Is economics a science?

 Is economics a science?  Please  read the article by Richard Denniss in the Guardian whose link is given below:

https://www.theguardian.com/commentisfree/2019/oct/30/if-economics-is-a-science-why-isnt-it-being-more-helpful

After reading the above article you will wonder whether Economics can be treated as Science when Economists do not agree on major issues.

Scrap NOBEL PRIZE In Economics

I want readers of this blog to know that world economic crisis will not be resolved by listening to economists. All economists suggestions (tried, tested, and  failed umpteeen times) kills the very economy it intends to revive.

The global economy will be revived only with ideas that are outside the theory of economics.Period.

I have written to the Nobel Committee to scrap Nobel Prize in Economics. The letter is reproduced below:

Dear Sirs,

It is indeed perplexing that despite awarding Nobel Prize in Economics every year based on different topics the world is unable to revive its economy since the internet bubble. It means nothing in economic theory works in practice or reality. Economists ignore the combined effects of printing paper currency, artificial fixing of interest rates, trade unions, minimum wages act, taxes, stock market pressure, role of investment bankers, shirking of responsibilities by banks to manage assets by securitization, unprecedented speculation in currency and commodities many times the size of real economy etc.

The prescriptions of economists kill the very economy they want to revive. No economists are prescribing taming the reckless finance industry that includes banks for the global economy to revive. As long as the derivatives, speculation on currency and commodities etc. continues unabated aided by very low interest rates Global economic mess will persist.

I am not an economist. But, am capable of thinking in ways that can help revive global economy. For example:

1.The jargons of economists like full employment, frictional unemployment, structural unemployment is useless in reality. See the absurdity of economic concept of full employment at 4% or 6% unemployment which in reality means lakhs of people are still to find jobs. Why are economists advocating such an absurd policy as Full Employment? Focusing on jobs is wrong and am willing to debate with any economist.

2.Global trade will be performed by paying in local currency. US exporters to India will get paid in Rupee. Indian exporters to US will get paid in dollars. Trade will balance. This act will get rid of foreign currency speculation.

3. Focus of economists on consumption is wrong. This can also be proved.

Economics is anything but science. The Nobel committee should consider stop awarding Nobel Prize in Economics to save the world.

Thanking you

 

R Narayanaswamy

IGNORE ECONOMISTS IF YOU WANT JOBS

 

Economists including Nobel Laureates ignore irresponsible behaviour of Banks, Investment Bankers, Financial Institutions trading in derivatives including exotic ones which nobody understands including themselves. You (whether you are an American, Canadian, French, German, Indian, Britisher, Spaniard etc.) don't find jobs because Governments have allowed Finance to dominate economic policies.

Mergers and acquisitions in the name of efficiency destroy jobs. Pressure exerted by stock market expectations on Company Managements destroy jobs. Add to this list Trade Unions, Minimum wages act, Outsourcing effect which further destroys jobs. These combined forces resulted in large scale automation, engagement of Robots, Bots etc. further reducing employment opportunities. Capitalism which truly reflects human nature can create employment opportunities. Capitalism and Free Market have earned a bad name because Governments save irresponsible Banks including Investment banks and Financial Institutions. Free Markets do work in real economy. Retail sector is the best example of free market efficiency. Real economy can create job mobility which will reduce income disparity and push up wages. Apple phone is useless for jobs in America if it is manufactured outside USA.

The jargons of economists like full employment, frictional unemployment, structural unemployment is useless in reality. See the absurdity of economic concept of full employment at 4% or 6% unemployment which in reality means lakhs of people are still to find jobs. Why are economists advocating such an absurd policy as Full Employment?

Paul Krugman, a Nobel Laureate in economics made this statement in an interview in 2010:

"We are still at 10% unemployment in the country, with full employment being more like 5%." Mr Paul Krugman an economist can tolerate lakhs of people still unemployed at 5% Full Employment. Do we really need economists like him?

Paul Krugman also wrote a book " The Return of Depression economics and the crisis of 2008". If any government follows his advice then they can be assured of permanent presence of depression economics and persistent crisis.

Genuine Capitalism needed for economy of United States

Irrespective of who rules United States its economy will need economic policies that is different from what Paul Krugman or his likes suggest. Fixing or manipulating interest rates hasn't worked. Government spending or stimulus hasn't worked. Manipulating taxes hasn't worked. To make Americans happy economy has to be run with new ideas that are implementable.

How do we run the US economy to deliver double digit growth and create ample employment opportunities  for Americans? Some of the ideas are highlighted below:

1. Raise Government revenues without resorting to taxes and duties. This will eliminate Government borrowing. Shut the Federal Reserve Bank. The US government has the power to print currency and coins and that power will be limited by the amount of Gold in the possession of the Government.

2. Since Government doesn't have to borrow money there is no need to set interest rates by the Federal Reserve.

3. Regular Banks will function but they will be full reserve banking. Fractional Reserve Banking will be out.

4. Regular banks will pay interest to depositors based on their capacity to attract savers.

5. Regular banks will manage the assets created by them by extending loans. No securitization or off balance sheet trickery.

6. Regular banks accepting deposits will not invest money in the derivatives or futures market.

7.Pension savings of US citizens will be invested in a US government account. The US Government can use the money by paying interest. This act will ensure pensioners savings is not squandered by reckless banks or pension funds.

8. Manufacturing Companies will be funded by Preference Shares paying fixed dividend. The management of the companies will be freed from the pressures of stock market which is a key driver of outsourcing manufacturing, mergers etc which kill both economy and jobs. As fixed dividends outlay will be far lower than equity dividends companies will have more money to reinvest in the business. The value of the company will be its net worth.

9.As businesses can't be saved so jobs can't be saved. Reckless Banks or companies will not be saved with tax payers money. Mismanaged companies can be taken over by other companies.

10. As businesses or banks are free to open and close geuine capitalism will operate creating enough opportunities for people to get jobs and also raise wages. What Americans need is job mobility not job security.

11. Plenty of job opportunities or job mobility will ensure the best working conditions and also raise the wages. Trade Unions can be made redundant.

12. Global trade will be performed by paying in local currency. US exporters to India will get paid in Rupee. Indian exporters to US will get paid in dollars. Trade will balance. This act will get rid of foreign currency speculation.

I want students and professors of MIT, Stanford, Harvard to read this post. 

I also request World Bank and IMF to read this post.

I want the Noble Prize Committee for economics to read this post.

Post Covid 19 economy cannot be revived with pre covid 19 economic policy prescriptions.

Beware of economists who advocate more government control and spending because market economy has failed. In reality, Capitalism has earned a bad name because of the Government act of saving banks who indulge in greed and questionable practices. If you keep aside Banks for a moment, in the real economy producing goods and services businesses open and close down on a regular business. The outstanding example of Genuine Capitalism is in the retail sector where businesses open and close on a regular basis.

The global economy will recover if Banks that are mismanaged are allowed to die or taken over by another bank

The United States is taken as an example to illustrate the point. What is written in this post is applicable to every economy be it Germany, France, United Kingdom, Denmark, Sweden, Canada, Japan, India, Vietnam etc.

RCEP FREE TRADE AGREEMENT

The recently concluded RCEP free trade agreement needs close scrutiny. The countries that have signed it Australia, Brunei, Cambodia, China, Indonesia, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand, and Vietnam except China will need to do a comprehensive review of this agreement.

The purpose of any trade or economic policy of any country is for the betterment of its people and more importantly to maintain its sovereignty. Tariff or no tariff any country with adverse balance of trade will accumulate foreign currency liability. RCEP member countries should give a serious thought to this issue.

RCEP member countries should give a serious thought to manufacturing eco system and agriculture eco system.

For example, let us assume Laos imports all its cars. This act will create minimum jobs in dealer outlets, and in servicing. The consumer money spent in LAOS will leak out of the country to the exporting countries of cars. If LAOS imports cars whose value is more than its exports it will incur foreign currency liability. The only way it can square the liability is to borrow money or find ways to export more.

LAOS misses the benefits of a manufacturing eco system. Let us take car manufacturing as an example. If cars are locally manufactured in LAOS it will give rise to demand for factory buildings, warehousing, logistics, engineers, capital equipment, auto component units, paint, glass etc. It is a no brainer that manufacturing eco system will create more jobs.

Let us take agriculture eco system. Agriculture is very important for economic security. An agriculture eco system will support farmers, agriculture graduates, warehousing, logistics etc. Any adverse trade in agriculture will ruin the farmers and impair economic security of the country. Every country should remember that NATURE has given each country local produce suitable for local population. There is a concerted effort by vested interests to dominate agriculture/ food production. No country should allow this to happen to protect its sovereignty.

As written in my previous posts Global Trade must happen without incurring foreign currency liability for any country. Each country will pay for its imports with local currency to the exporting countries. This will force exporting countries to source products from importing countries to balance the trade. 

From 2004 to 2014 India under an economist Prime Minister incurred adverse balance of trade with China. Supermarkets were flooded with Chinese goods which could be easily manufactured locally. The Government of the day failed to notice that job opportunities will not be available for Indians if ACs, TVs, auto components, Refrigerators, Microwave owens, Mobiles, PCs, Laptops   etc. are imported into India, branded, and then sold. India did the right thing by not signing RCEP agreement.

Economists, Policy Makers, And Governments don't have a skin in the game.

Economists, Policy Makers, And Governments don't have a skin in the game. Yet they take decisions that affect the economy without having a skin in the game.

Entrepreneurs who play a vital role in the economy, take risks and bear the consequences of their risks are ignored. The reason Global Economy is in a mess is because of allowing decisions to be made by people with no skin in the business and ignoring role of entrepreneurs with skin in the business.

Global Trade or Commerce only in each country's currency

Global Trade or Commerce only in each country's currency will ensure sovereignty of each country. Keen observers would have observed that all countries got into trouble because of adverse balance of payments in a foreign currency. India is an example in 1991 when it got into deep trouble because of adverse balance of payments in dollars.

Today many countries are in trouble after receiving foreign aid because of inability to repay principal and interest in a foreign currency. The problem of a country with adverse balance of payments is compounded when it receives aid to overcome the current problem of balance of payments in a foreign currency. The institution offering loans dictates terms of the the aid or loan on terms which is euphemistically called reforms. The reforms don’t solve the problem as India's example will illustrate. India till date runs adverse balance of payments in a foreign currency in trade.

The solution suggested is simple. American Exporters to India will get paid in Indian Rupee. This will ensure Americans import something from India to balance the trade. India's exporters will get paid in Dollars. There will be no foreign currency liability. No need for foreign currency speculation. No need for foreign currency reserves. 

There will be no need for a euphemism called structural reforms which essentially means ignoring economic policy in tune with local reality to an economic policy suggested by the aid giver.

Every country that is facing trouble on the foreign currency liability like Srilanka, Maldives, India should resort to this option of trade.