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.

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.