Mirza said that prices of essentials were lower in Bangladesh than in neighbouring countries. In all three statements he sounded like a politician masquerading as an economist.

It's certainly understandable that one of the biggest concerns of this army-backed government (ABG) is the unrelenting upward price spiral of daily essentials. Although this menace wasn't created by the ABG it has turned into a distressing liability, threatening to derail all reform measures -- specifically the on-going anti-corruption crusade -- much to the delight of Hasina, Khaleda and all the criminal wrongdoers.

Now let's examine Mirza's statements. His reference to prices in neighbouring countries overlooked the basic tenet of international economics, that it's the relative rates of inflation (also relative income) in the neighbouring countries -- not where prices are lower -- that's relevant.

How germane is Mirza's income elasticity (IE) explanation as it relates to the price spiral? IE measures the responsiveness of the change in the quantity demanded due to change in income. The IE value for goods of necessities falls between 0 and +1. For example, IE = 0 means demand is insensitive to changes in income, values of IE less than 1 imply that if incomes increase by say, 10%, then demand will increase by less than 10% (that is, demand increases with income but less than proportionately).

Often this is because consumers have a limited need to consume additional quantities of necessary goods as real living standards rise (meaning IE value is very low except for very low income people). Examples include the demand for fresh vegetables, and other daily essentials. Thus demand isn't highly sensitive to fluctuations in income. In this sense total market demand is relatively stable, following changes in the wider economic (business) cycle.

Thus, the continuing price spiral is mostly necessity driven, and by supply-demand imbalances, and very little, if any at all, is propelled by rising income. Bear in mind that, unlike the daily upward price movements, the people's income doesn't rise daily.

Price spirals have their own law of motion -- one that can't be reversed by any quick-fix measures. To slow its growth, many governments in the past resorted to an unpopular recourse -- austerity in consumption, which included freezing some "can do without" demand side public expenditures. In this instance, the following quotation from a March 20, 1964 Time magazine article, "The Price of Prosperity," may be of some interest.

"Parliament last week conducted a lively debate on Britain's high cost of living, while British workers grumbled loudly about its damage to their pay packets. In Italy, where the government has launched an unpopular austerity drive to halt rising prices, the man in the street has found a new scapegoat in la cara vita. And the French, who love to complain, moan relentlessly about la vie chere. In any language, inflation is Europe's foremost economic preoccupation -- and the problem that most threatens its extended boom."

The inflationary spiral was growing so rapidly that political leaders cautioned that unrelenting inflation "may ruin Europe's economy by weakening its currencies and shutting off its world markets." Even Pope Paul, in an unusual message, took note of Italy's inflationary spiral by recommending austerity because of "the Lenten season and the state of things in this country."

Europe's governments took measures to reshape their economic policies with the hope of "persuading free-spending consumers to buy less, borrow less, save more." Some countries raised their bank interest rates. Others, such as France, imposed some price controls on food and manufactured goods, and Denmark had placed a 9% sales tax on most non-food products. In Italy the government's austerity program aimed at raising taxes on cars and gasoline, and restricting installment purchases.

Although Bengalis are proverbially known as "Bhat-dal" eaters, in reality bhat is the first item and dal is the last with a few other courses in the middle, both at lunch and dinner. In an austerity measure, many people could easily cut the number of items they eat on a daily basis, or at least buy only for one day's consumption. Possibly most consumers are already practicing some form of austerity, or the swirling price movements are imposing some discipline upon consumption patterns.

As we know, one important origin of price spirals is inflation expectations. Such price expectations are self-fulfilling; in an effort to beat tomorrow's price hike of daily essentials consumers buy goods today to hoard them, aggravating the already vicious inflationary pressure.

One way to reverse such price expectations is by maintaining austerity in consumption. Here the consumer's group, including the religious leaders and the media, may take initiatives to preach the virtues of austerity to the citizens.

In a market economy, the government has the obligation to see to it that markets function efficiently, and that the playing field is level for all participants. Market regulation by the government is not about price control, it is to ensure that the operating rules do not discriminate against individual participants or interest groups based on political affiliations, ethnicities, and religious bias.

Barrister Rokunuddin Mahmud's May 27 suggestion on Channel I to relax enforcement of market discipline on businesses, withdraw travelling courts, and revert to the old ways of letting businesses operate, may improve the supply chain, but it is unacceptable. This will only perpetuate the old ways of running businesses, disregarding the regulations and depriving the country of the novelty of running businesses while playing by the rules.

In my March 25 article, "Market failure and price spiral," I asserted that the persistence of price spirals is an obvious fallout of what we in economics call a market failure. Five years of Khaleda's criminal misrule brought everything else to the brink of ruin, so why should the markets for goods be exempt?

The famous Leon Walrus law states that an economy can be considered as a system of four interrelated markets -- those of goods, labour, money and bonds. If any three of the markets are simultaneously in equilibrium (say, the labour, money and bonds markets are in equilibrium) then the fourth market, (the goods market) would automatically converge to equilibrium.

Obviously, our labour market suffers from at least 30% unemployment rate, the money market is distorted by black money, loan defaults and money laundering, the bonds market is distorted by deficit financing by dumping bonds on banks often monetized by the Bangladesh Bank.

So the price spiral isn't income driven -- it's a classic case of calamitous market distortions -- a dreadful market failure brought about by Khaleda's all encompassing undeterred rule of kleptocracy.

Dr. Abdullah A Dewan is Professor of Economics at Eastern Michigan University.