Between the elitism of the Republicans and the disguised status quoism of the Democrats, the United States is in a dangerous position vis-a-vis its ability to rough it through one of the most difficult phases in its economic history. For the first time in recent years, things are bad enough that any perspicacious observer can tell that the economic challenges need to be dealt with in a more dispassionate manner than is allowed by the political system, with its rank hypocrisy, its susceptibility to money power and with the penchant of its politicians for opportunistic optimization. For the first time in nearly a century, words like " planning " and " socialism " seem relevant when one thinks seriously about the American economic problem. Of course, the American public, the American establishment and the American media have all been conditioned through long years of ideological propaganda to react negatively to these concepts. Planning ? In the American context ? Would be the most obvious reaction to greet anyone broaching the idea even casually. But it is not such a far-fetched notion. After all, the way the short-term and the long-term challenges mix to create some particularly hard problems for economic stability, economic justice and growth is worrying and in many ways, unprecedented. The private sector has not been able to bring the unemployment situation back to normal. And it shows serious signs of vulnerability as far as the possibility of a double-dip is concerned. And the global economic outlook is pessimistic. Business-as-usual politics leads to business as usual economics in a country like the United States. For the first time in recent history, the United States is faced with a situation where leaving economic policy to the wiles of presidents with term-limits and legacy considerations and to senators and representatives with career goals in mind amounts not just to naivete, but to utter irresponsibility.
Despite all this, politics as usual is likely to continue. And with it, economics as usual, with its pernicious, and in many ways irreversible, effects for current and future generations of Americans. Tired and misleading cliches about the ability of low taxes to act as economic stimuli or to spur economic growth will be repeated by the Republicans. And Democrats will play defense on this question, with sops to the middle class on taxes, and with promises of increasing taxes on the super-rich while Democratic candidates receive campaign money from the rich in ways explicit and implicit. But this is a script that has been played out time and again. One could write an artificial intelligence program to substitute for the actual politicians, and one wouldn't know the difference. The economic problem, on the other hand, has gone beyond the regime where mere tinkering would do.
So what needs to change if the United States is to stand a chance of having the politics reflect the seriousness of the economic challenges, both in the short term and in the long run ? If the United States Green Party could score some successes in the 2012 elections to the Senate and the House, it can jolt the nation and instill a higher sense of responsibility into the political process. If you are someone who is seriously concerned about the future of the United States, and if you have not fallen prey to the endless elitist propaganda that tries to make automatons out of us through the media and the public discourse, you may want to consider the following daydream. Three Green Party Senators and 20 Green Party Representatives in the next Congress. That will be a first for America. The media channels, irrespective of their funding sources, will have to give extensive coverage to this development in American politics. The questions of taxation, fiscal deficits, debt and the extent to which corporations and rich Americans should shoulder the fiscal burdens of the nation will get more attention. Hopefully, the ideological mix of the opinions that the public hears will then begin to contain less of corporate money-based superficial drivel and more of hard-nosed economic analysis. And hopefully, items of defense spending will receive a more detailed scrutiny than what the military-industrial-political complex-driven politics of today allows. A lot will depend on grass-roots momentum along these lines prior to the 2012 elections and the seriousness with which the Green Party initiates and harnesses it.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
The Global Analyst ( Commentary about economic, environmental, political and other topics )
Tuesday, October 18, 2011
Sunday, October 16, 2011
Whither Occupy Wall Street ?
The Occupy Wall Street movement is now set to spread to many countries around the world after it grabbed headlines in the United States recently, with protests in several cities like New York and Los Angeles. These protests are reminiscent of other youth protests in the past like the Arab Spring movements in the Middle East, the recent protests in Greece over the political establishment's failure to manage the economy and to provide good economic safety nets during times of distress, the recent protests in England over economic failures, protests in Seattle and protests in Davos, Switzerland several years ago against the neo-imperialist and elitist implications of new global frameworks being thrust on a global public without the requisite amount of forethought about socioeconomic welfare. Political establishments around the world have been chastened by the recent failures in the global capitalist order. While apologists for elitist economic frameworks still continue to advocate laissez-faire policies, the ardor has decreased. The empirical evidence about the failures of low-tax policies and about lack of regulation of financial markets and about the propensity of economies to experience cataclysmic market failures when lots of economic agents act in an uncoordinated fashion are all too real to ignore. However, while the right-wing intelligentsia reels from the evidence about the massive failures of what is essentially their framework, the left-leaning intelligentsia, or at least that part of the left-leaning intelligentsia that is part of the establishment, has not really been forthcoming with very many smart ideas to solve the crisis or to provide enduring solutions for the future. The general atmosphere is one of a passive acceptance of the crises of the short-run and the pessimism about the long-run and of a lack of intellectual will to understand the dynamics of a changed world and to come up with the right frameworks for it. As for the political establishment in countries which rely on elections as a means of gauging the public will, the attitude seems to be one of acceptance of the failures of the current economic frameworks and of trying to provide stop-gap solutions and to create an atmosphere of business-as-usual. In the background of this state of limbo of the intelligentsia and the political establishment, the youth protest movements are sending out one message at least – that the medicines of the establishment are not working.
But how exactly do the organizers of these protests plan to bring about the requisite change in policies to fix systemic problems in the global economy ? Clearly, they are not trying to overthrow governments in countries, although that has happened recently in several Middle Eastern countries. However, the case of the Middle Eastern countries is slightly different, with a clamor for democratic change in the face of dictatorial frameworks ( while the Arab Spring movement may have succeeded in effecting a change towards formal democracy and away from certain aspects of neo-imperialism, their actual ability to implement requisite socioeconomic reforms, to resist the power of the global neo-imperialist forces and to provide short-term economic succor and long-term economic sustainability can only be judged based on what takes the place of the current regimes and what economic and political frameworks they follow ). In several countries like the United States, India and several European countries, the formal democratic frameworks are there, if by democratic framework we mean periodic elections. However, elitists forces have hijacked these democratic frameworks in pernicious ways and they do not show any clear signs of relenting even after the gargantuan dynamic failures of their policies and their world order came to the fore. Elitist tax cuts continue despite the deep harm they did to the long-term sustainability of public finance in some countries. Right-wing parties still shout about spending cuts as the preferable way to cut deficits rather than tax increases despite unprecedented levels of unemployment and unprecedented levels of economic distress. Right-wing parties are still reluctant to implement deep cuts in defense and war spending when the question of the details of spending cuts arises. The legislative agenda in countries like the United States pussyfoots around the real difficulties surrounding the existing economic frameworks and the need for hard decisions. It is also hostage to the short-term and opportunistic calculations of the politicians who all too often put their re-election considerations above the long-term interests of the nation. In fact, the election-based democracies in countries like the United States and India are highly susceptible to political gimmicks, the lack of will to educate the public about short-term and long-term trade-offs about the economy, the propensity of the politicians to succumb to corporate and business funding and to sacrifice the public interest in favor of the economic elite. The Occupy Wall Street protests need to be analyzed in the background of these political frameworks that serve the elites and have even given up the pretenses of serving the interests of the masses to some extent. In the absence of an agenda of regime change, how do the organizers of these protests aim to fight the recalcitrance of the political establishment and the unresponsiveness of the legislative agenda ?
The protests are likely to serve as a warning to politicians to not push their opportunistic strategies too far. They are also likely to send a signal to the politicians that pro-corporate tax policies need to be re-examined seriously when these countries faces serious short-run fiscal shortages, the prospect of long-run fiscal shortages and unprecedented economic pain. And they will most probably send a message that any attempt to undermine economic safety nets and the persistence of a lack of will to create less volatile economic frameworks can invite retaliation from the masses. While the protests are likely to send these messages to the political establishment, the ability to fix the system in meaningful ways depends on implementing pro-active reforms in the system and not just on playing defense against the machinations of the economic elite and the cynical strategies of the economic elite to promote their interests at the cost of the interests of the masses and the long-term economic stability of these economies.
One problem when it comes to effecting pro-active change in legislative agenda using methods like mass protest is that the way the legislative agenda is set inures it to a large extent from pressure tactics like these. Individual legislators can rely on their staff to provide them with the material for their speeches. But the legislators, at least in the United States, have to consider re-election campaigns and campaign funding. There is no good mechanism to enable them to transcend their myopic political considerations and to consider the interests of the masses. When the economy is good, this lack of a mechanism to put the nation's interest above political careerism is something that the public may be able to tolerate. But the persistence of the same elitist modes of thinking becomes intolerable during times of economic distress. In the United States, the Republican Party almost invariably pushes for pro-corporate policies. The Democratic Party has recently become a party of cynical populism, a kind of populism that tries to mislead the public. And the legislative agenda displays this lack of concern for the country and for the masses in the political establishment. The White House does play a role in setting some of the legislative agenda and it has the power of veto in legislative matters. However, the experts who advise the White House on economic matters, like the members of the Council of Economic Advisers, tend to be drawn from establishments that have their own elitist biases and their own penchant for replacing true advocacy of the interest of the masses with a halfhearted and pusillanimous advocacy of their well-being. The current crisis has shown that both the left-leaning segment and the right-leaning segment of the academic establishment are at a loss for good solutions when ti comes to short-term or long-term fixes. The arguments one hears are business-as-usual arguments, meant for normal times. Whether academics like these serve as advisers to Presidents and as members of Federal Reserve Boards, or whether corporate and Wall Street executives serve in these positions, the mechanisms do not exist to take hard decisions in favor of the masses and in the interest of economic stability when extraordinary times call for such hard decisions. Can a movement like the Occupy Wall Street movement succeed in penetrating this conspiracy of elitism and forcing the political establishment to rise above its short-term interests and make the hard choices that need to be made ? At the present moment, this kind of pro-active outcome seems to be too difficult to achieve using protests like Occupy Wall Street. Something else needs to be added to the mix if the Occupy Wall Street movement is to have pro-active outcomes and not just defensive outcomes. And one crucial element that needs to be added to the mix is a radical reform in the way elections are conducted. If one considers the United States, for example, at the moment, the Green Party and the Reform Party, which are the major alternatives to the two-party system in the United States, do not have the requisite level of presence and activism. Unless the stranglehold of money power on the elections and on the political system is broken, the ability of mass protests or similar movements to effect a change in the nature of the legislative agenda will be limited. In the United States, for example, genuine campaign finance reform is needed if movements like Occupy Wall Street are to stand a good chance of leading to positive transformations in the system. What is needed, in addition to mass protests, is a way to launch effective electoral challenge to the political establishment through candidates that are not beholden to corporate interests. The mass protest movements need to lead to the empowerment of that part of the intelligentsia that still believes in making bold and systematic assessments of the problems and in suggesting solutions that have the interests of the broad masses in mind and that part of the talent pool that believes in using politics as a means of positive social change. One thing that must be kept in mind is that these formal democracies differ widely in how powerful the elitist economic forces are. For example, the balance between elitism and mass interest is not the same in France as it is in the United States. Countries where elitist forces are very powerful will most likely need to undergo very different changes compared to countries which have a better balance between elitism and the well-being of the masses. If the Occupy Wall Street movement does lead to a radical and drastic change in the way politics and economic activity is conducted in these countries, the exact nature and amount of change needs to be country-specific. Whether the mass protest movements do lead to such a sea-change in the political landscape in countries with formal democracies and whether the forces of cynical inaction and of activist elitism can be defeated by the forces of activist political idealism will determine the fundamental character of these societies in the near and the distant future.
by C. Jayant praharaj ( send comments to cjpraharaj.blog@gmail.com )
But how exactly do the organizers of these protests plan to bring about the requisite change in policies to fix systemic problems in the global economy ? Clearly, they are not trying to overthrow governments in countries, although that has happened recently in several Middle Eastern countries. However, the case of the Middle Eastern countries is slightly different, with a clamor for democratic change in the face of dictatorial frameworks ( while the Arab Spring movement may have succeeded in effecting a change towards formal democracy and away from certain aspects of neo-imperialism, their actual ability to implement requisite socioeconomic reforms, to resist the power of the global neo-imperialist forces and to provide short-term economic succor and long-term economic sustainability can only be judged based on what takes the place of the current regimes and what economic and political frameworks they follow ). In several countries like the United States, India and several European countries, the formal democratic frameworks are there, if by democratic framework we mean periodic elections. However, elitists forces have hijacked these democratic frameworks in pernicious ways and they do not show any clear signs of relenting even after the gargantuan dynamic failures of their policies and their world order came to the fore. Elitist tax cuts continue despite the deep harm they did to the long-term sustainability of public finance in some countries. Right-wing parties still shout about spending cuts as the preferable way to cut deficits rather than tax increases despite unprecedented levels of unemployment and unprecedented levels of economic distress. Right-wing parties are still reluctant to implement deep cuts in defense and war spending when the question of the details of spending cuts arises. The legislative agenda in countries like the United States pussyfoots around the real difficulties surrounding the existing economic frameworks and the need for hard decisions. It is also hostage to the short-term and opportunistic calculations of the politicians who all too often put their re-election considerations above the long-term interests of the nation. In fact, the election-based democracies in countries like the United States and India are highly susceptible to political gimmicks, the lack of will to educate the public about short-term and long-term trade-offs about the economy, the propensity of the politicians to succumb to corporate and business funding and to sacrifice the public interest in favor of the economic elite. The Occupy Wall Street protests need to be analyzed in the background of these political frameworks that serve the elites and have even given up the pretenses of serving the interests of the masses to some extent. In the absence of an agenda of regime change, how do the organizers of these protests aim to fight the recalcitrance of the political establishment and the unresponsiveness of the legislative agenda ?
The protests are likely to serve as a warning to politicians to not push their opportunistic strategies too far. They are also likely to send a signal to the politicians that pro-corporate tax policies need to be re-examined seriously when these countries faces serious short-run fiscal shortages, the prospect of long-run fiscal shortages and unprecedented economic pain. And they will most probably send a message that any attempt to undermine economic safety nets and the persistence of a lack of will to create less volatile economic frameworks can invite retaliation from the masses. While the protests are likely to send these messages to the political establishment, the ability to fix the system in meaningful ways depends on implementing pro-active reforms in the system and not just on playing defense against the machinations of the economic elite and the cynical strategies of the economic elite to promote their interests at the cost of the interests of the masses and the long-term economic stability of these economies.
One problem when it comes to effecting pro-active change in legislative agenda using methods like mass protest is that the way the legislative agenda is set inures it to a large extent from pressure tactics like these. Individual legislators can rely on their staff to provide them with the material for their speeches. But the legislators, at least in the United States, have to consider re-election campaigns and campaign funding. There is no good mechanism to enable them to transcend their myopic political considerations and to consider the interests of the masses. When the economy is good, this lack of a mechanism to put the nation's interest above political careerism is something that the public may be able to tolerate. But the persistence of the same elitist modes of thinking becomes intolerable during times of economic distress. In the United States, the Republican Party almost invariably pushes for pro-corporate policies. The Democratic Party has recently become a party of cynical populism, a kind of populism that tries to mislead the public. And the legislative agenda displays this lack of concern for the country and for the masses in the political establishment. The White House does play a role in setting some of the legislative agenda and it has the power of veto in legislative matters. However, the experts who advise the White House on economic matters, like the members of the Council of Economic Advisers, tend to be drawn from establishments that have their own elitist biases and their own penchant for replacing true advocacy of the interest of the masses with a halfhearted and pusillanimous advocacy of their well-being. The current crisis has shown that both the left-leaning segment and the right-leaning segment of the academic establishment are at a loss for good solutions when ti comes to short-term or long-term fixes. The arguments one hears are business-as-usual arguments, meant for normal times. Whether academics like these serve as advisers to Presidents and as members of Federal Reserve Boards, or whether corporate and Wall Street executives serve in these positions, the mechanisms do not exist to take hard decisions in favor of the masses and in the interest of economic stability when extraordinary times call for such hard decisions. Can a movement like the Occupy Wall Street movement succeed in penetrating this conspiracy of elitism and forcing the political establishment to rise above its short-term interests and make the hard choices that need to be made ? At the present moment, this kind of pro-active outcome seems to be too difficult to achieve using protests like Occupy Wall Street. Something else needs to be added to the mix if the Occupy Wall Street movement is to have pro-active outcomes and not just defensive outcomes. And one crucial element that needs to be added to the mix is a radical reform in the way elections are conducted. If one considers the United States, for example, at the moment, the Green Party and the Reform Party, which are the major alternatives to the two-party system in the United States, do not have the requisite level of presence and activism. Unless the stranglehold of money power on the elections and on the political system is broken, the ability of mass protests or similar movements to effect a change in the nature of the legislative agenda will be limited. In the United States, for example, genuine campaign finance reform is needed if movements like Occupy Wall Street are to stand a good chance of leading to positive transformations in the system. What is needed, in addition to mass protests, is a way to launch effective electoral challenge to the political establishment through candidates that are not beholden to corporate interests. The mass protest movements need to lead to the empowerment of that part of the intelligentsia that still believes in making bold and systematic assessments of the problems and in suggesting solutions that have the interests of the broad masses in mind and that part of the talent pool that believes in using politics as a means of positive social change. One thing that must be kept in mind is that these formal democracies differ widely in how powerful the elitist economic forces are. For example, the balance between elitism and mass interest is not the same in France as it is in the United States. Countries where elitist forces are very powerful will most likely need to undergo very different changes compared to countries which have a better balance between elitism and the well-being of the masses. If the Occupy Wall Street movement does lead to a radical and drastic change in the way politics and economic activity is conducted in these countries, the exact nature and amount of change needs to be country-specific. Whether the mass protest movements do lead to such a sea-change in the political landscape in countries with formal democracies and whether the forces of cynical inaction and of activist elitism can be defeated by the forces of activist political idealism will determine the fundamental character of these societies in the near and the distant future.
by C. Jayant praharaj ( send comments to cjpraharaj.blog@gmail.com )
Time to consider nationalization of some solar panel manufacturing firms
The recent failure of solar panel companies in the United States raises some serious questions about economic stability, energy sustainability and environmental sustainability both inside the country and in the world. Given the fact that solar power is not competitive versus conventional power sources at the moment, it is obvious that subsidies are needed if the future mix of energy production in the country is to have renewable sources like solar energy. And given the projections about the depletion of raw materials for many conventional energy sources and the adverse effects that these energy sources have on the environment, there should not be any doubt that a significant shift towards renewable sources is imperative. The recent failures of solar panel manufacturers should serve as an urgent reminder that drastic action is needed in this area.
A lot of the discussion in the media and in the political sphere have focused on possible corruption in the way funds were handed out to one company called Solyndra, and a lot of wrong arguments are emerging from the superficial analysis surrounding the issue. The subsidization of solar panel manufacturers is being demonized due to a corruption case. What may well be needed at this crucial juncture in the country's history is higher subsidies if it can save solar panel manufacturers from closing down. For things like solar panel manufacturing, technological considerations are likely to dominate over managerial efficiency considerations, at least in the short run, and real or false bugbears about the effect of subsidies on managerial ethos should not divert our attention away from the critical need to sustain a renewable energy industry and to enable higher levels of renewable power production in the coming years. As for the global picture, China is likely to pick up some of the manufacturing slack due to the failure of American companies. Also, since this industry is in its infancy, China can benefit a lot in the future if its companies grab larger market share now. However, the failure of US solar panel manufacturers will most probably have a negative impact on the future trajectory of global renewable energy production. After all, despite its short-term economic distress and despite its systemic problems, the United States still has significant amount of human resources and intellectual property in this area. To allow short-term profitability problems to hamper the development of this critical sector would be a serious mistake. However, it is a mistake that the political establishment seems to be only too willing to overlook. Allowing corruption considerations to become convoluted with the core economic considerations is a sign of naivete. In fact, what may be needed at this juncture is something beyond subsidies. Given how crucial renewable energy is likely to become, nationalization of some beleaguered solar panel companies should be considered seriously. And where will the money come from to cover the short-term losses of these companies while the management tries to improve the cost structure ? Cuts in useless defense spending is one answer. Let there be no doubt that a laissez-faire approach in such a crucial sector can prove disastrous in the long run. While importing panels from China is always an option, it is stupid to expect that China will be able to provide most of the solar energy needs of the United States or the world. After all, the Chinese economy has only so much human capital, so much intellectual property in the area, so much infrastructure and so much resources that it can investment in this area. Further, the trade deficit problems of the United States and its resulting over-dependence on foreign capital inflows can seriously curtail its ability to import critical items in the future. The United States is not the United Kingdom and nationalization is not a commonly discussed idea. However, given the unprecedented circumstances in the area of energy sustainability, it may be the one way to save the United States from being paralyzed in the energy area in the long run. Skeptics will enumerate numerous problems. For example, nationalizing failing solar panel manufacturing firms can create an atmosphere of moral hazard in which those firms that are financially sound can dispense with sound fundamental practices and engage in irresponsible investment or resort to other irresponsible activities since the implicit or explicit guarantee of government bailout or nationalization is there. However, such considerations of detail should not distract our attention from the bigger problem of energy sustainability. All systems have problems and even the laissez-faire framework has its own serious systemic problems as the collapse of the housing sector showed. Allowing unnecessary paranoia to prevent bold steps in the area of energy sustainability is something that the country can ill afford.
by C. Jayant praharaj ( send comments to cjpraharaj.blog@gmail.com )
A lot of the discussion in the media and in the political sphere have focused on possible corruption in the way funds were handed out to one company called Solyndra, and a lot of wrong arguments are emerging from the superficial analysis surrounding the issue. The subsidization of solar panel manufacturers is being demonized due to a corruption case. What may well be needed at this crucial juncture in the country's history is higher subsidies if it can save solar panel manufacturers from closing down. For things like solar panel manufacturing, technological considerations are likely to dominate over managerial efficiency considerations, at least in the short run, and real or false bugbears about the effect of subsidies on managerial ethos should not divert our attention away from the critical need to sustain a renewable energy industry and to enable higher levels of renewable power production in the coming years. As for the global picture, China is likely to pick up some of the manufacturing slack due to the failure of American companies. Also, since this industry is in its infancy, China can benefit a lot in the future if its companies grab larger market share now. However, the failure of US solar panel manufacturers will most probably have a negative impact on the future trajectory of global renewable energy production. After all, despite its short-term economic distress and despite its systemic problems, the United States still has significant amount of human resources and intellectual property in this area. To allow short-term profitability problems to hamper the development of this critical sector would be a serious mistake. However, it is a mistake that the political establishment seems to be only too willing to overlook. Allowing corruption considerations to become convoluted with the core economic considerations is a sign of naivete. In fact, what may be needed at this juncture is something beyond subsidies. Given how crucial renewable energy is likely to become, nationalization of some beleaguered solar panel companies should be considered seriously. And where will the money come from to cover the short-term losses of these companies while the management tries to improve the cost structure ? Cuts in useless defense spending is one answer. Let there be no doubt that a laissez-faire approach in such a crucial sector can prove disastrous in the long run. While importing panels from China is always an option, it is stupid to expect that China will be able to provide most of the solar energy needs of the United States or the world. After all, the Chinese economy has only so much human capital, so much intellectual property in the area, so much infrastructure and so much resources that it can investment in this area. Further, the trade deficit problems of the United States and its resulting over-dependence on foreign capital inflows can seriously curtail its ability to import critical items in the future. The United States is not the United Kingdom and nationalization is not a commonly discussed idea. However, given the unprecedented circumstances in the area of energy sustainability, it may be the one way to save the United States from being paralyzed in the energy area in the long run. Skeptics will enumerate numerous problems. For example, nationalizing failing solar panel manufacturing firms can create an atmosphere of moral hazard in which those firms that are financially sound can dispense with sound fundamental practices and engage in irresponsible investment or resort to other irresponsible activities since the implicit or explicit guarantee of government bailout or nationalization is there. However, such considerations of detail should not distract our attention from the bigger problem of energy sustainability. All systems have problems and even the laissez-faire framework has its own serious systemic problems as the collapse of the housing sector showed. Allowing unnecessary paranoia to prevent bold steps in the area of energy sustainability is something that the country can ill afford.
by C. Jayant praharaj ( send comments to cjpraharaj.blog@gmail.com )
Wednesday, October 12, 2011
Let not Bhagat Singh's name be insulted
In a country where image is often given a much higher premium than social and economic realities, the use of the names of historical figures to lend an aura of respectability to political movements and organizations is a frequently used cynical ploy. A case in point is an organization called the Bhagat Singh Kranti Sena, named after the Indian revolutionary who used tactics of armed resistance against British rule in India. It is an organization that projects itself as fiercely nationalistic and uses reckless rhetoric like “ If you try to break my country, I will break your head “. It recently used violent tactics against Prashant Bhushan for some remarks in favor of plebiscite in Kashmir. It has also identified six personalities from the political, activist and literary world whose public events it plans to target. It has stated quite blatantly through one newspaper interview that it will try to disrupt the public events of these six persons at all costs. And it has issued a fatwa about this. Aside from violence involving beating up individuals due to their political views, its modus operandi encompasses the throwing of eggs, tomatoes and shoes at public events.
The use of a fatwa to try to muzzle the voicing of opinions is probably unprecedented in recent Indian history. The Indian government needs to take a serious view of the matter and declare the Bhagat Singh Kranti Sena to be a terrrorist organization, if need be. Terror threats against prominent individuals, issued so belligerently, should be taken as seriously as other kinds of terror threats. India has become a much more dangerous place and constitutional decorum is under attack. It remains to be seen if the government will take the appropriate measures to protect the constitutional rights of individuals.
Bhagat Singh, whose name the organization's members have co-opted, fought against British rule, was a member of socialist organizations and believed in the right to self-determination of people. Attacking individuals with specific opinions and intellectuals is not something one attaches with his name. The Bhagat Singh Kranti Sena would do well to change its name if it continues to use the cheap tactics it has used so far. It is an insult to the name of the Indian revolutionary that his legacy is being cheapened by being used so blatantly by certain elements that do not believe in the constitution, about the rule of law or about the right to free speech that the constitution guarantees. Let not Bhagat Singh's name be insulted in this manner. Bhagat Singh ka naam badnaam na karen.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail com )
The use of a fatwa to try to muzzle the voicing of opinions is probably unprecedented in recent Indian history. The Indian government needs to take a serious view of the matter and declare the Bhagat Singh Kranti Sena to be a terrrorist organization, if need be. Terror threats against prominent individuals, issued so belligerently, should be taken as seriously as other kinds of terror threats. India has become a much more dangerous place and constitutional decorum is under attack. It remains to be seen if the government will take the appropriate measures to protect the constitutional rights of individuals.
Bhagat Singh, whose name the organization's members have co-opted, fought against British rule, was a member of socialist organizations and believed in the right to self-determination of people. Attacking individuals with specific opinions and intellectuals is not something one attaches with his name. The Bhagat Singh Kranti Sena would do well to change its name if it continues to use the cheap tactics it has used so far. It is an insult to the name of the Indian revolutionary that his legacy is being cheapened by being used so blatantly by certain elements that do not believe in the constitution, about the rule of law or about the right to free speech that the constitution guarantees. Let not Bhagat Singh's name be insulted in this manner. Bhagat Singh ka naam badnaam na karen.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail com )
Monday, October 10, 2011
The anti-FDR ?
The Obama administration may well be the first administration in American history that has effectively admitted that it does not care about a good legacy. We are talking about an opportunistic idea that has been floated by the administration to implement a one-year long, temporary payroll tax cut. The amount of tax cut being envisaged is 240 billion dollars over one year. Given the current Congressional Budget Office projections about how it is very much possible that the Social Security trust-fund can have shortages for periods as long as 50 years in the twenty-first century, this is a dangerous game to play. It is time for the Democratic support base to wake up to some of the myopic strategies that their leaders are resorting to. The current administration inherited a difficult economy, no doubt. However, its policy stances and its policy measures do not look like the stances or measures of an administration that takes its historical role seriously.
The Great Depression produced the legacy of FDR. Is it possible that the Great Recession will produce the legacy of an administration can can be characterized as anti-FDR in many ways ? If economic stimulus is the motive of the tax cuts, and there are serious questions about whether more stimuli will be effective at this stage, income tax cuts alone should be enough. By pushing for measures that can potentially eat into the Social Security trust fund with what looks like an opportunistic and irresponsible payroll tax cut, this administration is now officially a vote-seeking administration rather than an administration that takes its job seriously. These are difficult times. Where does this leave the Democratic voters ? And those who want both economic justice and economic stability ? The answer is – with very few good choices. As a significant portion of the Democratic Party abdicates its historical role, these voters will either be forced to stay away from the elections, or go with a Democratic party that does not show a whole lot of coherence in its policies. As for taxes on the rich, the Obama administration vacillated too long when it came to letting the Bush tax cuts, or a substantial portion of it expire. It is now making some noises about increasing taxes on the rich. But it does not have the requisite political muscle and its efforts in this area have been haphazard and halfhearted. For Democrats, at least, the Social Security trust fund should be sacrosanct. Any tax measures that can potentially deplete this fund or adversely affect its long-term sustainability should be scrutinized carefully by those who vote or tend to vote Democratic in elections.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail com )
The Great Depression produced the legacy of FDR. Is it possible that the Great Recession will produce the legacy of an administration can can be characterized as anti-FDR in many ways ? If economic stimulus is the motive of the tax cuts, and there are serious questions about whether more stimuli will be effective at this stage, income tax cuts alone should be enough. By pushing for measures that can potentially eat into the Social Security trust fund with what looks like an opportunistic and irresponsible payroll tax cut, this administration is now officially a vote-seeking administration rather than an administration that takes its job seriously. These are difficult times. Where does this leave the Democratic voters ? And those who want both economic justice and economic stability ? The answer is – with very few good choices. As a significant portion of the Democratic Party abdicates its historical role, these voters will either be forced to stay away from the elections, or go with a Democratic party that does not show a whole lot of coherence in its policies. As for taxes on the rich, the Obama administration vacillated too long when it came to letting the Bush tax cuts, or a substantial portion of it expire. It is now making some noises about increasing taxes on the rich. But it does not have the requisite political muscle and its efforts in this area have been haphazard and halfhearted. For Democrats, at least, the Social Security trust fund should be sacrosanct. Any tax measures that can potentially deplete this fund or adversely affect its long-term sustainability should be scrutinized carefully by those who vote or tend to vote Democratic in elections.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail com )
Saturday, October 8, 2011
Ganga river cleanup
To paraphrase what Pandit Nehru wrote many years ago in The Discovery of India and to apply it to the present context at the beginning of the second decade of the twenty-first century, India is a beleaguered economic entity and a geographical entity that has serious stability problems due to internal dissensions. It is still a bundle of contradictions, but the strong and invisible threads that Pandit Nehru talked about are not really tangible to anyone who cares enough about the fate of the country to not remain in a state of denial about the seriousness of the challenges facing it. The nation's political establishment, however, which has understandably been in the business of advertising its successes and downplaying its failures, has now crossed all bounds as far as not owning up to some of its gargantuan mistakes goes. The list is endless. Languishing GDP growth in the rural and agricultural sectors for two decades while the government advertised large overall growth rates arising mostly from service sector growth, serious environmental challenges, probably the most crippling scale of poverty faced by any modern nation in recent history, the largest number of illiterates in the world, a trade deficit as a percentage of GDP that looks like the trade deficit problem of the United States even though the country lacks several basic strengths that the US economy had when it embarked on a high trade deficit trajectory and a political leadership mired in controversies about corruption or human rights violations are only some of the problems that set India in a class of its own as far as socioeconomic stability goes.
To consider just one of the myriad problems that make the country look like a socioeconomic dystopia, the government's failures in tackling the problem of pollution in the country's most famous river, the Ganges, casts serious doubts about the ability of the current political dispensation, with its mechanical rigmaroles in the areas of democracy, to solve the nation's critical problems in a timely and efficient manner. In fact, so bad does this problem make the country look that the entire science and technology policy of the government and the entire environmental policy of the government needs to be examined with a tooth-comb in order to ensure that environmental problems do not assume the dimensions of health catastrophes or economic catastrophes in the future.
The Ganga Action Plan, which was launched with much fanfare by the government headed by former Prime Minister Rajiv Gandhi in the 1980s, was a pathetic failure when it came to implementation. It was a case of haphazard and halfhearted implementation without the requisite scientific expertise materializing at the right time. Several problems have been pointed out in connection with this project. The use of technology more suited for rivers in temperate countries than in tropical countries, the presence of a specific chemical that rendered one of the waste treatment plant ineffective and the lack of regular supply of electricity needed to run some waste treatment plants resulted in an utter failure of the plan. About twenty years after the plan was launched, a different government, this time headed by Dr. Manmohan Singh, has declared its intentions to get the river cleaned up by the year 2020. However, the past record of the political establishment in India does not inspire confidence about these kinds of projects. How does this political establishment intend to avoid repetitions of the kind of mistakes and omissions that were made in the past ? Does the country have the required scientific expertise to study the problem with the seriousness it deserves in order to justify another round of expenditure of scarce money ?
From the mid 1980s to 2020 is 35 years. By any stretch of the imagination, that is too long a time to clean up the most high profile river in the country. The past record indicates an abject disregard for the country's environmental health, a risible lack of scientific sophistication and a dismaying lack of administrative will and administrative skills. In fact, this fiasco reminds me of the character Lou Mannheim in the movie Wall Street, where he says, “ Man looks in the abyss, there's nothing staring back at him. At that moment, man finds his character. And that is what keeps him out of the abyss. “ India is looking into an abyss as we speak. The political leadership, irrespective of party affiliations, seems hopelessly overwhelmed by the country's problems and yet it does not display the willingness to acknowledge its failures and to bring a sense of seriousness to the solving of the country's problems. This kind of lackadaisical attitude bodes ill for the country's future. That part of the relevant scientific establishment of the country that truly cares about the nation's stability and the nation's image needs to proffer its advice, offer its expertise and needs to warn the leadership about the pitfalls of a haphazard approach to a problem that is as significant as the cleanup of the Ganga. India is looking into an abyss. She is in serious need of a social and political renaissance. While there are some positive movements, the forces of negativism, cynicism and reaction are too well-entrenched to lead to hopes of easy solutions. The democratic framework is moribund as far as responding to the exigent challenges of the country goes. The country needs to find its character in time to avoid disaster. Whether or not India is able to move to a new paradigm of responsibility and seriousness about its problems will decide if the country is able to avoid some major potential human rights disasters in the future.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
To consider just one of the myriad problems that make the country look like a socioeconomic dystopia, the government's failures in tackling the problem of pollution in the country's most famous river, the Ganges, casts serious doubts about the ability of the current political dispensation, with its mechanical rigmaroles in the areas of democracy, to solve the nation's critical problems in a timely and efficient manner. In fact, so bad does this problem make the country look that the entire science and technology policy of the government and the entire environmental policy of the government needs to be examined with a tooth-comb in order to ensure that environmental problems do not assume the dimensions of health catastrophes or economic catastrophes in the future.
The Ganga Action Plan, which was launched with much fanfare by the government headed by former Prime Minister Rajiv Gandhi in the 1980s, was a pathetic failure when it came to implementation. It was a case of haphazard and halfhearted implementation without the requisite scientific expertise materializing at the right time. Several problems have been pointed out in connection with this project. The use of technology more suited for rivers in temperate countries than in tropical countries, the presence of a specific chemical that rendered one of the waste treatment plant ineffective and the lack of regular supply of electricity needed to run some waste treatment plants resulted in an utter failure of the plan. About twenty years after the plan was launched, a different government, this time headed by Dr. Manmohan Singh, has declared its intentions to get the river cleaned up by the year 2020. However, the past record of the political establishment in India does not inspire confidence about these kinds of projects. How does this political establishment intend to avoid repetitions of the kind of mistakes and omissions that were made in the past ? Does the country have the required scientific expertise to study the problem with the seriousness it deserves in order to justify another round of expenditure of scarce money ?
From the mid 1980s to 2020 is 35 years. By any stretch of the imagination, that is too long a time to clean up the most high profile river in the country. The past record indicates an abject disregard for the country's environmental health, a risible lack of scientific sophistication and a dismaying lack of administrative will and administrative skills. In fact, this fiasco reminds me of the character Lou Mannheim in the movie Wall Street, where he says, “ Man looks in the abyss, there's nothing staring back at him. At that moment, man finds his character. And that is what keeps him out of the abyss. “ India is looking into an abyss as we speak. The political leadership, irrespective of party affiliations, seems hopelessly overwhelmed by the country's problems and yet it does not display the willingness to acknowledge its failures and to bring a sense of seriousness to the solving of the country's problems. This kind of lackadaisical attitude bodes ill for the country's future. That part of the relevant scientific establishment of the country that truly cares about the nation's stability and the nation's image needs to proffer its advice, offer its expertise and needs to warn the leadership about the pitfalls of a haphazard approach to a problem that is as significant as the cleanup of the Ganga. India is looking into an abyss. She is in serious need of a social and political renaissance. While there are some positive movements, the forces of negativism, cynicism and reaction are too well-entrenched to lead to hopes of easy solutions. The democratic framework is moribund as far as responding to the exigent challenges of the country goes. The country needs to find its character in time to avoid disaster. Whether or not India is able to move to a new paradigm of responsibility and seriousness about its problems will decide if the country is able to avoid some major potential human rights disasters in the future.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
Friday, October 7, 2011
Export promotion and import substitution in India
India has been unable to display significant strength in manufacturing exports or to use export-oriented manufacturing sectors as a launchpad for economic development the way several East Asian and South-East Asian countries have been able to do. India's export emphasis in the last two decades has been in the area of software, which tends to employ people who have a substantial amount of education and who have the specific ability to write software. Not surprisingly, therefore, the export sector has been unable to be a mechanism for lifting large percentages of the population from poverty in India, as it has been been in South East Asian countries, Taiwan, Korea and China. The export sectors in these other Asian countries were able to absorb vast amounts of semi-skilled and unskilled labor. Therefore, in these countries, the export-oriented sector became a way for bringing about inclusive growth, a term that is much discussed in the Indian context, but which has not materialized in India to any siginificant extent. The elitist bias in India's export policy is just one aspect of the overall elitist bias in the policies being followed by the Indian political establishment. In the absence of good mechanisms to ensure rapid absorption of unskilled and semi-skilled labor, economic growth in India has displayed several undesirable characteristics. India's manufacturing sector has languished while India's service sector has grown the fastest and the service sector has grown in a way that has not provided the kind of rapid absorption of labor from the agricultural sector that is needed in order to provide a sustainable mechanism for lifting people out of poverty. More than sixty years after independence, sixty percent of the population still relies on agriculture for its livelihood and most of this population tends to live in rural areas. Not only are per capita incomes lower in this sector than in other sectors, but the growth rate of per capita income has been negligible in the last two decades in this sector. The service sector has grown the fastest, providing rapid increase in income and wealth to those who are already well-off and who tend to be urbanites. The growth in the manufacturing sector has been lacklustre. Moreover, there are some disturbing recent trends where India's manufacturing sector has tended to become less labor intensive and more capital intensive, with higher amount of automation. So, India has neither an export-oriented policy nor a domestic policy that encourages inclusive growth or the creation of jobs for unskilled and semi-skilled labor.
There is a possibility that as China and South-East Asian countries move higher along the ladder of comparative advantage, India will start exporting some of the goods that countries like China and South-East Asian countries currently export. However, there are a few problems with this line of thinking. First, it may take a long time, perhaps decades, before this kind of dynamics takes effect. Secondly, several of these countries had higher literacy rates and better health conditions before they succeeded in bringing about massive levels of poverty alleviation with exports as a leading mechanism. Even for jobs involving unskilled and semi-skilled labor, the ability to produce efficiently and to compete in the export arena depend significantly on human development indices like literacy and health. India's has had serious failures in the area of rural education and rural health due to a number of factors like an unresponsive democracy, a corrupt political establishment, lack of initiative in the area of rural development and lack of good implementation of announced measures. So, this state of affairs has serious implications for India's ability to get labor-intensive and high-employment-generating export-oriented industries going.
India's efforts to create and promote special export zones need to be understood in this context of a miserable human development index record and the persistence of lop-sided growth that tends to favor the urban areas. The fact that a country that finds the resources to send expensive space missions for exploratory research while rural education, rural water supply, nutrition standards and proactive export policies are neglected is a clear indication that the democratic process in the country has been hijacked by self-serving and corrupt elements. India's ability to bring about uniform development, rather than elitist growth, will depend crucially on the extent to which the democratic system can be tranformed in order to be more responsive and less feudal and reactionary in nature.
Land rights issues also have a significant bearing on India's ability to build and operate new special export zones. For example, some plans to build new special export zones have encountered stiff resistance from farmers on whose land they are being planned. India's rapid population growth rate and India's lack of dispensable land that is not needed for agriculture, herding etc are all factors that bring about these conflicts between the need for export-oriented development and the land rights of people. That the Indian political establishment has let things deteriorate to this extent during sixty years of independence is testimony to the fact that India's democratic process is a higly imperfect one and that it is in the grip of special interests, both urban and rural. And the government has failed to educate the public or enthuse the public about the need for exports in sectors that employ semi-skilled and unskilled labor. And it has failed to come up with good quantitative strategies to reach the right resource allocation between scarce land and the need for labor-intensive exports.
The other aspect of India's special export zones is the extent to which they are going to be funded or subsidized by the government. While giving tax breaks to private entrepreneurs who locate their industries in special export zones is a passive way of trying to promote exports, it can prove to be insufficient to solve the problem. For example, a lot of cheap, lower-end goods are already being produced and exported and supplied to the global market by other countries that implemented effective export promotion policies in the past. Moreover, a lot of these products whose manufacture require unskilled or semi-skilled labor are flooding the Indian market itself. In such a scenario, expectations that tax breaks in special export zones will lead to susbstantial investment in labor-absorbing export-oriented industries can be highly misplaced. Effectively, the Indian consumer is buying a lot of goods that foreign workers are making and getting paid for while a rural sector with high levels of hidden unemployment languishes economically in India.
In fact, this problem of the encroachment of foreign manufactures of labor-intensive manufactures into the Indian market should be a cause for great worry among Indian planners. However, there is no discernible sense of urgency in this regard. The problem is serious enough that India may well have to think in terms of import-substitution in addition to export promotion. As the situation deteriorates further, the import-subsitution aspect will assume larger importance. Import-substituion is a term that is considered anathema in the modern, globalized, so-called knowledge-economy-driven world. However, this latter world is a fiction created by cynical government propaganda machineries, by media outlets that are controlled by business interests and by think-tanks and academia that lend an aura of respectability to reactionary and elitist economic frameworks. New catch-phrases cannot obliterate hard realities about the economy. The extent of rural poverty in India, the amount of hidden unemployment in the Indian agricultural sector, the inability of the service sector alone to absorb labor from the agricultural sector to the extent required to bring about a healthy sectoral distribution of income and the utter recklessness of running huge deficits by importing so many manufactured goods that domestic laborers can potentially produce with the right planning and the right encouragement are all realities that any serious and unbiased analyst needs to consider in the Indian context.
The time has come for Indian economic planners to face the fact that import-substitution is something that needs to be considered seriously if growth and development are to have any real meaning for the broad masses. Talking about export-promotion and ignoring the need for import-substitution in certain areas is a sign of naivete given our serious trade deficit situation. Tariffs and other trade barriers are one way to implement import-substitution measures as a way of protecting domestic jobs and creating domestic jobs that use unskilled and semi-skilled labor. However, these measures cannot be expected to be sufficient. In fact, a reappraisal of India's stances regarding multi-lateral trade frameworks like the WTO may be needed given the seriousness of the trade deficit situation. And another crucial thing that needs to be considered is if the right kind and amount of import-substitution can be brought about merely by providing incentives to the private sector, or if the government needs to own and operate large numbers of export-oriented manufacturing outlets. While India's public debt-to-GDP ratio is manageable at the moment, it is increasing at the rate of about 5% of GDP every year. Even with growth of 8 or 9%, India's ability to afford additional public spending will be severely curtailed as the public debt-to-GDP ratio climbs. And the problem of government involvement in export promotion will become a more intractable one as this happens. The time to act in this area is right now, but there is not much initiative in this regard.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
There is a possibility that as China and South-East Asian countries move higher along the ladder of comparative advantage, India will start exporting some of the goods that countries like China and South-East Asian countries currently export. However, there are a few problems with this line of thinking. First, it may take a long time, perhaps decades, before this kind of dynamics takes effect. Secondly, several of these countries had higher literacy rates and better health conditions before they succeeded in bringing about massive levels of poverty alleviation with exports as a leading mechanism. Even for jobs involving unskilled and semi-skilled labor, the ability to produce efficiently and to compete in the export arena depend significantly on human development indices like literacy and health. India's has had serious failures in the area of rural education and rural health due to a number of factors like an unresponsive democracy, a corrupt political establishment, lack of initiative in the area of rural development and lack of good implementation of announced measures. So, this state of affairs has serious implications for India's ability to get labor-intensive and high-employment-generating export-oriented industries going.
India's efforts to create and promote special export zones need to be understood in this context of a miserable human development index record and the persistence of lop-sided growth that tends to favor the urban areas. The fact that a country that finds the resources to send expensive space missions for exploratory research while rural education, rural water supply, nutrition standards and proactive export policies are neglected is a clear indication that the democratic process in the country has been hijacked by self-serving and corrupt elements. India's ability to bring about uniform development, rather than elitist growth, will depend crucially on the extent to which the democratic system can be tranformed in order to be more responsive and less feudal and reactionary in nature.
Land rights issues also have a significant bearing on India's ability to build and operate new special export zones. For example, some plans to build new special export zones have encountered stiff resistance from farmers on whose land they are being planned. India's rapid population growth rate and India's lack of dispensable land that is not needed for agriculture, herding etc are all factors that bring about these conflicts between the need for export-oriented development and the land rights of people. That the Indian political establishment has let things deteriorate to this extent during sixty years of independence is testimony to the fact that India's democratic process is a higly imperfect one and that it is in the grip of special interests, both urban and rural. And the government has failed to educate the public or enthuse the public about the need for exports in sectors that employ semi-skilled and unskilled labor. And it has failed to come up with good quantitative strategies to reach the right resource allocation between scarce land and the need for labor-intensive exports.
The other aspect of India's special export zones is the extent to which they are going to be funded or subsidized by the government. While giving tax breaks to private entrepreneurs who locate their industries in special export zones is a passive way of trying to promote exports, it can prove to be insufficient to solve the problem. For example, a lot of cheap, lower-end goods are already being produced and exported and supplied to the global market by other countries that implemented effective export promotion policies in the past. Moreover, a lot of these products whose manufacture require unskilled or semi-skilled labor are flooding the Indian market itself. In such a scenario, expectations that tax breaks in special export zones will lead to susbstantial investment in labor-absorbing export-oriented industries can be highly misplaced. Effectively, the Indian consumer is buying a lot of goods that foreign workers are making and getting paid for while a rural sector with high levels of hidden unemployment languishes economically in India.
In fact, this problem of the encroachment of foreign manufactures of labor-intensive manufactures into the Indian market should be a cause for great worry among Indian planners. However, there is no discernible sense of urgency in this regard. The problem is serious enough that India may well have to think in terms of import-substitution in addition to export promotion. As the situation deteriorates further, the import-subsitution aspect will assume larger importance. Import-substituion is a term that is considered anathema in the modern, globalized, so-called knowledge-economy-driven world. However, this latter world is a fiction created by cynical government propaganda machineries, by media outlets that are controlled by business interests and by think-tanks and academia that lend an aura of respectability to reactionary and elitist economic frameworks. New catch-phrases cannot obliterate hard realities about the economy. The extent of rural poverty in India, the amount of hidden unemployment in the Indian agricultural sector, the inability of the service sector alone to absorb labor from the agricultural sector to the extent required to bring about a healthy sectoral distribution of income and the utter recklessness of running huge deficits by importing so many manufactured goods that domestic laborers can potentially produce with the right planning and the right encouragement are all realities that any serious and unbiased analyst needs to consider in the Indian context.
The time has come for Indian economic planners to face the fact that import-substitution is something that needs to be considered seriously if growth and development are to have any real meaning for the broad masses. Talking about export-promotion and ignoring the need for import-substitution in certain areas is a sign of naivete given our serious trade deficit situation. Tariffs and other trade barriers are one way to implement import-substitution measures as a way of protecting domestic jobs and creating domestic jobs that use unskilled and semi-skilled labor. However, these measures cannot be expected to be sufficient. In fact, a reappraisal of India's stances regarding multi-lateral trade frameworks like the WTO may be needed given the seriousness of the trade deficit situation. And another crucial thing that needs to be considered is if the right kind and amount of import-substitution can be brought about merely by providing incentives to the private sector, or if the government needs to own and operate large numbers of export-oriented manufacturing outlets. While India's public debt-to-GDP ratio is manageable at the moment, it is increasing at the rate of about 5% of GDP every year. Even with growth of 8 or 9%, India's ability to afford additional public spending will be severely curtailed as the public debt-to-GDP ratio climbs. And the problem of government involvement in export promotion will become a more intractable one as this happens. The time to act in this area is right now, but there is not much initiative in this regard.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
Thursday, October 6, 2011
Why payroll tax cuts ?
The recent discussions in the area of tax policy have been confused and have displayed no coherence about the short-run objectives, the long-run objectives or about how to achieve them. For example, not only have both political parties decided to let the deep and elitist Bush tax cuts continue despite the deleterious effect it has had on the long-term sustainability of the public finances of the United States, but thay have begun to indulge in other myopic and opportunistic games in the field of tax policy. It has become quite clear that this political establishment, cutting across party lines, does not believe in systematically addressing serious issues, does not believe in acknowledging bad news about the economy and does not believe in informing the public about short-term and long-term problems. A few things have happened in the recent past when it comes to tax policy. Treasury Secretary Tim Geithner once made a statement that the Bush tax cuts should be allowed to expire. He was shouted down by other people in the establishment and today, there is no real voice or momentum in favor of letting the Bush tax cuts expire. What is even more interesting, however, are some recent announcements by the White House that it wants to increase taxes on the super-rich, that is wants to use the resulting increase in revenues to alleviate the public debt problem and that it wants to give the " middle class " income tax cuts and payroll tax cuts.
One is led to wonder, why payroll tax cuts ? It is well-known that the long-term sustainability of the Social Security system is a serious matter. It is also known that there can be shortfalls in the revenue required for the Social Security system for time periods as long as 50 years according to Congressional Budget Office documents. So, why bundle payroll tax cuts with income tax cuts and make the long-term sustainability of the Social Security system even more precarious than it already is ? After all, only the most naive can think that a privatized social security system is a good option given the recent experience about how the retirement savings of people were wiped out during the financial crisis of 2008-09. So, what exactly is the justification for cutting payroll taxes in a pay-as-you-go system ? Whether it is taxes on the super-rich or the taxes on the middle class, the one lesson that should be obvious from the past is that tax cuts are politically difficult to reverse. For tax cuts on the super-rich and on big corprations, money power buys off politicians and tries to perpetuate or implement tax cuts for the wealthy. As for the middle class, opportunistic politicians can easily play on their myopic instincts in order to gain votes and win elections instead of informing the middle class about the serious problems regarding public finance. The fact that the super-rich should shoulder a bigger share of the burden of taxes in no way excuses the middle class from also shouldering their fair share of the country's expenses and from the responsibility of contributing to sounder public finance fundamentals for the future generations. Both for this reason and due to the fact that the Social Security system is so vulnerable, a serious examination is due into the question of why payroll tax cuts should be bundled with income tax cuts for the middle class. Not only that, given the fact that the tax rebates, the bailouts and the monetary expansion following the 2008-09 financial crisis led to a stabilization of the economy, but not much beyond that, a serious examination is due about the question of how much middle-class income taxes can be cut without having an adverse impact on long-term public finances. While the rich and super-rich should be asked to pay more in taxes, the middle class cannot be expected to go on tax picnics while the country's economy is in such serious trouble. Not unless there is very good moral and quantitative justification. And as for the incentive effect of middle class tax cuts, the political establishment is far from providing detailed arguments in its favor. And the political establishment needs to explain to the public why tax increases on the super-rich should be accompanied by tax decreases on the middle class. Does the quantitative justification exist for this ? A country that refuses to face hard realities in these times of extraordinary economic distress may well find itself in tremendous trouble in the future. Short-term political opprtunism cannot be allowed to dominate over serious economic thinking, whether it is taxes for the super-rich or whether it is taxes for the middle class. The American political system is prone to making wild promises to the middle class. As the next Presidential election nears, one can expect the Democrats to try to promise tax cuts to the middle class and to promise tax increases on the super-rich. However, the Obama administation's record in this field is a disgraceful one. It has not really fought the battles it was supposed to fight to reverse some of the Bush tax cuts and to improve the fiscal deficit situation. Why is the adminitration now making these noises about the tax increases on the super-rich ? It has not really succeeded in implementing these in the Congress. Why should the public believe the empty promises of this adminitration. However, these abouts its seriousness in this regard and about its political ability to get these implemented ? Moreover, these are not normal times. These are not normal election cycles. Making reassuring promises to the middle class, no matter what the long-term considerations, like in normal times, is not the way to go. American politicians seem to be in the habit of follwing scripts, like automatons or robots. What is needed is not a robotic Democratic Party or a robotic Republican Party, but a serious appraisal of the country's needs. Never has there been a situation in recent times where it has been more necessary to put economics over politics. Since these are not business-as-usual times, one should not expect business-as-usual politics to deliver the goods. The public would do well to educate itself in these matters. It has probably become much wiser over the last couple of years and it will probably stiffle a big yawn as the Democrats try to play their populist games and as the Republicans try to serve their corporate masters. This election cycle, at least, economics is the litmus test of the relevance of the American political system, and when it comes to fixing the economy for the future generations, neither political party inspires at the moment. It is dull, oh so dull, the political discourse in this area. Warren Buffet has said that the rich should voluntarily start paying more in taxes. That may be a better way for the American system to move in the direction of fixing the economy than to have a few career-driven politicians play the usual political games and pander to the usual vested interests. The recent demonstrations in the country are another indication that the people want more than politics-as-usual. The political establishment risks becoming irrelevant if it ignores the need for transcending the normal political cynisism and opportunism.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
One is led to wonder, why payroll tax cuts ? It is well-known that the long-term sustainability of the Social Security system is a serious matter. It is also known that there can be shortfalls in the revenue required for the Social Security system for time periods as long as 50 years according to Congressional Budget Office documents. So, why bundle payroll tax cuts with income tax cuts and make the long-term sustainability of the Social Security system even more precarious than it already is ? After all, only the most naive can think that a privatized social security system is a good option given the recent experience about how the retirement savings of people were wiped out during the financial crisis of 2008-09. So, what exactly is the justification for cutting payroll taxes in a pay-as-you-go system ? Whether it is taxes on the super-rich or the taxes on the middle class, the one lesson that should be obvious from the past is that tax cuts are politically difficult to reverse. For tax cuts on the super-rich and on big corprations, money power buys off politicians and tries to perpetuate or implement tax cuts for the wealthy. As for the middle class, opportunistic politicians can easily play on their myopic instincts in order to gain votes and win elections instead of informing the middle class about the serious problems regarding public finance. The fact that the super-rich should shoulder a bigger share of the burden of taxes in no way excuses the middle class from also shouldering their fair share of the country's expenses and from the responsibility of contributing to sounder public finance fundamentals for the future generations. Both for this reason and due to the fact that the Social Security system is so vulnerable, a serious examination is due into the question of why payroll tax cuts should be bundled with income tax cuts for the middle class. Not only that, given the fact that the tax rebates, the bailouts and the monetary expansion following the 2008-09 financial crisis led to a stabilization of the economy, but not much beyond that, a serious examination is due about the question of how much middle-class income taxes can be cut without having an adverse impact on long-term public finances. While the rich and super-rich should be asked to pay more in taxes, the middle class cannot be expected to go on tax picnics while the country's economy is in such serious trouble. Not unless there is very good moral and quantitative justification. And as for the incentive effect of middle class tax cuts, the political establishment is far from providing detailed arguments in its favor. And the political establishment needs to explain to the public why tax increases on the super-rich should be accompanied by tax decreases on the middle class. Does the quantitative justification exist for this ? A country that refuses to face hard realities in these times of extraordinary economic distress may well find itself in tremendous trouble in the future. Short-term political opprtunism cannot be allowed to dominate over serious economic thinking, whether it is taxes for the super-rich or whether it is taxes for the middle class. The American political system is prone to making wild promises to the middle class. As the next Presidential election nears, one can expect the Democrats to try to promise tax cuts to the middle class and to promise tax increases on the super-rich. However, the Obama administation's record in this field is a disgraceful one. It has not really fought the battles it was supposed to fight to reverse some of the Bush tax cuts and to improve the fiscal deficit situation. Why is the adminitration now making these noises about the tax increases on the super-rich ? It has not really succeeded in implementing these in the Congress. Why should the public believe the empty promises of this adminitration. However, these abouts its seriousness in this regard and about its political ability to get these implemented ? Moreover, these are not normal times. These are not normal election cycles. Making reassuring promises to the middle class, no matter what the long-term considerations, like in normal times, is not the way to go. American politicians seem to be in the habit of follwing scripts, like automatons or robots. What is needed is not a robotic Democratic Party or a robotic Republican Party, but a serious appraisal of the country's needs. Never has there been a situation in recent times where it has been more necessary to put economics over politics. Since these are not business-as-usual times, one should not expect business-as-usual politics to deliver the goods. The public would do well to educate itself in these matters. It has probably become much wiser over the last couple of years and it will probably stiffle a big yawn as the Democrats try to play their populist games and as the Republicans try to serve their corporate masters. This election cycle, at least, economics is the litmus test of the relevance of the American political system, and when it comes to fixing the economy for the future generations, neither political party inspires at the moment. It is dull, oh so dull, the political discourse in this area. Warren Buffet has said that the rich should voluntarily start paying more in taxes. That may be a better way for the American system to move in the direction of fixing the economy than to have a few career-driven politicians play the usual political games and pander to the usual vested interests. The recent demonstrations in the country are another indication that the people want more than politics-as-usual. The political establishment risks becoming irrelevant if it ignores the need for transcending the normal political cynisism and opportunism.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
Examining some claims about the Great Recession
As the United States reels from the effects of the worst economic crisis since the Great Depression, and as the media becomes all agog with talk about a possible double-dip recession, it is worth examining some consistency questions regarding the economic data being put before the public and regarding some claims about the economy being made by the government. Anyone who has studied the recent recession and the last recession of the early 2000s in any detail should be aware that the gross domestic product recoveries from these recessions have been jobless ones. In other words, the gross domestic product starts growing after some time, but the unemployment stays high for much longer. What is intriguing and puzzling about the recent recession which followed the financial crisis of 2008-09 is that while the unemployment numbers have stayed above 9% ( that is 4% or more above the usual unemployment rate ) for long enough to make this the worst period for jobs since the 1930s, an end to the recession was announced officially.
How exactly does an economy start growing while 4% more than the usual unemployment number persist ? It cannot be due to additional exports since the global economy has been having serious problem along with the American economy. Also, the fact that the unemployment number has been 4% above the usual 5% and that the economy started growing with such persistently high unemployment implies that there must have been redundancy of labor in the economy to the tune of 4% because it is very difficult for automation to replace labor to the level of 4% of the workforce in two or three years. In a capitalistic economy, it is difficult for businesses to have 4% of slack as far as the labor force goes. One can imagine big companies cutting down on exploratory research and things like that, but that is not sufficient to explain a 4% slack in the required labor force. Since a lot of the layoffs during the financial crisis were in the finance sector, one can try to come up with a model where a lot of the labor in the financial sector was involved in non-crucial activities and that the functions of risk allocation and financial resource allocation could be carried out without a large part of the previous labor force. The economic crisis had cascading effects on the rest of the economy. For example, the automobile industry was badly affected, and there were a lot of layoffs in that sector as well. Green automobile technology has not developed to the extent required to compensate for the output loss in the conventional sector.
If we examine the question from the demand side, unemployment rates of between 9 and 9.5% and underemployment rates of close to 20% are not exactly conducive to a reurgence in demand required to spur the economy. Also, the housing market is well below its peak, implying that the wealth perception of many people in the middle class and in the rich class has diminished. How exactly does demand recover to the extent required to bring about the official end to the recession ? As already mentioned earlier in this article, the global economic scenario is not exactly conducive to the creation of extra demand. Further, the American export sector has not really shown any significan t sign of improvement. So, who was buying extra amounts of what in which sector of the economy to bring about the official end to the recession ?
As the country and the world ponders if the United States will plunge into a double-dip recession, it is worth considering the question - was the official announcement of the end of the recession following the 2008-09 financial crisis based not on the economic data, but on considerations of mass psychology ? In other words, is it possible that the announcement of the end of the recession was done in order to prevent consumer sentiment and investment sentiment from deteriorating ? It is a conspiracy theory worth examining in the extraordinary times we are living in. As with all economic measures ( undertaken by the government and by the relevant economic agencies and institutions ) that are intended to have a salubrious effect on mass psychology in the economic area, it can be harmful to persist with them if they do not start yielding the intended benefits within a few months or a couple of years. For example, Keynesian monetary and fiscal expansions should not be undertaken in perpetuo because they are meant to counteract temporary slumps in consumer and investment sentiment. Systemic problems with the economy and structural adjustment requirements of the economy can dominate over consumer and business psychology. Beyond a certain timeframe ( which is difficult to ascertain with accuracy due to the inexact and imperfect nature of economic sceicne and due to the complexity of the questions under consideration ), the systemic aspects of the problem will need to be addressed seriously. If the relevant institutions have advertised numbers about economic growth after the recession following the 2008-09 financial crisis, it may be a good idea to let the public know the actual state of affairs if the economy and the job market does not show significant signs of improvement for a long time. In the long run, only real information can lead to the right economic decisions by economic agents in the economy. Is it possible that the current discussions about the possibility of a double-dip recession are acknowledgements of the fact that the last recession did not actually end as far as gross domestic product is concerned ? In these unprecedented times, the public would do well to scrutinize the government's announcements about the economy in greater detail than is necessary under normal circumstances. It is well-known that the American political system has been hijacked by plutocratic elements in many ways. The 5% of the population that owns an overwhelming majority of the nation's wealth and that leaves no stone unturned in its efforts to buy politicians and to control the political system has a vested interest in projecting positive news and in suppressing negative information about the economy. It is possible that the technocrats and the experts who analyze the economic data and make the official pronouncements can make wrong decisions. Further, given the influence of money on the political system in the United States, what is the guarantee that the agencies that study and announce official economic data are actually free from the effects of money power ?
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
How exactly does an economy start growing while 4% more than the usual unemployment number persist ? It cannot be due to additional exports since the global economy has been having serious problem along with the American economy. Also, the fact that the unemployment number has been 4% above the usual 5% and that the economy started growing with such persistently high unemployment implies that there must have been redundancy of labor in the economy to the tune of 4% because it is very difficult for automation to replace labor to the level of 4% of the workforce in two or three years. In a capitalistic economy, it is difficult for businesses to have 4% of slack as far as the labor force goes. One can imagine big companies cutting down on exploratory research and things like that, but that is not sufficient to explain a 4% slack in the required labor force. Since a lot of the layoffs during the financial crisis were in the finance sector, one can try to come up with a model where a lot of the labor in the financial sector was involved in non-crucial activities and that the functions of risk allocation and financial resource allocation could be carried out without a large part of the previous labor force. The economic crisis had cascading effects on the rest of the economy. For example, the automobile industry was badly affected, and there were a lot of layoffs in that sector as well. Green automobile technology has not developed to the extent required to compensate for the output loss in the conventional sector.
If we examine the question from the demand side, unemployment rates of between 9 and 9.5% and underemployment rates of close to 20% are not exactly conducive to a reurgence in demand required to spur the economy. Also, the housing market is well below its peak, implying that the wealth perception of many people in the middle class and in the rich class has diminished. How exactly does demand recover to the extent required to bring about the official end to the recession ? As already mentioned earlier in this article, the global economic scenario is not exactly conducive to the creation of extra demand. Further, the American export sector has not really shown any significan t sign of improvement. So, who was buying extra amounts of what in which sector of the economy to bring about the official end to the recession ?
As the country and the world ponders if the United States will plunge into a double-dip recession, it is worth considering the question - was the official announcement of the end of the recession following the 2008-09 financial crisis based not on the economic data, but on considerations of mass psychology ? In other words, is it possible that the announcement of the end of the recession was done in order to prevent consumer sentiment and investment sentiment from deteriorating ? It is a conspiracy theory worth examining in the extraordinary times we are living in. As with all economic measures ( undertaken by the government and by the relevant economic agencies and institutions ) that are intended to have a salubrious effect on mass psychology in the economic area, it can be harmful to persist with them if they do not start yielding the intended benefits within a few months or a couple of years. For example, Keynesian monetary and fiscal expansions should not be undertaken in perpetuo because they are meant to counteract temporary slumps in consumer and investment sentiment. Systemic problems with the economy and structural adjustment requirements of the economy can dominate over consumer and business psychology. Beyond a certain timeframe ( which is difficult to ascertain with accuracy due to the inexact and imperfect nature of economic sceicne and due to the complexity of the questions under consideration ), the systemic aspects of the problem will need to be addressed seriously. If the relevant institutions have advertised numbers about economic growth after the recession following the 2008-09 financial crisis, it may be a good idea to let the public know the actual state of affairs if the economy and the job market does not show significant signs of improvement for a long time. In the long run, only real information can lead to the right economic decisions by economic agents in the economy. Is it possible that the current discussions about the possibility of a double-dip recession are acknowledgements of the fact that the last recession did not actually end as far as gross domestic product is concerned ? In these unprecedented times, the public would do well to scrutinize the government's announcements about the economy in greater detail than is necessary under normal circumstances. It is well-known that the American political system has been hijacked by plutocratic elements in many ways. The 5% of the population that owns an overwhelming majority of the nation's wealth and that leaves no stone unturned in its efforts to buy politicians and to control the political system has a vested interest in projecting positive news and in suppressing negative information about the economy. It is possible that the technocrats and the experts who analyze the economic data and make the official pronouncements can make wrong decisions. Further, given the influence of money on the political system in the United States, what is the guarantee that the agencies that study and announce official economic data are actually free from the effects of money power ?
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
Saturday, October 1, 2011
European Welfare Systems and Implications for the World
A gem of modern human civilization, the European welfare system, is in peril. The situation is not necessarily bad in all the major European economies, but it has deteriorated in a sufficient number of European economies to cause serious consternation. Contagion from the financial crisis and the ensuing deep recession in the United States is one of the factors that has caused the economies, the tax revenues and the public finances of several European countries to deteriorate. Further, overinvestment in housing sectors, way beyond what effective demand for housing in these countries would justify, has led to a state where sudden decreases in housing construction has become necessary, with all the associated ramifications like decrease in employment levels in the construction industry, decrease in capital inflows, decrease in gross domestic product etc. The effect on public finances means that not only are short run austerity measures necessitated, but the sustainability of welfare systems in the long run can be in danger unless the public finance parameters are managed just right from now to say ten years from today.
And the significance of this phenomenon cannot be overstated. There are no controlled experiments in economics. Successful economic policies and successful economic programmes are role models that can be emulated after necessary modifications in different countries and in different time periods. Unsuccessful economic policies should be studied in order to gain an understanding of the relevant dynamics and to avoid mistakes in the future. When one considers the European welfare systems, they are systems that contribute immensely to human welfare in European countries and provide essential economic cushion during periods of economic distress, which have become more common in recent times. In the United States, not only is the long-run sustainability of the Social Security system in doubt due to the intransigence of right-wing political parties, but the kind of and the amount of support provided by the current Social Security and unemployment benefits system in the United States leaves much to be desired. For example, news stories about senior citizens facing tremendous difficulties during heat waves are not that uncommon. Similarly, news items about seniors struggling to pay for heating in winter have also made the news in the past. More recently, with the persistence of unemployment numbers that are very high by historical standards, the question of unemployment benefits has acquired great significance and the extension of unemployment benefits for people who have been out of jobs for long periods of time has become a question that the United States Congress has to contend with. And the poverty rate in the United States is around 15%, the highest it has been since the 1960s. This fact itself is a sign that the jobless group, the low-income group and other economically challenged groups do not have the necessary quality of economic safety nets and do not receive the necessary quantity of emergency asistance either in the United States. In contrast, the European welfare systems are reputed to provide much better coverage for the poor and economically challenged populations, in the short run and in the long run. And despite this difference in ethos and despite this difference in the actual level of benefits that welfare systems provide, the American public finance situation is not much better than in the economies in the European Union and when it comes to structural weaknesses, the future prospects of the American public finance situation are in bigger trouble than in Europe in many ways. Despite the fact that some European economies, like the PIGS ( Portugal, Ireland, Greece and Spain ) economies, have experienced spikes in debt-to-GDP ratios in recent times due to global economic weakness, the welfare system in Europe is still much better-managed than the American Social Security system and unemployment benefit system. For example, even when the economic climate is good, the American political establishment does not arrive at the mechanisms necessary to make the Social Security system solvent in the very long run. The European countries have a better record of paying for their welfare systems from current payroll taxes that are high enough to cover the required payments and to keep the systems solvent. The fact that European countries get into economic trouble and face fiscal difficulties in no way detracts from the truth that there is a fundamental difference in ethos between Europe and the United States in the area of welfare systems. European welfare systems provides models from which American policy framers can learn some useful lessons. And it is also something that can provide a useful standard for other countries, like developing countries, as they proceed from less sophisticated and less comprehensive economic safety nets to more sophisticated and more comprehensive economic safety nets. After all, the perils of letting the welfare systems remain vulnerable even during good economic times cannot be overstated. And the European economies follow better practices in this regard compared to the United States. While economic turbulence cannot be predicted accurately all the time, the solvency of welfare systems during normal economic times and the presence of careful planning to ensure long-term stability of welfare systems is a hallmark of a mature society. Careful planning for long-term stability can provide resilience against short-term economic volatility. But a lackadaisical and complacent attitude about Social Security and other aspects of the welfare system, as is seen in the United States, can only result in extreme distress for economically vulnerable groups during times of economic difficulty, and that too distress that can be avoided with careful long-term planning and a different social ethos. In the United States, there is a significant section of the political establishment that is hell-bent on eliminating the welfare system and replacing it with privately paid systems that are much more vulnerable to things like speculative trading. In countries with this kind of ethos, like the United States, there is a bigger chance that systems like Social Security may become insolvent due to economic crises and due to political hostility. The kind of welfare system that is aimed for in normal economic times and the kind of public finance that is provided for it in normal times is where Europe provides a useful role model.
The difference between the way the United States approaches the question of welfare systems and the way Europe approaches the question of welfare systems is one crucial aspect of the modern civilizational differences between the two. That two modern civilizations with comparable per capita incomes and with comparable standards of living have such different emphases on economic welfare is a noteworthy phenomenon. The stability of human civilization itself may rest on which kind of ethos dominates in the politics of nations.
by C. Jayant Praharaj
And the significance of this phenomenon cannot be overstated. There are no controlled experiments in economics. Successful economic policies and successful economic programmes are role models that can be emulated after necessary modifications in different countries and in different time periods. Unsuccessful economic policies should be studied in order to gain an understanding of the relevant dynamics and to avoid mistakes in the future. When one considers the European welfare systems, they are systems that contribute immensely to human welfare in European countries and provide essential economic cushion during periods of economic distress, which have become more common in recent times. In the United States, not only is the long-run sustainability of the Social Security system in doubt due to the intransigence of right-wing political parties, but the kind of and the amount of support provided by the current Social Security and unemployment benefits system in the United States leaves much to be desired. For example, news stories about senior citizens facing tremendous difficulties during heat waves are not that uncommon. Similarly, news items about seniors struggling to pay for heating in winter have also made the news in the past. More recently, with the persistence of unemployment numbers that are very high by historical standards, the question of unemployment benefits has acquired great significance and the extension of unemployment benefits for people who have been out of jobs for long periods of time has become a question that the United States Congress has to contend with. And the poverty rate in the United States is around 15%, the highest it has been since the 1960s. This fact itself is a sign that the jobless group, the low-income group and other economically challenged groups do not have the necessary quality of economic safety nets and do not receive the necessary quantity of emergency asistance either in the United States. In contrast, the European welfare systems are reputed to provide much better coverage for the poor and economically challenged populations, in the short run and in the long run. And despite this difference in ethos and despite this difference in the actual level of benefits that welfare systems provide, the American public finance situation is not much better than in the economies in the European Union and when it comes to structural weaknesses, the future prospects of the American public finance situation are in bigger trouble than in Europe in many ways. Despite the fact that some European economies, like the PIGS ( Portugal, Ireland, Greece and Spain ) economies, have experienced spikes in debt-to-GDP ratios in recent times due to global economic weakness, the welfare system in Europe is still much better-managed than the American Social Security system and unemployment benefit system. For example, even when the economic climate is good, the American political establishment does not arrive at the mechanisms necessary to make the Social Security system solvent in the very long run. The European countries have a better record of paying for their welfare systems from current payroll taxes that are high enough to cover the required payments and to keep the systems solvent. The fact that European countries get into economic trouble and face fiscal difficulties in no way detracts from the truth that there is a fundamental difference in ethos between Europe and the United States in the area of welfare systems. European welfare systems provides models from which American policy framers can learn some useful lessons. And it is also something that can provide a useful standard for other countries, like developing countries, as they proceed from less sophisticated and less comprehensive economic safety nets to more sophisticated and more comprehensive economic safety nets. After all, the perils of letting the welfare systems remain vulnerable even during good economic times cannot be overstated. And the European economies follow better practices in this regard compared to the United States. While economic turbulence cannot be predicted accurately all the time, the solvency of welfare systems during normal economic times and the presence of careful planning to ensure long-term stability of welfare systems is a hallmark of a mature society. Careful planning for long-term stability can provide resilience against short-term economic volatility. But a lackadaisical and complacent attitude about Social Security and other aspects of the welfare system, as is seen in the United States, can only result in extreme distress for economically vulnerable groups during times of economic difficulty, and that too distress that can be avoided with careful long-term planning and a different social ethos. In the United States, there is a significant section of the political establishment that is hell-bent on eliminating the welfare system and replacing it with privately paid systems that are much more vulnerable to things like speculative trading. In countries with this kind of ethos, like the United States, there is a bigger chance that systems like Social Security may become insolvent due to economic crises and due to political hostility. The kind of welfare system that is aimed for in normal economic times and the kind of public finance that is provided for it in normal times is where Europe provides a useful role model.
The difference between the way the United States approaches the question of welfare systems and the way Europe approaches the question of welfare systems is one crucial aspect of the modern civilizational differences between the two. That two modern civilizations with comparable per capita incomes and with comparable standards of living have such different emphases on economic welfare is a noteworthy phenomenon. The stability of human civilization itself may rest on which kind of ethos dominates in the politics of nations.
by C. Jayant Praharaj
Thursday, September 29, 2011
The European economy and the need for detail-oriented approaches
A recent article by Paul Krugman titled " Europe's economic crisis: the gap between 'need' and 'do' " in the Seattle Times recommends some serious Keynesian medicines for the European economic problems. Mr. Krugman recommends a path of fiscal expansion as the solution to the recent recessionary scenario. The logic and intuition he uses come from the hallowed Keynesian tradition, which says that expanding money supply or fiscal expansion can counteract depressed demand or investment sentiments in the economy. Keynesian approaches do have their uses and some of the economic woes of recent times may be attributable to the inability to come up with Keynesian solutions at the right moment in time. However, recommending fiscal expansion in the current scenario in the PIGS ( Portugal, ireland, Greece, Spain ) countries, for example, has its own serious problems. What form will this fiscal expansion take ? Will it involve higher spending on infrastructure ? But we have already seen what has happened in Japan with low-tax, high infrastructure spending Keynesian medicines. In one word, doldrums. Will the PIGS countries go the way of Japan if Mr.Krugman's policy recommendations are followed ? Will Europe go the way of Japan if Mr. Krugman's policy recommendations are followed ? These are useful questions to ponder. No one should be under the illusion that the situation is an easy one. And no one wants Europe or the whole world to look like Japan, with two decades of economic stagnation and a deb-to-GDP ratio of 200%.
Mr. Krugman should do well to remember that credit rating agencies downgraded the treasury bonds of several European countries before they had the chance to embark on the kind of Keynesian expansion he suggests. While the EFSF and similar mechanisms are providing funding, they are unlikely to accommodate the kind of approaches that Mr. Krugman suggests. The ability to repay debt has always been a major consideration for this kind of mechanism, and it should be to some extent ( the danger is that they may be too insensitive to short-run considerations just as Mr. Krugman is oblivious to many long-term considerations ). Also, Mr. Krugman needs to tell us whether tax increases should form a component of a long-term stabilization strategy. Tax increases are anathema to Keynesian thinking, but who says Keynesians do not have huge lacunae in their theoretical frameworks ? In fact, Mr. Krugman needs to clarify what he means by fiscal expansion. Does he want to keep tax rates unchanged and just go for spending increases, or is he considering a mix ? The devil is in the details and Mr. Krugman's recommendation of fiscal expansion is not detailed enough to lead to workable solutions at the moment.
The housing market glut is a systemic problem. It can take years for the market to come to the right equilibrium and for its negative effects on the rest of the economy to be alleviated. Keynesian measures in the form of monetary expansion, tax rebates and bailouts were implemented in the United States, but we are still hovering close to a double-dip recession. And the housing market is still searching for the right equilibrium. And the debt-to-GDP ratio keeps skyrocketing and the stage is being set for a debt default crisis a few years or may be a decade from now. What is the guarantee that Europe won't experience the same fate ?
Mr. Krugman is throwing caution to the winds by ignoring possible long-term problems when he makes such a recommendation. The governments of these countries have to juggle considerations of current recession, current unemployment, short-term and medium-term and long-term debt sustainability and the trajectory of debt-to-GDP ratios. What is needed is a right mix between short-run stability and long-run sustainability. And Mr. Krugman fails to consider the latter in his solutions. If Japan is any guide, his notion of a stimulus can look like irresponsible profligacy in hindsight a few years from now. Keynesianism is a framework that deals with short-run problems. Today, we are faced with some historically unprecedented scenarios where not only is the short-run bad, but the long-run looks scary as hell too. And the long run looks scary not just imprecisely, or intuitively, but quite precisely and rather predictably. For example, the debt-to-GDP ratio that the future generations will inherit is a serious and predictable long-term problem. Any solution that fails to take account of both is likely to exacerbate the overall situation. Austerity now for stability later may not be such a bad idea. What may work is not profligate Keynesianism, but a toned-down, detail-oriented Keynesianism that is not insensitive to critical long-run considerations.
by C. Jayant Praharaj
Mr. Krugman should do well to remember that credit rating agencies downgraded the treasury bonds of several European countries before they had the chance to embark on the kind of Keynesian expansion he suggests. While the EFSF and similar mechanisms are providing funding, they are unlikely to accommodate the kind of approaches that Mr. Krugman suggests. The ability to repay debt has always been a major consideration for this kind of mechanism, and it should be to some extent ( the danger is that they may be too insensitive to short-run considerations just as Mr. Krugman is oblivious to many long-term considerations ). Also, Mr. Krugman needs to tell us whether tax increases should form a component of a long-term stabilization strategy. Tax increases are anathema to Keynesian thinking, but who says Keynesians do not have huge lacunae in their theoretical frameworks ? In fact, Mr. Krugman needs to clarify what he means by fiscal expansion. Does he want to keep tax rates unchanged and just go for spending increases, or is he considering a mix ? The devil is in the details and Mr. Krugman's recommendation of fiscal expansion is not detailed enough to lead to workable solutions at the moment.
The housing market glut is a systemic problem. It can take years for the market to come to the right equilibrium and for its negative effects on the rest of the economy to be alleviated. Keynesian measures in the form of monetary expansion, tax rebates and bailouts were implemented in the United States, but we are still hovering close to a double-dip recession. And the housing market is still searching for the right equilibrium. And the debt-to-GDP ratio keeps skyrocketing and the stage is being set for a debt default crisis a few years or may be a decade from now. What is the guarantee that Europe won't experience the same fate ?
Mr. Krugman is throwing caution to the winds by ignoring possible long-term problems when he makes such a recommendation. The governments of these countries have to juggle considerations of current recession, current unemployment, short-term and medium-term and long-term debt sustainability and the trajectory of debt-to-GDP ratios. What is needed is a right mix between short-run stability and long-run sustainability. And Mr. Krugman fails to consider the latter in his solutions. If Japan is any guide, his notion of a stimulus can look like irresponsible profligacy in hindsight a few years from now. Keynesianism is a framework that deals with short-run problems. Today, we are faced with some historically unprecedented scenarios where not only is the short-run bad, but the long-run looks scary as hell too. And the long run looks scary not just imprecisely, or intuitively, but quite precisely and rather predictably. For example, the debt-to-GDP ratio that the future generations will inherit is a serious and predictable long-term problem. Any solution that fails to take account of both is likely to exacerbate the overall situation. Austerity now for stability later may not be such a bad idea. What may work is not profligate Keynesianism, but a toned-down, detail-oriented Keynesianism that is not insensitive to critical long-run considerations.
by C. Jayant Praharaj
Sunday, September 18, 2011
Why does India need the BJP ?
With Narendra Modi going on a fast against communalism and casteism, the time has come to seriously ponder what relevance the BJP is going to have in the Indian political scene in the future. It is a well-known truism that the political windfalls of the BJP in the past have more often than not been the result of divisive rhetoric with a few symbols like the Ram Janmabhoomi-Babri Masjid issue as the foci of its campaign. Its efforts to walk a fine line between its proto-fascist ideological leanings and the requirements of governance have not yielded good results in the past. And the reasons are not far to seek. If you take away its anti-minority shrillness, the BJP offers little that is different from other political parties and little that is more constructive than what other political formations have to offer.
Take economic matters, for example. The per capita annual GDP growth rate in rural India has not been very much above 0% in the last twenty or so years. Most of India's GDP growth has been in the service sector and the government's enthusisastic advertisement of an annual GDP growth rate of 8% or so is rarely, if ever, accompanied by the caveat that most of it is due to service sector growth around 12-13%. That puts the economic policies of the Congress Party at the right end of the ideological spectrum in the Indian context. After all, one cannot ignore things like the persistence of high levels of poverty when it comes to assessing the ideological leanings of the Congress Party. Where does that put the BJP as far as its relevance goes when it comes to economic issues ? The Congress Party is not exactly a party that is unfriendly to corporate interests. Not only that, GDP growth rate, which is the favorite economic indicator of economic conservatives, was not exactly impressive during the last BJP government's rule ( this is not to say that the slightly higher GDP growth rate under the Congress Party since then has yielded tangible benefits for the vast majority of the Indian masses ).
As for national security, while the Congress Party may be perceived as being softer than the BJP on some issues, the BJP has its own image problems in this area like the Kargil fiasco.
Corruption has become the latest obsession of a party that is searching desperately for an election-winning agenda. With no clear third front in the picture, this can yield some dividends. But, the BJP does have its own image problems having to do with human rights violations. As economic issues take center stage, as they should given the global economic scenario and the horrible record in the area of economic development at home, the potential for this image to yield positive dividends with the Hindu vote bank diminishes sharply. The alacrity with which the Chief Minister of the state which has been described as the " laboratory of hatred " is making what effectively amount to a volte-face on his past ideological extremism in order to position himself as a Prime Ministerial candidate should raise eyebrows among the intelligentsia and the Indian public, given the reports of pogrom-like activities during his tenure as Chief Minister in Gujarat. It is worth recalling that Adolf Hitler won democratic elections on his way to authoritarian control. India in the twenty-first century, with its enormous challenges in the areas of rural development, poverty, literacy, trade deficits etc, can ill afford to go down a similar path and have economic issues occluded by divisive agendas. Chances are high that the Indian public will put bread and butter issues higher on the priority list than communal issues and that it will wise up to the fact that excessive politicization of these issues results in paralysis of the law-and-order machinery in this area.
As a party that lacks an economic agenda with mass appeal and as a party with a proto-fascist character that seems increasingly anachronistic to a wiser public, the BJP will have a tough time projecting itself as a relevant political force in the future.
by C. Jayant Praharaj
Take economic matters, for example. The per capita annual GDP growth rate in rural India has not been very much above 0% in the last twenty or so years. Most of India's GDP growth has been in the service sector and the government's enthusisastic advertisement of an annual GDP growth rate of 8% or so is rarely, if ever, accompanied by the caveat that most of it is due to service sector growth around 12-13%. That puts the economic policies of the Congress Party at the right end of the ideological spectrum in the Indian context. After all, one cannot ignore things like the persistence of high levels of poverty when it comes to assessing the ideological leanings of the Congress Party. Where does that put the BJP as far as its relevance goes when it comes to economic issues ? The Congress Party is not exactly a party that is unfriendly to corporate interests. Not only that, GDP growth rate, which is the favorite economic indicator of economic conservatives, was not exactly impressive during the last BJP government's rule ( this is not to say that the slightly higher GDP growth rate under the Congress Party since then has yielded tangible benefits for the vast majority of the Indian masses ).
As for national security, while the Congress Party may be perceived as being softer than the BJP on some issues, the BJP has its own image problems in this area like the Kargil fiasco.
Corruption has become the latest obsession of a party that is searching desperately for an election-winning agenda. With no clear third front in the picture, this can yield some dividends. But, the BJP does have its own image problems having to do with human rights violations. As economic issues take center stage, as they should given the global economic scenario and the horrible record in the area of economic development at home, the potential for this image to yield positive dividends with the Hindu vote bank diminishes sharply. The alacrity with which the Chief Minister of the state which has been described as the " laboratory of hatred " is making what effectively amount to a volte-face on his past ideological extremism in order to position himself as a Prime Ministerial candidate should raise eyebrows among the intelligentsia and the Indian public, given the reports of pogrom-like activities during his tenure as Chief Minister in Gujarat. It is worth recalling that Adolf Hitler won democratic elections on his way to authoritarian control. India in the twenty-first century, with its enormous challenges in the areas of rural development, poverty, literacy, trade deficits etc, can ill afford to go down a similar path and have economic issues occluded by divisive agendas. Chances are high that the Indian public will put bread and butter issues higher on the priority list than communal issues and that it will wise up to the fact that excessive politicization of these issues results in paralysis of the law-and-order machinery in this area.
As a party that lacks an economic agenda with mass appeal and as a party with a proto-fascist character that seems increasingly anachronistic to a wiser public, the BJP will have a tough time projecting itself as a relevant political force in the future.
by C. Jayant Praharaj
Thursday, August 25, 2011
The Whistleblower Bill in India and the private sector
India looks a bit like the American Wild West when it comes to corruption. From illegal mining to kickbacks in government projects, from pilfering of funds from public welfare projects to violation of environmental regulations, instances of corruption are ubiquitous. So much so that one is led to wonder whether illegality is the norm and adherence to the legal framework an exception. Hopefully, the reality is different and the cases one hears about in the media are exceptions to the rule. But the trend is a decidedly worrisome one. The scale of corruption and the frequency with which major political figures and ministers are implicated in corruption scandals are both indicators that either public morality has taken a nosedive or that the news media has become more adept at uncovering and reporting cases of corruption. What should be even more troublesome than the scale of corruption and the frequency with which the laws are violated is the brutality that the entrenched corrupt elements sometimes mete out to those who dare take them on. A cursory search on the internet reveals that several people have been murdered for trying to expose corrupt activities in India in recent years. When it comes to public morality, respect for public wealth and adherence to norms of honesty in the public or private sector, the trend has been from the bad to the ugly in recent times.
The recent hoopla surrounding anti-corruption activism by figures like Anna Hazare and Baba Ramdev, which has revolved around the Lokpal Bill of 2011, has pushed to the background the Whistleblower Protection Bill which was drafted in 2010, which was approved by the Cabinet and which has been tabled in the Lok Sabha. The Jan Lokpal Bill, which is the civil society version of the bill, does contain some clauses about whistleblower protection. However, it is not the version that is under consideration in the Lok Sabha. Reporting of corrupt activities must form a crucial element of any systematic framework to fight corruption, and the Whistleblower Bill, which has received less public attention than the Lokpal Bill, seeks to do just that. It is a crucial requirement to strengthen the grass-roots aspects of the fight against corruption. Sadly enough, the Whistleblower Bill has a glaring omission in that it leaves out private corporations from the provisions of the bill. Even the Standing Committee on Personnel, Public Grievances, Law and Justice, which has suggested modifications and additions to the bill, failed to mention whistleblowers in the private sector. For a country that has witnessed the horror of deaths resulting from a gas leak at a Union Carbide factory in Bhopal, stock market scams of different kinds and accounting fraud by a prominent company like Satyam, this kind of omission is unforgivable. However, it is consistent with the pro-big-corporation and pro-business ethos that the mainstream political establishment has committed itself to. Despite paying lip service to rural development and “ inclusive growth “, this establishment has consistently followed policies that favor big business and a model of economic growth that not only perpetuates economic hardships for the vast majority of the population, but worsens their conditions in many instances by displacing tribals and farmers from their lands without proper compensation. This elitist bias of the establishment does not portend well for the public interest in those areas where the private sector's activities have or have the potential to have non-trivial effects on public health, safety etc. Moreover, even countries like the United States, which supposedly have better systems to track and prevent corruption, have witnessed examples of egregious violations of expected norms of corporate behavior. Accounting scandals, in which companies like Enron inflated profits, and private accounting firms like Arthur Andersen certified these misleading profit numbers as being correct, resulted in enormous losses to stockholders. As the Indian political establishment tries to push India in a direction where big corporations, conglomerates and billionaires dominate the scene, accounting frauds, tax evasion, flouting of environmental regulations, bribery as a means for obtaining contracts for government projects and failure to follow established safety norms can become more common and can cause havoc to public safety and to the economic well-being of both the rich and the poor. By leaving out whistleblower protection for the private sector, the bill will embolden aggressive businesses and unscrupulous citizens of the corporate world when it comes to violating rules that have serious public interest implications.
Individuals can file law suits against corporations and businesses for damages caused. However, for cases like tax evasion or damage to the environment, public interest litigations are probably the best option for society as a whole to seek redress for damages caused by negligent corporations. However, for society to be able to track and fight against corruption in the private sector, many more legal features are needed. Whistleblower protection for the private sector is one such feature and its omission from the Whistleblower Bill is unfortunate, especially when the private sector and big corporations are growing rapidly in their influence. Given what we know about the mainstream political establishment's predilection for the rich corporations and the economic elites, this exclusion of corporate India and the business sector from the Whistleblower Bill smacks of cynicism. Hopefully, it will be incorporated in a modified version of the bill or it will be part of a future bill.
by C. Jayant Praharaj
The recent hoopla surrounding anti-corruption activism by figures like Anna Hazare and Baba Ramdev, which has revolved around the Lokpal Bill of 2011, has pushed to the background the Whistleblower Protection Bill which was drafted in 2010, which was approved by the Cabinet and which has been tabled in the Lok Sabha. The Jan Lokpal Bill, which is the civil society version of the bill, does contain some clauses about whistleblower protection. However, it is not the version that is under consideration in the Lok Sabha. Reporting of corrupt activities must form a crucial element of any systematic framework to fight corruption, and the Whistleblower Bill, which has received less public attention than the Lokpal Bill, seeks to do just that. It is a crucial requirement to strengthen the grass-roots aspects of the fight against corruption. Sadly enough, the Whistleblower Bill has a glaring omission in that it leaves out private corporations from the provisions of the bill. Even the Standing Committee on Personnel, Public Grievances, Law and Justice, which has suggested modifications and additions to the bill, failed to mention whistleblowers in the private sector. For a country that has witnessed the horror of deaths resulting from a gas leak at a Union Carbide factory in Bhopal, stock market scams of different kinds and accounting fraud by a prominent company like Satyam, this kind of omission is unforgivable. However, it is consistent with the pro-big-corporation and pro-business ethos that the mainstream political establishment has committed itself to. Despite paying lip service to rural development and “ inclusive growth “, this establishment has consistently followed policies that favor big business and a model of economic growth that not only perpetuates economic hardships for the vast majority of the population, but worsens their conditions in many instances by displacing tribals and farmers from their lands without proper compensation. This elitist bias of the establishment does not portend well for the public interest in those areas where the private sector's activities have or have the potential to have non-trivial effects on public health, safety etc. Moreover, even countries like the United States, which supposedly have better systems to track and prevent corruption, have witnessed examples of egregious violations of expected norms of corporate behavior. Accounting scandals, in which companies like Enron inflated profits, and private accounting firms like Arthur Andersen certified these misleading profit numbers as being correct, resulted in enormous losses to stockholders. As the Indian political establishment tries to push India in a direction where big corporations, conglomerates and billionaires dominate the scene, accounting frauds, tax evasion, flouting of environmental regulations, bribery as a means for obtaining contracts for government projects and failure to follow established safety norms can become more common and can cause havoc to public safety and to the economic well-being of both the rich and the poor. By leaving out whistleblower protection for the private sector, the bill will embolden aggressive businesses and unscrupulous citizens of the corporate world when it comes to violating rules that have serious public interest implications.
Individuals can file law suits against corporations and businesses for damages caused. However, for cases like tax evasion or damage to the environment, public interest litigations are probably the best option for society as a whole to seek redress for damages caused by negligent corporations. However, for society to be able to track and fight against corruption in the private sector, many more legal features are needed. Whistleblower protection for the private sector is one such feature and its omission from the Whistleblower Bill is unfortunate, especially when the private sector and big corporations are growing rapidly in their influence. Given what we know about the mainstream political establishment's predilection for the rich corporations and the economic elites, this exclusion of corporate India and the business sector from the Whistleblower Bill smacks of cynicism. Hopefully, it will be incorporated in a modified version of the bill or it will be part of a future bill.
by C. Jayant Praharaj
Thursday, August 11, 2011
Listerine cure
They gave us listerine cure,
Those pragmatists,
And to be sure,
As they dillied and dallied,
A lot vanished into thin air.
Some will say it was a lot of nothing,
Some will say it was a lot of something.
Was it because they were in a funk of nothingness ?
Brace for more
Listerine cure.
by C. Jayant Praharaj
Those pragmatists,
And to be sure,
As they dillied and dallied,
A lot vanished into thin air.
Some will say it was a lot of nothing,
Some will say it was a lot of something.
Was it because they were in a funk of nothingness ?
Brace for more
Listerine cure.
by C. Jayant Praharaj
Tuesday, June 21, 2011
War and economic activity
Our economics textbooks and the discussions in our media are peppered with simplistic economic arguments. Sometimes, these arguments form the basis for economic policy. Economic discourse about the Second World War often mentions that the war was " responsible for bringing America out of the Great Depression ". In the middle of the Great Recession, there is a possibility that similar arguments may be made in favor of war. Politicians that are lobbied by special interest groups in the military-industrial complex will find it convenient to vote in favor of increase in funding for war activities by using some of these arguments, which are often specious.
While it is true that an increase in war efforts can lead to higher employment, the nature of economic activity during wartime is very different from that during peacetime. The new jobs created by a war are geared towards the war or wars and are not associated with increase in normal consumption or investment. Therefore, simplistic statements to the effect that wars bring economies out of recessions are not accurate.
Also, the full employment or close-to-full employment brought about by war efforts are not sustainable once the war has ended. New and wasteful projects in the area of defense were probably responsible for the economy not reverting to pre-World War II-like conditions after the Second World War. The ability of the military-industrial-political complex to sell more wasteful military projects to the public is limited at the present time. Also, the current model of wars is to combine a low-tax, pro-corporate, laissez-faire economic model with heavy public borrowing to finance the extra expenditure needed for wars. Some of this public borrowing is from foreign entities. The possibility of such an economic system spinning out of control is always present. And the foreign indebtedness does not help.
Also, the extra expenditure associated with wars can lead to unsustainable debt situations. The current dismal debt scenario in the United States is in no small measure due to wasteful war efforts in the recent past. The current intransigence in the American political establishment about wars being waged by the United States abroad will likely lead to an exacerbation of the debt problem. Moreover, the international linkages of this debt can prove to be a serious problem for the geopolitical calculations of that part of the political establishment that pushes for larger American military presence abroad.
by C. Jayant Praharaj
While it is true that an increase in war efforts can lead to higher employment, the nature of economic activity during wartime is very different from that during peacetime. The new jobs created by a war are geared towards the war or wars and are not associated with increase in normal consumption or investment. Therefore, simplistic statements to the effect that wars bring economies out of recessions are not accurate.
Also, the full employment or close-to-full employment brought about by war efforts are not sustainable once the war has ended. New and wasteful projects in the area of defense were probably responsible for the economy not reverting to pre-World War II-like conditions after the Second World War. The ability of the military-industrial-political complex to sell more wasteful military projects to the public is limited at the present time. Also, the current model of wars is to combine a low-tax, pro-corporate, laissez-faire economic model with heavy public borrowing to finance the extra expenditure needed for wars. Some of this public borrowing is from foreign entities. The possibility of such an economic system spinning out of control is always present. And the foreign indebtedness does not help.
Also, the extra expenditure associated with wars can lead to unsustainable debt situations. The current dismal debt scenario in the United States is in no small measure due to wasteful war efforts in the recent past. The current intransigence in the American political establishment about wars being waged by the United States abroad will likely lead to an exacerbation of the debt problem. Moreover, the international linkages of this debt can prove to be a serious problem for the geopolitical calculations of that part of the political establishment that pushes for larger American military presence abroad.
by C. Jayant Praharaj
Friday, June 3, 2011
The proposed African monetary union, economic independence and recessions
A monetary union has been proposed for Africa. However, there are several important questions involving national economic independence and economic efficiency that should be considered seriously by those contemplating such a union. That the political opinion and public opinion in so many European countries endorsed a monetary union despite the overwhelming loss of national independence, especially in the area of monetary policy, is striking in view of the obvious structural problems a monetary union engenders. Periods of economic weakness and periods of increasing unemployment usually impel the corresponding Central Bank to follow low interest rate policies and increased money supply ( significant exceptions occur when the IMF prescribes the opposite policies for certain countries in economic distress although countries like the United States tend to do monetary expansion during recessions ). The idea is to counteract slack in the economy ( a condition where actual output falls short of maximum possible output due to coordination failure between demand and potential supply ) by spurring demand ( as measured in the country’s currency ). The idea, a keystone of Keynesianism, has its detractors. For example, there are those who argue that money supply policy measures should be completely nullified by price adjustments in the economy. However, Central Banks do follow this kind policy, for example, in the United States. A weak economy is usually accompanied by deflation or very low inflation. So, there is not much to lose in terms of inflation by following these policies.
What could prove to be more important for a monetary union is the converse side of this policy. Namely, what happens if a Central Bank shrinks the money supply. Shrinking of money supply can sometimes lead to deflationary expectations and deflationary spirals, and can create slack in the economy and exacerbate unemployment. There is no guarantee that any particular monetary tightening measure by the European Central Bank, for example, is going to be right for all countries in the monetary union. Particular countries can get pushed into higher unemployment as a result of such steps.
Monetary tightening can lead to recessions in particular countries, put pressure on fiscal balances, drive up debt-to-GDP ratios and necessitate painful bailout conditions, when an independent central bank could have nipped the economic weakness in the bud by following low interest rate policies. The economies of individual countries will have to react to monetary changes by any central bank. The danger of deflationary spirals and irrational recessionary dynamics being set in motion because of a mismatch between central bank monetary policy and local economic realities is all too real.
The transaction costs due to currency exchange may be a constant kind of low-level inefficiency. However, the possible turmoil due to mismatch between central bank policy and local economic can have lasting impacts on a country’s economy. The actual inefficiency due to these can be way higher. It can impoverish entire sections of the country’s population. It can render entire sectors of the economy uncompetitive vis-à-vis global competition when an independent Central bank could have come to the rescue of these sectors.
Countries with independent Central banks also run into economic impasses where they need bailouts. However, anyone contemplating a monetary union in Africa needs to take into account the all-too-real possibility that a centralized monetary system can either lose touch with local economic realities or can find it impossible to accommodate local inhomogenities in its global monetary policies. Larger African countries may well dominate the agenda at the central bank and smaller African countries can be left to the whims of an insouciant central bank. Bailout packages will most probably be negotiated and extended in their own sweet time, well after economic activity has hemorrhaged in the country and well after fiscal balances have been thrown completely off-kilter due to recessions that a national central bank could have counteracted or mitigated much faster. The idea is not to let monetary problems become the source of growth, output and fiscal problems in the first place. And that is the danger from pushing for a monetary union of countries which are non-homogenous in their economic activities and whose output and employment dynamics are unlikely to be in sync with each other at all times.
A monetary union may have some advantages due to the larger scale when it comes to unscrupulous currency traders trying to manipulate currencies. However, appropriate policy measures can be devised to prevent excessive manipulation of a country’s currency. While currency speculation and currency attacks are real possibilities, fundamentals should prevail if deft enough handling of national economic policy is done. Also, there is no guarantee that currency manipulators cannot attack a common African currency. It is better to control the currency market and live with some low-level inefficiency on a constant basis than to be faced with large economic disruptions due to co-ordination failures between an African central bank policy and the needs of the national economies.
by C. Jayant Praharaj
What could prove to be more important for a monetary union is the converse side of this policy. Namely, what happens if a Central Bank shrinks the money supply. Shrinking of money supply can sometimes lead to deflationary expectations and deflationary spirals, and can create slack in the economy and exacerbate unemployment. There is no guarantee that any particular monetary tightening measure by the European Central Bank, for example, is going to be right for all countries in the monetary union. Particular countries can get pushed into higher unemployment as a result of such steps.
Monetary tightening can lead to recessions in particular countries, put pressure on fiscal balances, drive up debt-to-GDP ratios and necessitate painful bailout conditions, when an independent central bank could have nipped the economic weakness in the bud by following low interest rate policies. The economies of individual countries will have to react to monetary changes by any central bank. The danger of deflationary spirals and irrational recessionary dynamics being set in motion because of a mismatch between central bank monetary policy and local economic realities is all too real.
The transaction costs due to currency exchange may be a constant kind of low-level inefficiency. However, the possible turmoil due to mismatch between central bank policy and local economic can have lasting impacts on a country’s economy. The actual inefficiency due to these can be way higher. It can impoverish entire sections of the country’s population. It can render entire sectors of the economy uncompetitive vis-à-vis global competition when an independent Central bank could have come to the rescue of these sectors.
Countries with independent Central banks also run into economic impasses where they need bailouts. However, anyone contemplating a monetary union in Africa needs to take into account the all-too-real possibility that a centralized monetary system can either lose touch with local economic realities or can find it impossible to accommodate local inhomogenities in its global monetary policies. Larger African countries may well dominate the agenda at the central bank and smaller African countries can be left to the whims of an insouciant central bank. Bailout packages will most probably be negotiated and extended in their own sweet time, well after economic activity has hemorrhaged in the country and well after fiscal balances have been thrown completely off-kilter due to recessions that a national central bank could have counteracted or mitigated much faster. The idea is not to let monetary problems become the source of growth, output and fiscal problems in the first place. And that is the danger from pushing for a monetary union of countries which are non-homogenous in their economic activities and whose output and employment dynamics are unlikely to be in sync with each other at all times.
A monetary union may have some advantages due to the larger scale when it comes to unscrupulous currency traders trying to manipulate currencies. However, appropriate policy measures can be devised to prevent excessive manipulation of a country’s currency. While currency speculation and currency attacks are real possibilities, fundamentals should prevail if deft enough handling of national economic policy is done. Also, there is no guarantee that currency manipulators cannot attack a common African currency. It is better to control the currency market and live with some low-level inefficiency on a constant basis than to be faced with large economic disruptions due to co-ordination failures between an African central bank policy and the needs of the national economies.
by C. Jayant Praharaj
Wednesday, June 1, 2011
Credit Rating Agencies, Sovereign Debt and Self-fulfilling Prophecies
Credit rating agencies are busy downgrading sovereign bonds, from Greece through Spain to the United Kingdom and the United States and Japan. Of course, when there are crises, economic downturns, high debt-to-GDP ratios and political gridlock regarding how much taxes should be raised versus how much spending can be cut, a reappraisal of sovereign bonds becomes mandatory. What is troubling, however, is the fact that the bonds of countries like Greece are being downgraded to junk status. Junk status means that the budget fundamentals and the expected budget fundamentals of the country are so weak that buying the country’s bonds is an ultra-high-risk thing. How damaged can a country’s economy get, how damaged can its growth prospects get, how limited are its options for raising taxes on its successful economic entities and how limited are its options regarding spending cuts that the fiscal future of the country is basically in almost irretrievable trouble ?
For example, if the GDP of a country contracts by, say, 1% in a year in a recession, how much does the central government revenue contract ? And how much extra government expenditure becomes necessary due to additional unemployment benefits payments and bailouts ? Let me take some numbers from Greece. The “ Budget 2011 Draft Law “ document from the Hellenic Ministry of Finance website has the following figures. The nominal growth rate of GDP in 2009 was -1.1%. Or a 1.1% contraction, to put it differently. The deficit went from 22.4 billion Euros in 2008 to 36.2 billion Euros in 2009. In 2010, the nominal growth rate was -1.3%, that is, a contraction of 1.3%. The deficit went from 36.2 billion Euros in 2009 to 21.9 billion Euros in 2010. If one considers 2008 to 2011 as the crisis period, the document shows that the government debt went from about 110% of GDP to about 145% of GDP. The document outlines a plan whereby, with a combination of tax increases and spending decreases, the debt to GDP ratio will stabilize at around 150% of GDP. But these kinds of numbers are increasingly becoming commonplace. Japan’s debt to GDP ratio is around 200%. Its low tax and high infrastructure spending policies have not yielded good results. When one includes the stakes that the United States government has taken up in beleaguered entities, its debt obligations add up to more than 100% of GDP, and are likely to increase to 150% of GDP or even more by 2025. So, what is it about Greece that makes its bonds junk while Japan and the United States receive a less severe or no downgrading ? Japan and the United States have their own structural problems too. For example, the United States has a long-term structural problem of capital flight to China and other countries. India has a sluggish agricultural sector that poses serious human welfare challenges for the country. As for reliance on foreign capital inflows, it has been a recurrent feature of the United States economy also.
Portugal had GDP growth of 0% in 2008 and -2.6% in 2009. The government debt, which was around a stable 65% of GDP till 2008, increased to 76% of GDP in 2009 and 82% of GDP in 2010. I have not come across stabilization plans regarding Portugal, but once again, given the kind of debt-to-GDP ratio that some of the bigger economies are running, it is difficult to understand why fears of default are being raised about Portugal so quickly.
For Spain, the debt-to-GDP ratio increased from 40% in 2008 to 53% in 2009 to 60% in 2010. It is projected to be around 75% by 2016. Once again, it is going to be above EMU stipulations of good fiscal conduct, but to talk about default at these levels of debt-to-GDP may just be gratuitous scaremongering. It can set its own self-fulfilling prophecies in motion. In other words, if credit rating agencies give a more negative rating to a country’s bonds compared to other countries with worse macro-sheets, the country will find it more difficult to raise debt and has to pay exorbitant interest rates. Too much of gratuitous scaremongering can even constrain the government’s ability to borrow so much that it may have to resort to EFSF and IMF loans with strict conditions. Therefore, this kind of scaremongering by credit rating agencies is likely to set in motion spirals that can lead a country’s finances to ruination when it could have been stabilized more easily with a bit of belt-tightening and a pragmatic approach to taxation and spending.
In many ways, a government bond is like a stock when it comes to the psychology of market valuation. If everybody is buying it, the value can remain high despite weak fundamentals. Vague considerations having nothing to do with fundamentals can result in one government’s bonds selling with lower interest rates, but another’s selling with junk rates. Non-uniform standards of credit rating for smaller and bigger economies can lead to an intensification of these irrational elements in the market’s pricing of government bonds.
Economies and countries, and especially economies and countries that follow pragmatic and practical economic policies as opposed to ideologically motivated and hidebound policies, are likely to be able to make the adjustments necessary to recover from recessions without inordinate delay. The United States is one case where intransigent lines of thinking make it difficult to reduce deficits without causing severe disruptions to the public’s welfare. The Greek plan, on the other hand, has displayed more flexibility and pragmatism and common-sense.
The information about the economy and the finances are public information. Each institutional investor and each individual investor that is interested in buying Greek or Portuguese or Irish government bonds can do its own research about the sustainability of the government’s public finances and the likely course of its taxation and spending trajectory and about the risk of default. How much importance should one attach to the ratings done by credit rating agencies ? Should institutional investors factor in these sovereign credit ratings while deciding whether or not to buy the bonds of a particular government ? It seems there is a lack of uniformity in the ratings being given by rating agencies like Fitch or S&P or Moody. Unnecessary scaremongering and unnecessary downward spirals set in motion in a country like Spain, for example, can easily lead to contagion effects for Europe, and thereafter for the world.
by C. Jayant Praharaj
For example, if the GDP of a country contracts by, say, 1% in a year in a recession, how much does the central government revenue contract ? And how much extra government expenditure becomes necessary due to additional unemployment benefits payments and bailouts ? Let me take some numbers from Greece. The “ Budget 2011 Draft Law “ document from the Hellenic Ministry of Finance website has the following figures. The nominal growth rate of GDP in 2009 was -1.1%. Or a 1.1% contraction, to put it differently. The deficit went from 22.4 billion Euros in 2008 to 36.2 billion Euros in 2009. In 2010, the nominal growth rate was -1.3%, that is, a contraction of 1.3%. The deficit went from 36.2 billion Euros in 2009 to 21.9 billion Euros in 2010. If one considers 2008 to 2011 as the crisis period, the document shows that the government debt went from about 110% of GDP to about 145% of GDP. The document outlines a plan whereby, with a combination of tax increases and spending decreases, the debt to GDP ratio will stabilize at around 150% of GDP. But these kinds of numbers are increasingly becoming commonplace. Japan’s debt to GDP ratio is around 200%. Its low tax and high infrastructure spending policies have not yielded good results. When one includes the stakes that the United States government has taken up in beleaguered entities, its debt obligations add up to more than 100% of GDP, and are likely to increase to 150% of GDP or even more by 2025. So, what is it about Greece that makes its bonds junk while Japan and the United States receive a less severe or no downgrading ? Japan and the United States have their own structural problems too. For example, the United States has a long-term structural problem of capital flight to China and other countries. India has a sluggish agricultural sector that poses serious human welfare challenges for the country. As for reliance on foreign capital inflows, it has been a recurrent feature of the United States economy also.
Portugal had GDP growth of 0% in 2008 and -2.6% in 2009. The government debt, which was around a stable 65% of GDP till 2008, increased to 76% of GDP in 2009 and 82% of GDP in 2010. I have not come across stabilization plans regarding Portugal, but once again, given the kind of debt-to-GDP ratio that some of the bigger economies are running, it is difficult to understand why fears of default are being raised about Portugal so quickly.
For Spain, the debt-to-GDP ratio increased from 40% in 2008 to 53% in 2009 to 60% in 2010. It is projected to be around 75% by 2016. Once again, it is going to be above EMU stipulations of good fiscal conduct, but to talk about default at these levels of debt-to-GDP may just be gratuitous scaremongering. It can set its own self-fulfilling prophecies in motion. In other words, if credit rating agencies give a more negative rating to a country’s bonds compared to other countries with worse macro-sheets, the country will find it more difficult to raise debt and has to pay exorbitant interest rates. Too much of gratuitous scaremongering can even constrain the government’s ability to borrow so much that it may have to resort to EFSF and IMF loans with strict conditions. Therefore, this kind of scaremongering by credit rating agencies is likely to set in motion spirals that can lead a country’s finances to ruination when it could have been stabilized more easily with a bit of belt-tightening and a pragmatic approach to taxation and spending.
In many ways, a government bond is like a stock when it comes to the psychology of market valuation. If everybody is buying it, the value can remain high despite weak fundamentals. Vague considerations having nothing to do with fundamentals can result in one government’s bonds selling with lower interest rates, but another’s selling with junk rates. Non-uniform standards of credit rating for smaller and bigger economies can lead to an intensification of these irrational elements in the market’s pricing of government bonds.
Economies and countries, and especially economies and countries that follow pragmatic and practical economic policies as opposed to ideologically motivated and hidebound policies, are likely to be able to make the adjustments necessary to recover from recessions without inordinate delay. The United States is one case where intransigent lines of thinking make it difficult to reduce deficits without causing severe disruptions to the public’s welfare. The Greek plan, on the other hand, has displayed more flexibility and pragmatism and common-sense.
The information about the economy and the finances are public information. Each institutional investor and each individual investor that is interested in buying Greek or Portuguese or Irish government bonds can do its own research about the sustainability of the government’s public finances and the likely course of its taxation and spending trajectory and about the risk of default. How much importance should one attach to the ratings done by credit rating agencies ? Should institutional investors factor in these sovereign credit ratings while deciding whether or not to buy the bonds of a particular government ? It seems there is a lack of uniformity in the ratings being given by rating agencies like Fitch or S&P or Moody. Unnecessary scaremongering and unnecessary downward spirals set in motion in a country like Spain, for example, can easily lead to contagion effects for Europe, and thereafter for the world.
by C. Jayant Praharaj
Wednesday, May 11, 2011
Food diplomacy in an age of resource paranoia
In one of my previous articles in this blog, I outlined the need for a global food management agenda involving multilateral agencies like the United Nations. However, the results on that front in the last several decades do not inspire confidence. The limelight in the United Nations is often stolen by military and geopolitical issues. Nuclear paranoia and the Cold War overshadowed agendas like global food security while people starved around the world in the first few decades of the United Nations. The drama surrounding the Cuban Missile crisis, for example, got way more attention than food scarcity in Asia or Africa. India got bilateral help from countries like the United States in the food area. However, future historians may well have to answer the question as to why a country like India that sent its soldiers to do peacekeeping in Korea did not receive adequate food help from UN agencies. Or why Prime Minister Nehru did not make India's participation in peacekeeping in Korea conditional on receiving adequate food aid from the UN in a world where countries like the United States, Canada and the Soviet Union had enormous areas available for agriculture, probably way beyond what they needed for their own populations.
After the end of the Cold War, the record has been even more dismal in many ways. Several African countries have faced historically high starvation levels and have not received adequate food through UN agencies. Of course, UN agencies like the World Food Programme are not going to meet full success unless the question of resource allocation for agriculture at the global level is also addressed. And that question has met with scant or no attention.
The future of the world food supply is likely to be even more precarious, not only due to climate change, but also due to other factors like the depletion of minerals necessary for fertilizer production. In such a scenario, and given the inertia of institutions like the United Nations, nations that are likely to face severe food problems may do well to bargain with nations that are likely to be comfortable in food production and reach accords in the area of economic exchange. For example, mineral-rich countries can try to strike agreements with food-rich countries about stipulated exchanges of crucial resources ( like minerals and food ) in advance. Public management of food resources and mineral resources will be crucial in this regard. Leaving everything to the whim of market forces will prove disastrous. These kinds of agreements about crucial resources will be meaningless in a fully capitalistic framework since one cannot control when and how capitalistic agents will engage in exchange. While market agents can use instruments like futures to ensure supply price stability, these instruments are unlikely to solve overall problems of food scarcity inside a nation. Also, futures cannot eliminate the shortage of food and cannot prevent its price from rising due to scarcity. Also, poor people in food-scarce countries cannot be left to the whims of capitalistic forces in this kind of world. It is time for governments of countries to act to save public land for agriculture and mineral extraction. And even consider fair ways to nationalize agricultural land and mines, if need be, keeping economic justice priorities in mind. This kind of nationalization can be unpopular among both rich landowners and small landowners. However, experts need to determine both the need for nationalization, the amount of fair compensation etc. Public awareness needs to be built about the need for nationalization in countries with scarce agricultural resources. In countries like India, where hundreds of millions of people lack entitlement to food, such measures ( that are likely to be unpopular with landowners ) may become necessary if the future well-being of the masses are to be ensured. The current system of minimum support prices can run into serious difficulty in achieving its aims in scenarios of more serious food scarcity. The government will then have to pay exorbitantly high prices for its public distribution system and it may still not be able to buy enough food to provide for the very needy. In other words, the combination of capitalistic agriculture combined with the minimum support price system that the government has in place will fall woefully short if, for example, the world supply of phosphate fertilizers is seveely constrained and no alternative is found. Heavily indebted governments running already huge deficits will not be able to afford the exorbitant payments if food prices skyrocket. Also relevant here is the extent to which governments can prevent misallocation of land for uses other than agriculture when there is concern about severe food scarcity in the future.
Governments that own and manage large areas of land for agriculture will find it much easier to deal with a world of severe food scarcity. In order to obtain control of significant amounts of agrocultural land, several countries will have to face the thorny question of compensation to landowners. Also, when the country is likely to face severe food scarcity, significant sacrifice may be required from very rich farmers. While nationalization of significant areas of agricultural land is an extreme step, some countries may be able to meet their aims with more benign arrangements like requiring rich farmers to donate a substantial part of their produce to national food funds. Nationalization is a less throny problem in the area of minerals since national ownership of mines is often a norm. Countries that have embarked on divestment or denationalization drives for things like mines will need to re-examine these policies. As mentioned earlier, significant national ownership of these resources will allow food security diplomacy to proceed on a bilateral basis between countries. The ability to institute such arrangements may well prove crucial to avoiding mass hunger given the stepmotherly treatment that UN food agencies receive from rich and food-rich countries.
by C. Jayant Praharaj
After the end of the Cold War, the record has been even more dismal in many ways. Several African countries have faced historically high starvation levels and have not received adequate food through UN agencies. Of course, UN agencies like the World Food Programme are not going to meet full success unless the question of resource allocation for agriculture at the global level is also addressed. And that question has met with scant or no attention.
The future of the world food supply is likely to be even more precarious, not only due to climate change, but also due to other factors like the depletion of minerals necessary for fertilizer production. In such a scenario, and given the inertia of institutions like the United Nations, nations that are likely to face severe food problems may do well to bargain with nations that are likely to be comfortable in food production and reach accords in the area of economic exchange. For example, mineral-rich countries can try to strike agreements with food-rich countries about stipulated exchanges of crucial resources ( like minerals and food ) in advance. Public management of food resources and mineral resources will be crucial in this regard. Leaving everything to the whim of market forces will prove disastrous. These kinds of agreements about crucial resources will be meaningless in a fully capitalistic framework since one cannot control when and how capitalistic agents will engage in exchange. While market agents can use instruments like futures to ensure supply price stability, these instruments are unlikely to solve overall problems of food scarcity inside a nation. Also, futures cannot eliminate the shortage of food and cannot prevent its price from rising due to scarcity. Also, poor people in food-scarce countries cannot be left to the whims of capitalistic forces in this kind of world. It is time for governments of countries to act to save public land for agriculture and mineral extraction. And even consider fair ways to nationalize agricultural land and mines, if need be, keeping economic justice priorities in mind. This kind of nationalization can be unpopular among both rich landowners and small landowners. However, experts need to determine both the need for nationalization, the amount of fair compensation etc. Public awareness needs to be built about the need for nationalization in countries with scarce agricultural resources. In countries like India, where hundreds of millions of people lack entitlement to food, such measures ( that are likely to be unpopular with landowners ) may become necessary if the future well-being of the masses are to be ensured. The current system of minimum support prices can run into serious difficulty in achieving its aims in scenarios of more serious food scarcity. The government will then have to pay exorbitantly high prices for its public distribution system and it may still not be able to buy enough food to provide for the very needy. In other words, the combination of capitalistic agriculture combined with the minimum support price system that the government has in place will fall woefully short if, for example, the world supply of phosphate fertilizers is seveely constrained and no alternative is found. Heavily indebted governments running already huge deficits will not be able to afford the exorbitant payments if food prices skyrocket. Also relevant here is the extent to which governments can prevent misallocation of land for uses other than agriculture when there is concern about severe food scarcity in the future.
Governments that own and manage large areas of land for agriculture will find it much easier to deal with a world of severe food scarcity. In order to obtain control of significant amounts of agrocultural land, several countries will have to face the thorny question of compensation to landowners. Also, when the country is likely to face severe food scarcity, significant sacrifice may be required from very rich farmers. While nationalization of significant areas of agricultural land is an extreme step, some countries may be able to meet their aims with more benign arrangements like requiring rich farmers to donate a substantial part of their produce to national food funds. Nationalization is a less throny problem in the area of minerals since national ownership of mines is often a norm. Countries that have embarked on divestment or denationalization drives for things like mines will need to re-examine these policies. As mentioned earlier, significant national ownership of these resources will allow food security diplomacy to proceed on a bilateral basis between countries. The ability to institute such arrangements may well prove crucial to avoiding mass hunger given the stepmotherly treatment that UN food agencies receive from rich and food-rich countries.
by C. Jayant Praharaj
The return of Malthus
Washington consensus hype and neo-liberal hype are rampant in newspapers, magazines and the electronic media in countries like India where rural economies with overwhelming poverty and elitist urban economies exist side by side. Never mind the fact that few good mechanisms exist for trickle-down to transfer the benefits of urban, service-sector growth to the rural areas that are dependent on agriculture in countries like India. Never mind the yawning gap between per capita urban sector growth and per capita rural sector growth. Never mind the existence of migration from rural to urban areas that create severe strains on the urban economy and urban infrastructure. Never mind the fact that the rural sectors are teeming with unskilled and illiterate labor that is ill-prepared to take advantage of any trickle-down mechanisms that may exist.
Year-on-year high growth rates are a modern phenomenon, something that began with the Industrial Revolution. As for per capita growth rates, decrease in population growth rates and population stabilization have also been crucial, and the provision of basic health care has proved crucial in this regard. However, this kind of transformation has not happened uniformly around the globe, no matter how loudly certain opinion makers shout that the world has become flat. The middle class economy has become flat around the world to some extent. However, the prevalence of mass poverty and food insecurity is proof that the modern world at the beginning of the twenty-first century is far from being flat in the field of economic prosperity or economic entitlement. And we are not talking about the run-of-the-mill income distribution kind of non-flatness. We are talking about two-tiered economies where significant, if not total, decoupling between urban and rural sectors is a reality. But there is an entire opinion-making industry that is pushing for this myth of flatness as the reality of the world we live in. Journalists, heads of state and experts trained in elitist institutions and steeped in ultra-capitalistic logic speak of a world where economic growth is the panacea for all the remaining economic problems. Never mind the fact that several of the countries with significant levels of poor populations like India have not followed the same development trajectory as Western nations. Never mind the fact that agricultural technology and literacy levels have had widely dissimilar histories in advanced Western economies and in countries like India. And never mind the fact that basic food security is a matter of serious concern in countries like India while it is a topic that is not even on the radar screen in the advanced economies.
While all this noise about growth and trickle-down is taking place despite the glaring disconnect with reality in countries like India, there is a real possibility that governmental apathy and ineptitude in countries like India can lead to the revival of some old economic bugbears. At the beginning of the nineteenth century, Robert Malthus talked about population being stabilized by a balance between several forces like reproduction, disease, food availability and war. Two hundred years have passed since Malthus propounded his ideas. Since then, the world has seen unprecedented economic transformation and the introduction of amazing technologies. Terms like “ the post-industrial society “ have sunk into the public consciousness in the advanced economies, the same economies that produce the economists who dole out economic advice to governments of poorer countries and who often prescribe ready-made formulas to these poorer countries during times of economic stress. Malthusian ideas have become irrelevant to the noise-makers. They are regarded as relics of a past era of economic want that is best forgotten. However, those who follow the economic scene in countries like India know that the complex interactions between population, economic want, health and food security are mechanisms that are only too relevant to the lives of hundreds of millions of people. Sub-Saharan Africa presents a similar picture.
The world population is expected to stabilize around 9 billion or 10 billion depending on the projection you want to go by. Most of the arable land in the world has been brought under cultivation. Converting pasture land or forests to agricultural land has its own serious problems. Combine this with the fact that the food production capabilities of the world, current and projected, are dependent on inputs of inorganic fertilizers like phosphates and nitrates. Consider the fact that there are limited reserves of phosphate rock, the primary source of phosphate fertilizers. Consider also the fact that most of these reserves occur in the United States, Russia, China and Morocco. Consider the fact that the United States is expected to become a net importer of phosphate rock in the next few decades. Consider the fact that China’s need to provide agricultural output for its own population may well mean that its phosphate rock reserves may become unavailable for the rest of the world. The situation in Russia may not be all that different. Consider the fact that extraction of off-shore phosphate rock reserves may be uneconomical. You have a situation where, in the next few decades, the world’s agricultural output may be in peril due to lack of inorganic fertilizers. The technology of organic substitutes for phosphate and nitrate fertilizers is not well developed.
Malthus will most likely rear his head again, albeit in a different form than in the early eighteenth century. And elitist policies being pursued and pushed around the world do not inspire confidence that the lives of poor people will be free from Malthusian effects very easily.
by C. Jayant Praharaj
Year-on-year high growth rates are a modern phenomenon, something that began with the Industrial Revolution. As for per capita growth rates, decrease in population growth rates and population stabilization have also been crucial, and the provision of basic health care has proved crucial in this regard. However, this kind of transformation has not happened uniformly around the globe, no matter how loudly certain opinion makers shout that the world has become flat. The middle class economy has become flat around the world to some extent. However, the prevalence of mass poverty and food insecurity is proof that the modern world at the beginning of the twenty-first century is far from being flat in the field of economic prosperity or economic entitlement. And we are not talking about the run-of-the-mill income distribution kind of non-flatness. We are talking about two-tiered economies where significant, if not total, decoupling between urban and rural sectors is a reality. But there is an entire opinion-making industry that is pushing for this myth of flatness as the reality of the world we live in. Journalists, heads of state and experts trained in elitist institutions and steeped in ultra-capitalistic logic speak of a world where economic growth is the panacea for all the remaining economic problems. Never mind the fact that several of the countries with significant levels of poor populations like India have not followed the same development trajectory as Western nations. Never mind the fact that agricultural technology and literacy levels have had widely dissimilar histories in advanced Western economies and in countries like India. And never mind the fact that basic food security is a matter of serious concern in countries like India while it is a topic that is not even on the radar screen in the advanced economies.
While all this noise about growth and trickle-down is taking place despite the glaring disconnect with reality in countries like India, there is a real possibility that governmental apathy and ineptitude in countries like India can lead to the revival of some old economic bugbears. At the beginning of the nineteenth century, Robert Malthus talked about population being stabilized by a balance between several forces like reproduction, disease, food availability and war. Two hundred years have passed since Malthus propounded his ideas. Since then, the world has seen unprecedented economic transformation and the introduction of amazing technologies. Terms like “ the post-industrial society “ have sunk into the public consciousness in the advanced economies, the same economies that produce the economists who dole out economic advice to governments of poorer countries and who often prescribe ready-made formulas to these poorer countries during times of economic stress. Malthusian ideas have become irrelevant to the noise-makers. They are regarded as relics of a past era of economic want that is best forgotten. However, those who follow the economic scene in countries like India know that the complex interactions between population, economic want, health and food security are mechanisms that are only too relevant to the lives of hundreds of millions of people. Sub-Saharan Africa presents a similar picture.
The world population is expected to stabilize around 9 billion or 10 billion depending on the projection you want to go by. Most of the arable land in the world has been brought under cultivation. Converting pasture land or forests to agricultural land has its own serious problems. Combine this with the fact that the food production capabilities of the world, current and projected, are dependent on inputs of inorganic fertilizers like phosphates and nitrates. Consider the fact that there are limited reserves of phosphate rock, the primary source of phosphate fertilizers. Consider also the fact that most of these reserves occur in the United States, Russia, China and Morocco. Consider the fact that the United States is expected to become a net importer of phosphate rock in the next few decades. Consider the fact that China’s need to provide agricultural output for its own population may well mean that its phosphate rock reserves may become unavailable for the rest of the world. The situation in Russia may not be all that different. Consider the fact that extraction of off-shore phosphate rock reserves may be uneconomical. You have a situation where, in the next few decades, the world’s agricultural output may be in peril due to lack of inorganic fertilizers. The technology of organic substitutes for phosphate and nitrate fertilizers is not well developed.
Malthus will most likely rear his head again, albeit in a different form than in the early eighteenth century. And elitist policies being pursued and pushed around the world do not inspire confidence that the lives of poor people will be free from Malthusian effects very easily.
by C. Jayant Praharaj
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