In destroying credibility, who is worse: Indian or US politicians?

In the Wealth of Nations published in 1776, Adam Smith listed four cannons of taxation: equity, certainty, convenience and economy. The second, canon of certainty, states: The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. Friedrich Hayek in Road to Serfdom argued that canon is based on respect for the rule of law: it means that government in all its actions is bound by rules fixed and announced beforehandrules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances and to plan ones individual affairs on the basis of this knowledge In March 2012, the Government of India, piqued by losing a tax case in the Indian Supreme Court, amended a tax rule retrospectively to April 1, 1962.1 It created a crisis of confidence among foreign investors and they began withdrawing their investment. The financial outflow deprived the country of foreign investments vital to finance its trade and sustain its development projects. Indian rupee depreciated 33 percent. Ever since the Government of India is trying to reverse its policies by making conditions favorable to foreign investors. For the past couple of years, the U.S. is going through a series of budgetary crisis. In a posting more than a year ago, I enquired whether there is an inherent incompatibility with frequent elections in a democracy and maintaining a consistent economic policy that permits savers and investors to make long-term decisions.2 Even then I, like many others, assumed that politicians of both parties will agree to another short term arrangement before it reaches the crisis point. Right now the divided Houses of Congress are deadlocked on the question of raising debt to maintain the solvency of the Federal Government. How it can be resolved in a political question that is not the subject of this article. But what is shocking is that that some politicians are challenging, at least publically, that a default has serious consequences.3 Even if in terms of the activities of the government, the impact is limited, the effect of destroying the credibility of the institution should not be underestimated. It not only goes against established economic wisdom but experience of nations in the past. One can only hope that the politicians will wake up and resolve the crisis. Rama V. Ramachandran
http://www.visualeconomicanalysis.info/index.html Facebook: Ramanomics Copyright 2013 Rama V. Ramachandran

http://www.business-standard.com/article/economy-policy/retrospective-tax-a-timeline-of-flip-flops112101000156_1.html. 2 http://www.scribd.com/doc/104038560/Is-Democratic-Process-Incompatible-With-Developing-Sound-EconomicPolicies 3 http://www.ft.com/intl/cms/s/0/37f51224-303c-11e3-9eec-00144feab7de.html#axzz2hEkatBEP