Dr. Susmit Kumar, Ph.D.

Here are points which are discussed in this paper:

 

·       Recent statements by Raghuram Rajan and Kaushik Basu have prompted me to write this paper to show how the US-based economists have been implementing in India the disastrous economic policy, called “Reaganomics” which is the reason behind the dismal job growth in India. There is no doubt that they are brilliant people and being an Indian-origin person, I feel very proud of their achievements in US. But they should stop giving media interviews in India because Indians consider them to be brilliants who would do wonder for the country but Indians do not know how disastrous policies they are preaching.

 

·       If Mr. Rajan becomes the Finance Minister after the 2019 General Elections, there would not be any economy left in India at the end of his five years tenure due to his massive privatization of government jobs and the 2024 General Elections would result in an Indian-version of Trump, like Akhilesh Yadav, Tejashwi Yadav or Mayawati, taking over the rein at the center.

 

·     Under “Reaganomics” implemented since 1980s, there has been massive loss of middle-class jobs in the US which resulted in the early 1990s recession. The US was able to come out of the recession mainly due to the advent of internet technology, which also caused the tech bubble in economy leading to economic boom in late 1990s. After the bust of the tech bubble, the US economy boomed due to the infamous housing bubble that collapsed in 2008. Since then the US economy has survived by holding onto its rock bottom interest rate, which has caused a tremendous asset bubble. The US has been able to survive since the late 1990s mainly because it has been able to print its currency, which happens to be the global currency, to fund tech bubble, housing bubble and Fed’s rock bottom interest rate. As India cannot print its currency to do the same, unless she makes drastic changes in her economic policies, India’s economy is doomed.

 

·       The following statement by the economist Allan H. Meltzer at Carnegie Mellon University sums up how the US has been surviving since 1980s (“U.S. Trade Deficit Hangs In a Delicate Imbalance,” Paul Blustein, Washington Post, November 19, 2005),

 

“We [United States] get cheap goods in exchange for pieces of paper, which we can print at a great rate.”

 

·       Trump is a product of “Reaganomics.” Despite being known as a white supremacist, racist, serial liar and misogynist who previously had never hold any elected position, in the 2016 US Presidential election he won over the Wall Street favorite Hillary Clinton. Trump succeeded mainly due to getting votes in the US rust belt (Midwest) where people voted for him on just one hope that despite being not a perfect person, Trump might bring back their factory jobs that had been lost to foreign countries.

 

·      The government privatizing government services is to some extent like going back to the zamindari/kingdom system in which a zamindar/king was free to exploit the ordinary citizens.

 

·      The Indian government should not hesitate even for a second to hire a US professional having background in STEM (Science, Technology, Engineering and Mathematics) field. But any economist, management or financial professional, having worked for a significant number of years in US, should be automatically disqualified from working in any government position.

 

·       A US economist cannot survive in US if he criticizes “Reaganomics” which is followed like a religion in the US. The situation is akin to being a member of the Congress Party, i.e. one cannot survive in Congress Party if he criticizes any Nehru-Gandhi family member.

 

·       Raghuram Rajan is the Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, ex-Chief Economist at the International Monetary Fund and ex-Reserve Bank of India Governor. Kaushik Basu is the C. Marks Professor of International Studies and Professor of Economics at Cornell University, ex-Chief Economist at World Bank and ex-Chief Economic Advisor of the Government of India. There is no doubt that they are brilliant people, but these people have been doing a lot of harm to the Indian economy by implementing the disastrous “Reaganomics” despite knowing fully well that “Reaganomics” has not only bankrupted the US but has also created the “Frankenstein”/“Bhasmasur” China and sold the US to it (please read my paper: US-based Economists Knowingly Propagate Disastrous Economic Policies).

 

·     In this paper, we shall see that the US dollar is nothing but a massive Ponzi scheme. Had the US dollar not been the global currency, there would not have been the word “Reaganomics” and also the US economy would have had collapsed in mid-1980s, i.e. even before the collapse of the USSR in 1991.

 

·       Now Trump knows that China has the “Trump Card.” After the 20% drop in the US stock market due to his trade war with China, he is now in panic mode to get a face saving trade treaty with China. In this paper we shall see that China can destroy the US economy anytime it wants to.

 

·    Reaganomics is referred to as trickle-down economics or voodoo economics by political opponents, while political advocates label it free-market economics. “Reaganomics” stands for widespread tax cuts (income tax, sales tax, corporate tax, custom tax, etc.), decreased social spending, increased military spending, and deregulation of domestic markets. “Reaganomics” policies are being religiously preached by nearly all US economists/MBAs and Wall Street. This paper will show us that Reaganomics is nothing but “Centralized Socialism for the Rich” as it is just a ploy to transfer massive wealth to ultra-rich from all others.

 

·     As explained in my article Communism Collapsed Due to Collapse in Oil Price in Late 1980’s and German Banks – Not Due to Reagan, the Soviet Union collapsed in 1991 due to the fact that it could not get few tens of billions of dollars to fund the Gorbachev’s Glasnost and Perestroika. Had oil prices increased, like they have during the Putin administration during the present decade, or had German banks financed Gorbachev’s perestroika like Japan financed Reagan’s deficits, the U.S.S.R. and communism would not have collapsed in 1991. Therefore, one should not conclude that US-type capitalism is better than the Communism which was followed by the Soviet Union. Both systems have pros and cons.

 

Table of Contents

 

(A)          Comments on Recent Raghuram Rajan’s statement on Indian Economy

 

(B)          Comments on Recent Kaushik Basu’s statement on Indian economy

 

(C)          Wrong to Blame Modi Administration for Dismal Job Growth

 

(D)          Privatization – A Job Killer

 

(E)           Inequality Inhibits Job Growth

 

(F)           Reaganomics and Decimation of Middle Class in US

 

(G)          The 2009 Pentagon Economic Warfare Simulation in Which China was Able to Destroy the US Economy Without Reaching for a Gun

 

(H)          The US Budget Deficit is Now “Un-sustainable” without Ugly Consequences

 

(I)            US-based Economists Knowingly Propagate Disastrous Economic Policies

 

(J)            The US Dollar – A Massive “Ponzi” Scheme

 

(K)          Chinese Yuan Replacing US Dollar as Global Currency

 

(L)           Why the Government Needs to Make Sure that Every One gets a Fair Chance

 

(M)         Reaganomics is “Socialism for the Rich”

 

(N)          Money Making Instruments for the Ultra-Rich

 

(O)          US-based Economists’ Ultimate Allegiance is to the US and not to India

 

(P)           Soviet Union Collapsed Because It did not have had Equivalent of the US Dollar “Ponzi” Scheme

 

(Q)          Conclusions

 

 

(Only 14 pages of the article is shown on this page. Please click here to download entire 45 page of "US-based Economists Should Stop Interference in Indian Economic Policy Formulation" paper in pdf)

 

(A)      Comments on Recent Mr. Rajan’s statement on Indian Economy:

 

Recently, Raghuram Rajan has expressed his desire to serve in the government if the opposition party wins the majority in the 2019 General Elections. He is speculated to be the opposition’s choice for finance minister if the grand alliance comes to power in upcoming elections (‘Ready to Return If....': Amid Buzz of Grand Alliance Backing, Raghuram Rajan Hints at Comeback, New18.com, March 27, 2019). The following statement by Mr. Rajan gives an insight into what he would do as the finance minister (Maybe it’s time to provide statutory protection for RBI Governor’s term: Raghuram Rajan, Indian Express, March 29, 2019):

 

What we need is a strong independent private sector which imposes checks and balances on the government. If we have that, the corollary is that we will have a government which does less but does the remaining things well. I am all for maximum governance and minimum government, but I want to see it happen. How long are we going on to hold on to the commanding heights of the economy. I can’t understand this intolerance for privatisation successes. I am not in the camp which is averse to people making money if they make it the right way and pay taxes. After all, we want them to make money and generate growth and it should create possibilities for many more people to make money. The notion that people who have created wealth are criminals, I think we have moved away from that and shouldn’t go back to that.

 

My Comments:

 

(i)        Mr. Rajan is fully aware of the fact that the massive privatization in the US since 1980s has decimated the middle class, and that instead of imposing checks and balances on the government the owners/managements of these firms control the government and use it to pass legislations detrimental to the workers and enriching the top officials of the firms and Wall Street investors.

 

(ii)      It is true that the rich do not create wealth by illegal means. Rather, they are using the financial instruments created by the government especially for them to make millions, even billions, by just click of a mouse button (by transferring money from one account to another). Compared to the US, where 10% to 15% of the population have access to these financial instruments to make massive amounts of money, only 1% to 2% of India’s population enjoy this privilege while the rest 98% are at great disadvantages. During the golden age of US economy, i.e. till 1970s, only 10% to 15% of corporate profits derived from its financial sector as compared to more than 50% from the manufacturing sector. During that period, people were creating wealth by creating jobs that added to the national wealth. For example, miners dig minerals from earth and sell them to factories at a price. This process adds value to the minerals, which were otherwise just lying buried in the earth. Subsequently, factories manufacture items from those minerals, a process that increases the value further of what were once minerals.

 

At the onset of the “Reaganomics” in the early 1980s, the financial sector in US claimed around a tenth of U.S. corporate profits. By 2013, it was almost 30 percent. As a result, the financial sector has unseated manufacturing as the profit nucleus of the US economy, as shown in Chart 1.

 

Chart 1. Financial and Manufacturing Share of US Domestic Corporate Profits (Source: How Wall Street Devoured Corporate America, Jordan Weissmann, The Atlantic, March 5, 2013)

 

 Wall Street's haul peaked in the early 2000s at around 40 percent of all corporate profits. And while it fell hard during the financial crisis, finance has since recovered due to its dotcom boom share. But in terms of providing jobs, in the midcentury economy, when manufacturing was raking in 40 to 50 percent of corporate profits, it was also responsible for around 20 to 30 percent of all employment. Finance, on the other hand, has never been responsible for more than 5 percent (as shown in Chart 2).

 

Chart 2. Financial and Manufacturing Share of US Domestic Corporate Jobs (Source: How Wall Street Devoured Corporate America, Jordan Weissmann, The Atlantic, March 5, 2013)

 

 

 Wall Street is taking money out of the system and is not adding anything to the national wealth. Yes, it creates money, in terms of share prices – paper value that evaporates when share markets drop sharply. Wall Street is squeezing the juice out of the fruits (the general economy) and we all know what it is that is left in a fruit (i.e. in general economy) after the juice is taken out. Brilliants, including Nobel Prize winners, are flocking to Wall Street, instead of embracing scientific research, to make money for the ultra-rich and of course for themselves too.

 

At the onset of the 2008 recession, the economies of the East European countries were on the verge of collapse. In an October 2008 speech, Romanian President Traian Basescu pinned the blame on “corrupt” outsiders. He said, “There were smart guys coming to Romania, who had studied at Harvard and Oxford, and they invented how to increase the value of one’s shares without actually having money.” (Financial Crisis Leaves Romania Reeling, Craig Whitlock, Washington Post, November 5, 2008.) His statement describes in brief the how Wall Street works.

 

(i)        Data from the Federal Reserve show that over the last decade and a half [between 2000 and 2017], the proportion of family income from wages has dropped from nearly 70 percent to just under 61 percent. It’s an extraordinary shift, driven largely by the investment profits of the very wealthy. In short, the people who possess tradable assets, especially stocks, have enjoyed a recovery that Americans dependent on savings or income from their weekly paycheck have yet to see. Ten years after the financial crisis, getting ahead by going to work every day seems quaint, akin to using the phone book to find a number or renting a video at Blockbuster. Wealth, real wealth, now comes from investment portfolios, not salaries. Fortunes are made through an initial public offering, a grant of stock options, a buyout or another form of what high-net-worth individuals call a liquidity event (The Recovery Threw the Middle-Class Dream Under a Benz, Nelson D. Schwartz, The New York Times, Sept 12, 2108).

 

(ii)      During the 1930s Great Depression, IBM did not lay off even a single employee (Maximizing shareholder value: The goal that changed corporate America, Jia Lynn Yang, Washington Post. August 26, 2013). Due to massive Goebillian propaganda by the ultra-rich, people think that companies’ top priority is to maximize the share price and also to return nearly all the profits to the shareholders. Hence companies routinely lay off employee despite having profits years after years. To “maximize” a company’s share price has no foundation in history or in law. This is the main reason for the dismal job growth not only in the US but in India also. People like Rajan and Basu cannot give any statement against the shareholder first policy of the companies.

 

(iii)     A US economist cannot criticize the wealthy because these are the people who control not only media and government, but also the educational institutions as they provide massive funds to the university every year as well as fund the chair/professorship of professors.

 

(B)   Comments on Recent Kaushik Basu’s statement on Indian economy:

 

As the chief guest at the 54th annual convocation of the Indian Institute of Management, Ahmedabad (IIM-A), Kaushik Basu was highly critical of the Modi government, stating (Mistakes like demonetization wouldn’t occur if the response was anticipated, The Times of India, March 17, 2019):

 

“Policy mistakes, such as demonetization, which hurt India’s growth, would not have occurred if there were policymakers who paid heed to this simple axiom: For every policy, you have to anticipate how ordinary individuals and bureaucrats will respond,”

 

My Comments:

 

Before criticizing “demonetization”, Kaushik Basu (and other US-based “imported” economists) has to accept his responsibility for the dismal job creation since early 2010s, which is mainly due to the large scale privatization of government jobs started by him as the Chief Economic Advisor (please see the Chart 3). Despite knowing fully well how large scale privatization in the USA since mid-1980s (as shown below) under the “Reaganomics” has decimated the US middle class, he implemented the same poisonous policy in India. As discussed in subsequent sections, both privatization and inequality are job killers.

 

Chart 3. Source: India is a Country, Not a Company: How Anglo-US Imported Economists Misled and Mismanaged Indian Economy, Munshiram Manoharlal Publishers Pvt. Ltd., New Delhi, 2018, p. 160.

 

 

 

 

(C)   Wrong to Blame Modi Administration  for Dismal Job Growth:

 

Despite providing corruption-free government and tremendous efforts by the Modi government to uplift the lives of all the Indians, BJP lost three major states in the heartland of India in the recent state elections, mainly due to not creating sufficient number of (middle class) jobs since the NDA government took over in Delhi in 2014. Mr. Modi and his party are reaping the fruits of the poisonous tree planted by the UPA government. The UPA government started the tradition of bringing the US-based Indian-origin economists, beginning with Kaushik Basu as Chief Economic Advisor (2009-2012), to formulate the Indian economic policy. Mr. Modi just continued the same.

 

A politician’s job is to win elections. After winning elections it is the duty of his advisors to guide him in running the government. But Mr. Modi has not been getting good advice on the economic front.

 

India has been witnessing the dismal job growth which the US has been witnessing since late 1980s. For an example as per The New York Times report (Recovery Has Created Far More Low-Wage Jobs Than Better-Paid Ones, Annie Lowrey, The New York Times, April 27, 2014), based on a study, the deep recession starting in 2008 wiped out primarily high-wage and middle-wage jobs. Yet the strongest employment growth during the sluggish recovery in the US has been in low-wage work, at places like strip malls and fast-food restaurants (in India that would be in kirana stores and road-side restaurants/dhabas). Job losses and gains have been skewed. Higher-wage industries — like accounting and legal work — shed 3.6 million positions during the recession and have added only 2.6 million positions during the recovery. But lower-wage industries lost two million jobs, then added 3.8 million. There was a drastic reduction in mid-wage jobs also. As per the same study (Tracking the Low-wage Recovery: Industry Employment & Wages, National Employment Law Project, April 27, 2014),

 

·       Lower-wage industries constituted 22 percent of recession losses, but 44 percent of recovery growth.

·       Mid-wage industries constituted 37 percent of recession losses, but only 26 percent of recovery growth.

·       Higher-wage industries constituted 41 percent of recession losses, and 30 percent of recovery growth.

 

Chart 4. Source: Recovery Has Created Far More Low-Wage Jobs Than Better-Paid Ones, Annie Lowrey, The New York Times, April 27, 2014.

 

 (D)   Privatization – A Job Killer:

 

Let us take an example of coal production. As per the Niti Aayog’s policy paper, created under Dr. Arvind Panagariya, the Modi administration has decided to open up the coal sector to commercial mining by private entities. In the beginning of 2016, the Coal India Limited employed 333 thousands (333,000) people and produced only 452 tons of coal (Coal India, Wikipedia) whereas in the same year, the US coal industry, which is entirely in private hands, employed only 50,000 people and produced 670 tons of coal which is nearly 1.5 times the Coal India Limited coal production (Coal mining in the United States, Wikipedia). Hence in near future, we will see layoff of nearly 300,000 (3 lakh) employees in the coal industry. For a private firm, profit is the number one priority and the job creation and safety of employees are the lowest priorities. If we consider the indirect and induced job losses (3 lakh apartments/homes and associated home-repair workers like plumbers, carpenters, etc., schools/colleges for children of 3 lakh employees, grocery stores, 3 lakh cars/scooters, gas stations, etc.) due to loss of 3 lakh coal employees, India may lose anywhere from 6 lakh to 10 lakh middle class jobs.

 

Now let us discuss how the US and China have been able to overcome such massive losses of jobs due to privatization (the other two economic superpowers, Japan and Germany, have small populations, and due to their high technology industries they do not suffer from this phenomenon):

 

(1)  Under Indian Economic Policy: Three lakh persons, laid off, will get only say 10,000 rupee a month jobs. In the election, these people would vote against the party in power, which right now happens to be BJP.

 

(2)  Under Chinese Economic Policy: There is no election in China and hence the Chinese government does not have to worry about them. It would put three lakh persons, laid off from coal industry, in concentration camps and provide them minimum necessities.

 

(3)  Under US Economic Policy: Three lakh persons, who were getting say $35 an hour in coal industry and were part of the US middle class, laid off from coal industry would start working as $12 to $15 hourly paid workers in service sectors like Pizza Hut, and McDonalds or as labor in massive Amazon warehouses where they work like robots. They will earn $100 a day which is $2,400 a month, becoming part of the US lower class. They rent a one-room flat, which all modern facilities including air-conditioning, for $1,000 a month; they spend $400 a month on food and in rest $1,000, they can even visit overseas locations every month. In just three days’ earning, they can even buy a brand new 43” Samsung LED Smart TV (please see Google search of Samsung LED TV price in US).

 

 This is mainly due to the over-valued US dollar. A middle-class person in India cannot live like that at all. This is the reason that despite the decimation of middle class by massive privatization in US has not resulted in a revolution against “Reaganomics” in the USA. On Purchasing Power Parity (PPP) terms, the US dollar is over-valued by six times vis-à-vis Indian rupee. Once China would replace the US dollar with its currency Yuan as the global currency, the US dollar would collapse to its PPP terms, reducing the purchasing power of $2,400 a month to only $400 a month, which would be just sufficient for food with nothing left for housing, medical or items like TV and cars.

 

 When China pulls the carpet underneath the US dollar, the US median household income (for a family of four), standing at around $56,000 annually as per 2016, would go down to less than $11,000 a year in terms of purchasing power. Half of US households would then be homeless and would find it hard to even survive as all their money would be good only for food, with nothing left for housing, car and health care.

 

“10 Ways Life Will Change If China Becomes the World’s Superpower”, MARK OLIVER JUNE 18, 2018

http://listverse.com/2018/06/18/10-ways-life-will-change-if-china-becomes-the-worlds-superpower/

 

 

 Note: Only 14 pages are shown on this page, please click below to get all 45 pages of this paper in pdf form

 

(Only 14 pages of the article is shown on this page. Please click here to download entire 45 page of "US-based Economists Should Stop Interference in Indian Economic Policy Formulation" paper in pdf)