it really genuine especially when the Government is still controlling 100% of Air India and has all powers to interfere with aviation Industry by providing subsidies and bailouts for Air India Ltd at the expense of Indian Tax-Payers? How can a private company compete against the government honestly when the government decides all the playing rules? It is yet again a fraud and a form of Keynesian socialism or Crony Capitalism that often turn out to be Oligarchy and creates yawning gap between the rich and poor.
- Bajaj Against Govt Bailing Out Kingfisher Airlines, Hindustan Times [↩]
- Why Kingfisher Airlines is right in Asking for a Bailout, Firstpost [↩]
- Why Kingfisher Airlines is right in Asking for a Bailout, Firstpost [↩]
- Why Unemployment Rate is So High in the United States, RLC [↩]
- Why Not to Pay Taxes, RLC [↩]
- Vijay Mallya Seeks Interest Concessions from Banks, Firstpost [↩]
- Story of Money and Price Rise, Rational Libertarian Corner [↩]