Paul Krugman's fiscal stimulus

If Paul Krugman's fiscal stimulus or deficit spending had really worked as a cure to boost an economy, then the US economy would have been much bigger than 18 trillion dollars.

Let us take a simple example to understand fiscal stimulus. For illustration, let us take a family of four with Husband working to support his wife and two children. The husband is kind enough to give his wife 500$, and his two kids 250$ each per month to spend as they like. After a few months, both the wife and kids find the money they are getting per month is insufficient to spend on what they like.
The wife demands 600$ and the two kids 300$ each. The husband has two ways to fulfill the increased demand for money. One, if his income remains the same, he can reduce his saving to fulfill the demand.Two, he can find ways to increase his income to fulfill the demand. This example clearly illustrates that the husband has to work to stimulate spending by his wife and kids.

The government of any country has two ways to raise money. One by Taxation. Two by borrowing money.
Now, if you substitute Government for Husband in the above example to stimulate spending by wife and two kids you can clearly see that the Husband has to be taxed by the government to stimulate spending by wife and two kids.

It is a no-brainer that for implementing a fiscal stimulus someone has to work. Mounting debts of Governments is a clear indication that fiscal stimulus is a burden on people who pay taxes and may not stimulate the economy.

Economists and Economic Problems

The world economic crisis continues. Economic growth happens but jobs are not created. Explanations by economists of economic crisis and jobless growth is lost in jargons and complex mathematics.


That economists can solve economic problems is a myth. That economists compound economic problems is a truth. Why do economists compound economic problems? The answer lies in their prescriptions. Increase government spending to boost economy and or increase government control to manipulate money supply, interest rates, and purchasing power of money. Most economists prescribing these measures to improve economy forget that government debt and taxes keeps on raising and money supply increases with no relation to the real economy. So, their prescription only compounds a country's economic problem and results in jobless economic growth.

In India since Narendra Modi came to power in 2014, he has been subject to extraordinary scrutiny and criticism. He has been criticized, without realizing that jobs can’t be created, for not creating enough jobs. But the truth is aspiring Indian never found enough jobs since 1947. An example will illustrate this truth. India created IITs but never created opportunities or jobs to use IIT graduates. This is the reason why so many IITians are not working in India. Any economy has to create opportunity for jobs.

 

Modi faces umpteen critics including Raghuram Rajan, former RBI governor, who are themselves clueless that jobs can’t be created or Government along with central banks like RBI can’t control the economy. India doesn't need Raghuram Rajan's or any economists' ambiguous prescriptions. India needs actionable ideas for jobs. India as a country lost a golden opportunity to create a foundation for an economy that will satisfy the ambitions of aspiring Indians for jobs in the period 1947-1977 when it was ruled by Congress with negligible opposition. No political party in any country in the world got the opportunity that the Congress got in India. But the opportunity was squandered. All of MODI’s critics including economists overlook this crucial point.

 

What is true for India is true for every country in the world. Each country's economy needs economists or policy experts as critics but on one condition. They should substantiate the criticism and offer actionable ideas which have not been tried before. Critics be they economists or policy experts should realise that finding solutions inside the source of the problem is no solution at all for economic problems.

 

What happens to jobs with reckless Robotisation and Automation?

What happens to jobs with reckless Robotisation and Automation?

Let us see what happens to jobs with reckless Robotisation and Automation  with some examples from the real world.

Walmart in USA employs approximately 1.5 million people. General Motors in USA employs 180000 people. Let us assume  both these companies act to satisfy Investment Bankers and Stock market  to meet their profit targets resort to massive Automation and Robotisation. Just to illustrate the impact on the US economy let us assume Walmart reduces its employee strength to 15000 and General Motors to 2000 employees with  Robotisation and Automation.Who will be there to buy these companies' products and services?

What is preventing the USA from becoming a 40 trillion dollar economy?

What is preventing the USA from becoming a 40 trillion-dollar economy? This caption is deliberately provocative but not unrealistic.

The USA is gifted with mighty intellectuals, renowned educational institutions, noble laureates like Paul Krugman, numerous think tanks. Why should the economy grow at 2% or 4%? Why GDP cannot grow at 10% Or 15% ?

Paul Krugman's prescription of government spending to boost economy and jobs doesn’t work in reality.
All the recipes for economic growth and jobs  creation like: government spending, low interest rates, controlling money supply, and controlling inflation has been tried without much success.
The United States did reasonably well when the economy had robust manufacturing till 1970-71.
When the US economy ignored manufacturing in the name of globalisation, and started listening to investment bankers, bankers, financial institutions and select economists jobs became scarce, stock markets flourished,& investment bankers prospered.

Economic prescriptions need a revisit. The present state of economic prescriptions stifles the very economy it wants to stimulate. The USA has to generate out of the box economic prescriptions to grow its economy to become a 40 trillion-dollar economy.

Why this Global economic mess? Has Capitalism failed? No, Capitalism has 'nt failed.

Why this Global economic mess? Has Capitalism failed? No, Capitalism hasn’t failed. But interference in the working of Capitalism is the root cause of global economic crises.
Today most large corporations in the manufacturing sector are managed to satisfy stock market expectations at any cost. Every manufacturing organisation has investment in land, buildings, machinery, and people. When the market is not growing the easiest way to increase profit and satisfy stock market is to sack people as it is the easiest thing to do. When people are sacked and don't find alternative jobs economy gets affected. The companies in their blind urge to satisfy stock market will cut more jobs to cut costs and kill the economy further. This is a vicious circle.

Myopic managements are not realising that there will be no company in the absence of customers.
Unions and minimum wages act further to kill jobs by forcing companies to employ automation and robots. Myopic managements, trade unions, and advocates of minimum wages do not realise that automation and robots will not require holidays, clothes, soaps, detergents, processed food, air travel etc. What will happen to the economy?

Bloated government with massive debts and ever-increasing taxes further shrink the economy and create job losses.
Capitalism is blamed for global economic mess. Some economists call for government spending. Some other economists call for more government regulations. Some economists say capitalism has failed. All of them are wrong. Capitalism hasn’t failed. But capitalism has been made to fail by government intervention; following policies of economists recommending either increased government spending, or increased government regulation , or controlling money supply, or fixing interest rates, or by fixing minimum wage rates, or allowing greater say for trade unions; by allowing mainstream banks to enter speculative business and off balance sheet trickery.
Capitalism is closest to human nature. Every human being wants to be free, is born, and dies. In Capitalism companies will be born and some will die. Problems in capitalism arise when dying companies are rescued by government but individuals dying in debt are not only not rescued but downgraded in their financial rating to compound their problem.

Perplexed Global Citizens

An ordinary American or a Britisher or Australian Or Brazilian or an Indian who isn’t an investment banker, equity/derivatives trader, banker, head honchos of corporate sector, wealthy, doctor, or lawyer is deeply affected by what is happening in their respective country's economy. In other words, leaving aside a miniscule percentage of any country's population unaffected by the current state of economy majority are deeply disturbed.

An ordinary American or a Britisher or Australian Or Brazilian or an Indian is interested to work but he can’t find a job. He is disturbed when jobs are not available when corporates are showing record profits, interest rates are low, or stock markets are booming. He is even more disturbed when Nobel Laureate economists, policy experts, & other Pundits give explanations for state of economy which is anything but convincing. He is witness to this state of affairs of the economy since 2008.

 

GLOBALISATION- IDEAL WAY

What is suggested in this blog is the only way Americans, or British, or Canadian, or French, or Brazilian, or Russian, or Malaysian etc. can ensure jobs remain in their respective countries.

Globalisation as practised till now has failed to bring cheer to the people of this world. No two countries are identical. Pressure to satisfy stock markets has forced management of many companies to shift production to any country that can aid it to maintain its profit. Seen in this context globalisation is a facade or euphemism for protecting corporate profits.
It's a no brainer. Loss of jobs by outsourcing production is a loss to the economy that is never rectified. For example, any company that shifts production say from USA will not generate demand for any capital equipment. Hence, there will be no incentive for an investor to set up a capital equipment plant. Absence of capital equipment means no requirement for maintenance and spare parts. Job losses are obvious. So, what is the way forward?
For example if a Chinese or Japanese company wants to export to USA or India, they should set up local manufacturing. This step will neutralise to some extent incomparable conditions say between USA and China or China and India.

To avoid balance of payment crisis an exporter from China who exports to India will get paid in Indian Currency. An exporter from India who exports to China will get paid in Chinese Currency. Trade will balance.