RBI Overheating India’s Economy: On Materialist Greed Fueling Ceaseless Consumerism

A phenomenon as massive as the global coronavirus pandemic, which ran from 2020 to 2022, is bound to have major economic ripple, or wave, effects in its wake. India’s record high 9.2% growth of GNP in the 2023-2024 fiscal year illustrates the robust thrust of pent-up demand met with increased supply. To the extent that consumption over savings is the norm in any economy, a couple years off can subtly recalibrate economic mentalities to a more prudent economic mindset wherein saving money is not so dwarfed by spending it. Moreover, putting the brakes on a consumerist routine and societal norm can theoretically lead to putting the underlying materialism in a relative rather than an absolute position and thus in perspective. Yet such a “resetting” must overcome the knee-jerk instinct of any habit to restart as if there had been no change. Coming back to college, for example, after a summer away, students tend to pick up their respective routines right away as if the recent summer were a distant memory. India’s astonishing rate of economic growth just after the pandemic demonstrates that the penchant for consumerism and economic growth as a maximizing rather than satisficing variable returned as if the steeds in Socrates’ Symposium—only those horses represent garden-variety eros sublimated to love of eternal moral verities, to which Augustine substituted “God.”

The full essay is at "RBI Overheating India's Economy."

GDP Per Capita in the E.U. and U.S.: Changing Perceptions

Historically speaking, the E.U. and U.S. are relatively large in territorial expanse and population, so it is only to be expected that significant economic (and cultural) differences exist from state to state in the respective unions of states. In Europe, some medieval kingdoms have relegated to being but regions in E.U. states. Holland, for instance, is a region in The Netherlands, which in turn is a E.U. state. The same can be said of Bavaria (and England, were the United Kingdom still a E.U. state). To compare the economic inequality in such a region with the inequality in the E.U. (or U.S.) over all would be deeply misleading. For example, rural/urban economic patterns that pertain to an economy containing one major city do not translate into the multiple rural/urban patterns that exist in a modern (empire-scale) union of states. In short, scale matters, especially in how we make use of mathematical averages.  Comparing GDP per capita is a case in point; states should be compared with states.

The full essay is at "GDP Per Capita in the E.U. and U.S."

Adding Anti-Trust to Monetary Policy: The Case of Groceries

Monetary inflation is a complex phenomenon. Not only can its causes be several; it can make it more difficult to distinguish immediate and medium-term economic conditions from more long term, or structural changes impacting our species economically.  Of the former, the relationship between inflation and whether the markets are competitive or oligarchic (or even monopolies) can be better understood, and this in term can put us in a better position to assess the impact of longer-term changes, such as those stemming from the huge increase in the population of human beings since before the industrial age. The price of food (i.e., groceries) is a case in point. Specifically, the impact from presumably temporary shocks during the Covid pandemic should be distinguished from the impact of oligopolistic markets in keeping prices high, and of the increase in human mouths more generally (and longer term) representing increased demand for foodstuff in on a relatively fixed planet.

The full essay is at "Anti-Trust and Monetary Policy."

Anticipating a Recession: Economic and Political Indicators in the E.U.

Anticipation in August, 2019, at least among bond purchasers on Wall Street, of an impending recession in 2020 had at least in part to do with the E.U. In particular, a large state, Germany, had a disappointing second quarter in terms of contracting economic output, and the increasing prospect of Britain seceding from the Union was thought to result in the E.U. economy turning recessionary. I contend that both of these baleful indicators were over-emphasized. Additionally, adding the increasing political polarization in the E.U. as another contributor to an upcoming recession would be too much.

The full essay is at "Anticipating a Recession."

Pruning Back an Ideological "Re-Definition" of Socialism

Should language lose its integrity for ideological purposes? On Fox News in the wake of the passage of Obamacare, Brit Hume and Newt Gingrich, a former Speaker of the U.S. House of Representatives, both (re)defined socialism as “government control of private property.” Their rendering falls short, however. According to the Random House Dictionary (via Dictionary.com), socialism is “a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole” (italics added). Whereas government regulation of privately-owned means of production and distribution involves some of the control being in the hands of the community as a whole through its government, socialism includes the vesting of both ownership and control with the government. 

The complete essay is at "Socialism Redefined."

Western Banks Lending to Asia's Expanding Middle Class: Profit vs. Planet

In April 2013, debt levels in Asia were reaching record levels as international lenders were extending short-term loans to a growing middle class. Non-mortgage consumer credit in Asia outside of Japan had increased 67% from 2007 to reach $1.66 trillion by the end of 2012. This credit included credit cards and loans for cars, electronic products, and appliances. Outside of Japan, Asian car and motorcycle loans nearly doubled from 2007 to 2012, to reach a record $219.7 billion. Appliance and electronics loans also more than doubled, reaching a high of $10.9 billion. Meanwhile, credit-card loans grew by 90% to reach a record $234.1 billion, according to Euromonitor. The incentive for the banks is not difficult to fathom. At the time, more than half of the world’s middle class was expected to be in Asia by the end of the decade. That translates yearly into more than 100 million additional people per year. For the banks, this was an opportunity since at least the beginning of the decade because growth was not possible in the European Union and the United States on account of the financial crisis of 2008 and the ensuing European debt-crisis that extended well into 2013. The European Commission of the E.U. was also working on regulatory proposals that would limit the incentives of mortgage servicers to produce too many “bubble-creating” mortgages. 

So Western banks had an incentive to look east for fruitful markets. Interesting, government regulators in China, Malaysia, and Indonesia had began reining in mortgage, credit-card and auto/motorcycle lending, perhaps in fear of an Asian financial crisis. Had Western bankers learned their lesson, or were they unwittingly bringing their reckless mentality to Asia? Two levels of concerns can be extracted from this case. I contend that the more immediate concerns were crowding out attention that ought to have been paid to the larger, but longer-term, problems.

The full essay is at "Lending to China's Middle Class."

More people=More cars=More pollution    source: Businessweek

Exaggeration on the U.S. Economy “Going Over the Cliff” after the Financial Crisis of 2008

As the U.S. Government faced down its own deadline in 2012 before the Bush tax cuts would expire and across-the-board budget cuts would commence, the Federal Reserve, which had been struggling to prop up the economy by buying bonds and keeping interest rates low, would, according to the Chairman, Ben Bernanke, be largely powerless to do more in the face of a recessionary policy on taxes and spending. "We cannot offset the full impact of the fiscal cliff," he said of the Fed. "It's just too big." That he had written a doctoral dissertation on the Great Depression and had specialized on it as a professor at Princeton lends a lot of weight to his judgment on the matter. However, he had also managed to be re-appointed to the Fed and thus knew how to play the game. In the case of the automatic budget cuts, major power-brokers, specifically in the military industrial complex, had a lot riding on Congress and the White House making a deal that would obviate the cuts in defense spending. The chairman of the Fed could have been carrying their water.

Ben Bernanke, Chairman of the Federal Reserve, in front of the lights.   Reuters

The full essay is at "The U.S. Economy Going over the Fiscal Cliff."

On the Danger to the United States of Living off Government Debt: The Case of the Dollar as World Reserve in 2010

Given the $13 trillion of U.S. Government debt in 2010, the dollar was losing out at the time in percentage terms to other currencies as the global reserve currency. To be sure, in absolute terms, there were still more dollars being held abroad than twenty or thirty years earlier, but as a report from Emma Lawson of Morgan Stanley showed, other currencies were taking on more of a relative presence. The lesson concerning excessive public debt was not grasped at least through the 2010's, as the debt continued to increase trillions of dollars more.

The full essay is at "Excessive U.S. Debt: Impact on the Dollar."

The Saudi Crackdown: A Cause for Market Confidence

The Saudi government sought to confiscate cash and other assets worth as much as $800 billion in ostensibly cracking down on corruption in late 2017. More than 60 princes, officials, and business practitioners were initially detained. Both the figure and the number of arrests reflect merely “the initial stages” of asset seizures and arrests, according to a Saudi spokesman.[1] It was not long before 500 had been detained.[2] I submit that both the swiftness and scope left international investors and foreign businesses in Saudi Arabia unnecessarily rattled. Doubtless uncertainty as to the real reason for the crackdown unnerved the business elite. Corruption was endemic in the Saudi political economy, so the sudden need to crack down on it understandably left people to wonder as to the real reason, which, as it turns out, was nothing for business to fear.

The full essay is at "Political and Market Risk."

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[1]Margherita Stancati, “Saudis Target Up to $800 Billion in Assets,” The Wall Street Journal, November 8, 2017.

[2] Nicholas Kulish and David Kirkpatrick, “Arrests Reveal Blending of Kin and Kingdom,” The New York Times, November 8, 2017.

The Keynesian Drug: America’s Achilles' Heel

Keynes posited that government deficit-spending could boost an economy’s output of goods and services when it is short of full-employment. In the context of an economy near full-steam, tax cuts and/or more government spending could trigger inflation while adding little to GDP. To maintain balance in the government accounts, government surpluses during the ensuing upswing are used to pay off the accumulated debt. This is the theory. Unfortunately, it seems to be at odds with representative democracy. Specifically, a systemic bias exists in favor of recurrent deficits, and thus accumulating debt.

The full essay is at "The Keynesian Drug."

Sources:

Brutus, Letter 8, January 10, 1788, 2.9.95, in Herbert J. Storing, ed., The Anti-Federalist, (Chicago: University of Chicago Press, 1985).

Alan Simpson, Newsweek, December 27, 2010, p. 28.

The Spanish Recovery: On the Roles of Budget Constraints and Exports

In 2007, the E.U. state of Spain “was hopelessly addicted to a credit-fueled construction boom that produced a shattering bust, leaving banks collapsing in the face of bad loans.”[1] A decade later, the state’s economy was “expanding at around 3 percent” over the previous year, “producing goods for export, generating jobs,” and pointing to possible E.U.-wide economic recovery.[2] The Spanish economy had returned to its pre-crisis size, according to the state’s government, yet the economy had not yet solidified a firm foundation and unemployment was still stubbornly high.

The full essay is at "The Spanish Recovery."

See Related: Essays on the E.U. Political Economy, which is available in print and as an ebook at Amazon. 

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1. Peter S. Goodman, “Spain’s Long Economic Nightmare Is Finally Over,” The New York Times, July 28, 2017.

2. Ibid.

Global Geopolitical Risks: Is Wall Street Hypersensitive and Reductionistic?

The Dow dropped 140 points in August 5, 2014 on a rumor that the Russian military is about to invade eastern Ukraine. Three days later, amid hints of de-escalation and the end of troop “exercises” on the Ukraine border, the Dow gained 186 points. Three days later, as Russia’s president approves a deal wherein the Russian OAO Rosneft and the American ExxonMobil can begin drilling a $700 million well in the Arctic Ocean, the Dow gains 16 points.[1] Are stock analysts and Wall Street investors really so hypersensitive to day-to-day changes in geopolitical risk? It may be simply that such news sells.

The entire essay is at “Global Geopolitical Risks”

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[1] All quotes are from Adam Shell, “If Russia Sneezes, Wall St. Gets a Cold,” USA Today, August 12, 2014.

Americans on the Impact of a Government Default: Everyone Is an Expert

Would default of the U.S. Government be catastrophic to the world economy? In searching for an answer, the discerning inquirer knows to avoid the incredulous reports. One problem is that the American media treats even such sources as just as valid as those that are backed up by expertise. It may even be that enough Americans presumptuously dismiss or discredit expertise out of sheer jealousy and resentment that the media have become accustomed to treating public surveys as equivalent to experts on matters requiring expertise. In Madison’s Notes on the Constitutional Convention, a fear of excess democracy can be found among some of the delegates who feared that expanding popular election in the U.S. Government beyond the U.S. House of Representatives would unbalance that government (i.e., in terms of “the one, the few, and the many” in favor of the many). The fear has been realized as the U.S. Senate turned to popular election and the Electoral College has been captured by the political parties (i.e., electors are forced or pressured to vote in line with the election results). I contend that excess democratization of presumed expertise is related to the expansion and the values (e.g., anti-elitism) behind it.

 

Regarding anticipations of the impact of a government default, the U.S. Treasury released a report in October 2013 with the following results: "A default would be unprecedented and has the potential to be catastrophic. . . . Credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse." This forecast came from experts on the topic at Treasury, whom I suspect made use of the expertise of economists. Hence, the report has high credibility.

 

At the same time, however, American news networks were reporting that, according to public-survey polls, a default would not be catastrophic. The media was also reporting poll results indicating that a quarter of the Americans believe that Obama was secretly working to on a third term. Doubtless the journalists give no credibility to such claims. In fact, the tone of the reporting suggests that the sheer madness of such a belief is what is really being reported. “Just where is such paranoia coming from?” one journalist asked after reporting the poll. Yet the tone used by journalists reporting that a default would not be catastrophic according to a significant percentage of Americans suggests that opinions—even those biased by political ideological agendas—can be treated as fact or at least as of equal value to the Treasury report or those of economists. The underlying assumption is deeply problematic, yet it has become a staple of the public discourse via the media.

 

Of the 21% who claim the U.S. dollar would no longer be a reserve currency around the world, how many people are just guessing? How is it that non-finance/economists know the market would not tank?  For my part, I don't know. I'm not an economist. Source: CFA Institute                                      

 

As an experiment of sorts, try paying extra attention to the claims that people make generally and you will soon come to the realization that many people go beyond their justifiable basis of knowledge or expertise in making clreaims with absolutely no caution that such would even be possible. The proclivity may be inversely related to the level of education, though the know-it-all graduate students and even professors is hardly a rarity. Even just after a few sentences from one, the arrogance-fueled over-reach is easily detected.

 

Try listening for the media basing findings requiring expertise as valid simply because a majority of Americans polled say so. Even though expertise renders a conclusion more credible (and accurate!), even experts can over-reach on their own territory. For example, an airline pilot who announces from the cockpit just after take-off, “We will arrive in Paris at 7:34am is overshooting. What if touch-down is at 7:35am due to a bit stronger headwind than anticipated? Would the passengers bail or storm the cockpit were the pilot to have said “around 7:30” instead?

 

Many Americans will leap to sue a professional (e.g. pharmacist, physician, surgeon, lawyer, CPA) who goes beyond his or her expertise such that people are harmed. So it is telling that we take at face value the economic conclusions of a political pundit whose expertise is in journalism or politics. The presumption that a majority of Americans saying X is not a problem can be taken as reason to conclude X really won’t be a problem makes it easy for the self-proclaimed “experts on the content” in the media to beguile an incredulous viewership.

Weening Businesses Off Debt: A Difficult Recovery?

We might view the recovery from the financial crisis of 2008 as a systemic correction in which managers were weened off their reliance (i.e., addition) on debt. Of course, the key lies in holding to the correction rather than falling off the wagon. Perhaps there should be an AA for debt-ridden businesses.

The full essay is at "Weening Businesses Off Debt."