Source Actionable Ideas focuses exclusively on sustainable actionable ideas to make capitalism work to create job opportunities for people.The Goal:Make people find jobs in every country.
Sunday, July 26, 2020
PAUL KRUGMAN YOU HAVE YOUR ECONOMICS WRONG
Thursday, May 28, 2020
American Economy or Global Economy And Covid Pandemic
The
global economy Or American Economy has suffered immense damage due to the
pandemic covid 19. Before covid 19 global economy still suffered with pandemic
economic policies. The global economy or American Economy cannot recover with
the existing baggage of economic thoughts and prescriptions in the possession
of economists including Nobel Laureates.
The Economics talked
about by Economists, Policy Makers, and Politicians is anything but economics.
What is talked about as economics is collecting taxes, increasing government
borrowings, fiscal stimulus, and saving adventurous banks. But this talk is
anything but economics as it is simply reallocation of monetary resources.
Economists with influence give scant regard to the power of consumer and the
truth that value is subjective. Austrian economists give importance to consumer
or the individual and recognise value as subjective. But Austrian economists
are condemned. So, the Economists in favour with Governments with their
influence, policies, and prescriptions ruin the economy.
Just as men or
women are born and they die so too businesses are born and they die. Businesses
die when consumers don't want their product or service. If businesses can't be
saved how can you save jobs? Jobs are incidental to any business and are not an
end in themselves (Sadly economists don't recognise this fundamental truth and
talk of employment, or full employment as an end in themselves). Capitalism is
closest to human nature. Genuine capitalism where businesses can be started and
closed without any restrictions is the need of the hour. Instead, what we see
is saving of adventurous banks and financial institutions by the governments in
the name of capitalism. Economists and the Governments fail to see that money
is a means to an end and not an end in itself. Money is a medium of exchange
for real business and not for derivatives and speculation.
Since America is
taken as a role model for capitalism, it can be used as an example to
illustrate the sorry state of Americans today.
Fractional Reserve
Banking which enables creation of money out of nothing and increases money
supply with no relevance to the real economy gives easy money to Goldman Sachs,
Citi Bank and their likes to indulge in mindless speculation and ruin the
economy as it happened in 2008. When a Goldman Sachs, Citi Bank and their likes
are saved with Government money it increases the money supply only( Economists
including Nobel Laureates don't recognise the harm of fractional reserve
banking and creation of money out of nothing).
The vice like grip
of investment bankers and stock market on business enterprises in USA
have made management focus on profits than the local economy. Add to this
influence of Trade Unions, American businesses have merged, outsourced their
production and destroyed American jobs. This action in the American
economy has inadvertently delivered economic power and dollars to China which
wags its tail now.
Post Covid 19
economic policies in the USA should have no Goldman Sachs and its likes. Banks
should be full reserve banking. No derivatives. No options. No financial
engineering that an ordinary American can't understand. No investment of
pension funds in speculative stock market but in government securities only.
All products consumed by Americans should be produced or assembled in USA.
Economists and Policy Makers should know that income disparity has increased
because manufacturing intensity has decreased.
There are only two
genuine comparative advantage for any country. One raw material and two Nature
(waterfalls, rivers etc.). Period.
America was used as
example to illustrate the point. What is applicable to USA is applicable to
every other country.
Friday, March 20, 2020
Why the Global Economy fails to recover?
The
Global Economy fails to recover because economists, policy makers, and the
government together have nothing new to revive the economy. All prescriptions
like lowering interest rates, fiscal stimulus, deficit spending etc. have been
used many times without any impact to revive the global economy.
The creation of the
central banks in various countries, fractional reserve banking, and delinking
currency with links to gold or silver have played, are playing, and will play a
role in stifling the global economic revival. The policy of low interest rates,
purportedly to revive the economy, instead of helping economic revival helps
banks and governments to borrow at lower rates of interest. The people who save
and matter the most for economic revival are penalised by negligible interest
rate on savings. For economic revival, fractional reserve banking has to be discarded,
currency has to be linked to gold or silver, and savers have to be paid
reasonable rates of interest.
Banks should be
forbidden to indulge in speculative business-like equity, derivatives etc. In
other words, Banks should limit themselves to conventional banking.
Financing
manufacturing companies with equity has done more harm than good. Management of
companies instead of focusing on the economy focus on profits. Profits are essential,
but not at the cost of the economy. Manufacturing involves research and
development which is overlooked by management focus to satisfy the stock
market. So, manufacturing companies have to be funded with preference capital
which can pay a fixed rate of dividend which in turn will be substantially
lower than dividend outflow for equity. This way manufacturing companies will
have more retained profits to grow their companies.
Why are governments
allowing finance companies with no stake in any industrial segment to speculate
on a commodity concerning a particular industrial segment? Take crude petroleum
for instance. The demand for petrol or diesel is determined by the number of
vehicles both personal and commercial, industrial and domestic power plants,
aircrafts etc. A company like Royal Dutch Shell will invest based on the demand
for petrol and diesel. Let the producer of petrol or diesel and end user
determine and discover the price of petrol or diesel. Why should Goldman Sachs
be allowed to speculate on crude oil commodity?
Similarly, trade
unions and government policies like minimum wages kill jobs. Economic Policy
makers should recognise the power of customers to buy or reject a product. In
other words, customers determine whether a business stays alive or is killed.
So, policy makers instead of saving or protecting jobs should focus on creating
job opportunities. It is natural for a business to die or a new business to be
born. Job mobility should be the goal and not job security.
Mainstream banks
should not fund speculative business either directly or indirectly. Speculation
should be with one's own money or savings.
Economy will also
be saved by manufacturing companies funded with preference capital. Pension
funds can invest in preference capital with fixed rate of return. Pensioners
will be happy with fixed and assured rate of return. Manufacturing companies
can increase the rate of preference dividend depending on favourable business
prospects.
Globalisation in
its present form will not benefit large sections of the global population. What
is the way out? If an Indian company wants to export to the US it should set up
a local unit there. A US company should do likewise. Similarly, an exporter
from the US to India will get paid in India Rupees. This will force US
companies to import from India. Indian exporters will get paid in Dollars.
Trade will balance. There will be no balance of payment crisis.
Medicare or
healthcare can't be a business but a service to society. In its present form
healthcare is expensive and unaffordable for individuals and adds substantially
to manufacturing costs. The usual culprit: Management focus of pharma
companies on profits drives unethical practices in the medical profession and
the cost of healthcare. If Medicare is taken care of by governments as a no
loss no profit service healthcare costs will substantially come down as people
will consume less medicines, unethical practices will be eliminated, and
manufacturing costs will come down.
You will see from
the points outlined above existing policy measures cannot deliver results.
Covid-19 pandemic
has further compounded the global economic crisis. Any economic revival post
covid-19 crisis will require throwing into the dustbin all tried and tested
prescriptions/policies of economists including Nobel Laureates. The world badly
needs out of the box thinking to revive the global economy.
Wednesday, May 8, 2019
Paul Krugman's fiscal stimulus
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.
Sunday, December 9, 2018
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.
Tuesday, November 6, 2018
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?
Friday, September 28, 2018
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.