US-based Economists Should Stop Interference in Indian Economic Policy Formulation
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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.
US-based Economists Knowingly Propagate Disastrous Economic Policies
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Dr. Susmit Kumar, Ph.D.
All the top US-based economists and management professors are no doubt brilliants and they know that US economy is heading to disaster. But they do not want to accept it publicly. These people are just propagating disastrous economic theory which is ultimately leading the US to decades of severe economic depression. If they would tell the truth or deviate from the disastrous US economic policy, they will be nowhere in the US.
Every economist and MBA knows the name of Warren Buffet – please read below what he said in 2005 – I have another article, published on editorial page from New York Times in 2005. Within 3 years of Warren Buffet’s statement, the US had 2008 Great Recession and since then it is just surviving on zero interest rate of the US Fed.
Stock Market Bubble - US Fed and US Treasury Debt
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Dr. Susmit Kumar, Ph.D.
The charts and table below would show you where the stock market heading to. The US government has been running budget deficits for last 3 decades. In the aftermath of the 2008 Great Recession, both the Bush, Jr. and Obama administrations ran huge budget deficits to provide stimulus (as shown in Chart 1). Afterwards, the yearly budget deficit gradually went down but still it was more than $500 billion a year. Trump’s tax-cut to rich has ballooned the budget deficit to $1.3 trillion this year and it would be above $1 trillion for next several years.
Next Chief Economic Advisor should not be a US-based Economist
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Dr. Susmit Kumar, Ph.D.
The Modi administration should not choose another US-based economist as next Chief Economic Advisor (CEA). It is true that the education system in the US is far superior than that of India. There is no doubt that the US-based “imported” economists and management professors are brilliants and they are capable to guide Indian economy better than the most of their counter parts, barring few, in India.
In China, Liu He, a US-educated economist, is believed to be one of the primary architects of Chinese economic policy since late 2000s (please read Wikipedia page on him: Liu He). During 1990s, he studied at Seton Hall University (New Jersey, US) and then at the John F. Kennedy School of Government, Harvard University, US. But throughout his entire life he has worked in China (please read: Biography of Liu He).
2009 Pentagon Economic Warfare Simulation - China Won Without Reaching for A Gun
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Dr. Susmit Kumar, Ph.D.
President Trump has started a trade war between US and China. Prior to him, no US administration even talked about it because top policymakers have known for a long time that the US cannot win a trade war with China. Mr. Trump thinks that he is a genius who does not need any advice. If Mr. Trump escalates the trade war with China to a level of do or die, China may take extreme step of destroying the US dollar and the US economy by dumping its massive US investments, although it would have severe damage to the Chinese economy also. China would make its currency Yuan as the global currency, replacing the US dollar. It would put the death knell to the US economy as the country would face several decades of massive economic depression (please see my paper: Part IV – US Bogus Market-Driven Economy and RBI’s Functional Autonomy).
Stop Tax-cut Fueled Consumer Driven Economy which has led the US on the Brink of Impending Bankruptcy
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Dr. Susmit Kumar, Ph.D.
Published at South Asia Monitor on March 3, 2017.
Modi government needs to stop listening to the US educated economists’ mantra of trickle down economy, i.e. to use tax-cuts to fuel consumer driven economy. The same mantra has led the US on the brink of impending bankruptcy. It should not increase the income tax exemption limit from 2.5 lac rupees, instead it should use the collected tax wisely to come out of perennial trade deficit and also to directly target the economy of the bottom 80 percent of population who have been largely left out of the economic boom.
China, US-Based ‘Imported’ Economists and Bhisma Pitamah of Mahabharat
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Dr. Susmit Kumar, Ph.D.
[In both my books - “Casino Capitalism” (2012) and “The Modernization of Islam and the Creation of a Multipolar World Order” (2008) - I predicted, based on extensive analysis of global economic data, sudden collapse of the US economy, similar to the Soviet Union collapse in 1991. It is worth noting that even CIA had not predicted the 1991 collapse of Soviet Union.]
China has multi-prong strategy to make its yuan as the global currency (leading global reserve currency), replacing the US dollar. Please read my article - China Does Not Care For US Credit Rating Agencies – about some of these strategies.
India Needs An “Indian” Economic Policy
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Dr. Susmit Kumar, Ph.D.
As discussed in my article Modi, the Best PM, India Has Ever Had, but He Needs to Stop Viewing India from the Prism of Gujarat, Mr. Modi is the best Prime Minister, India has ever had. I will never doubt his sincerity and zeal to make a difference in the lives of ordinary people in India. 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. It was the UPA government which started the tradition of bringing the US-based Indian-origin economists, starting with Kaushik Basu as Chief Economic Advisor (2009-2012), to formulate the Indian economic policy. There is no doubt that the US-based “imported” economists and management professors are brilliants but as pointed out in my several papers, these “imported” economists have been knowingly implementing the disastrous economic US policy, known as “Reaganomics” which has bankrupted the US (please read my paper: US-based Economists Knowingly Propagate Disastrous Economic Policies).
The Modi Administration Needs to Stop Shareholder First Policy to Save India from Disaster
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Dr. Susmit Kumar, Ph.D.
As discussed in this paper, the Modi administration needs to stop the shareholder first policy, the prime accused in the impending collapse of the US economy, to save the Indian economy from disaster. As discussed in my several papers, the US economy is surviving for the last three decades mainly by printing its currency, which happens to be the global currency, to fund its twin deficits – trade deficit and budget deficits. Once China would replace the US dollar with its own currency as global currency, the US economy would be in great depression for decades (please read my paper: Part IV – US Bogus Market-Driven Economy and RBI’s Functional Autonomy). The shareholder first policy is responsible for the transfer of massive amount of money to the ultra-rich from all others (please see Chart 5 in the same paper).
Let us first discuss some examples:
(1) China getting hold of the entire South China Sea:
Chinese claims in the South China Sea are delineated in part by the nine-dash line. It was originally an "eleven-dashed-line," first indicated by the Kuomintang government of the Republic of China in 1947, for its claims to the South China Sea. The Communist Party of China took over mainland China and formed the People's Republic of China in 1949 the line was adopted and revised to nine dashes/dots, as endorsed by Zhou Enlai. The legacy of the nine-dash line is viewed by some PRC government officials, and by the PRC military, as providing historical support for their claims to the South China Sea (Territorial disputes in the South China Sea, Wikipedia).
The Nine-Dash Line—at various times also referred to as the "10-dash line" and the "11-dash line"—refers to the undefined, vaguely located, demarcation line used initially by the Republic of China (1912–1949) and subsequently the governments of the Republic of China (ROC / Taiwan) and the People's Republic of China (PRC), for their claims of the major part of the South China Sea (Nine-Dash Line, Wikipedia).
On 12 July 2016, an arbitration tribunal constituted under Annex VII to the 1982 United Nations Convention on Law of the Sea ruled that China has no legal basis to claim "historic rights" within its nine-dash line in a case brought by the Philippines. The tribunal judged that there was no evidence that China had historically exercised exclusive control over the waters or resources within the Nine-Dash Line. The ruling was rejected by both Taiwan and China.
Despite having no historical rights over the entire South China Sea, China has been able to get control of nearly entire South China Sea by building artificial islands (China’s Sea Control Is a Done Deal, ‘Short of War With the U.S.’, New York Times)
(2) Nearly the entire catchment area of Brahmaputra river lies in China whereas India and Bangladesh get all the water. Now China has been building dams in the catchment area of this river to divert the flow to its massive desert. As the economies of several Northeastern Indian states and Bangladesh are dependent on this river, it is certain that India and Bangladesh would take China to an international tribunal to force China to share the water.
The situation with the utilization of the water of the Brahmaputra river bears similarity to the change in the modus operandi of sharing of a firm’s profit since, say, the 1970s. These days rather than saving its money to grow the business or increasing the employee’s wages, companies return whatever money it has made as profits to its owners, or shareholders. A company can do this in two ways: by paying dividends or by buying back its stock. What is less well-known, however, is that a relatively small group of large U.S. blue chips — companies including Coca-Cola, McDonalds and IBM — has substantially increased the amount of cash it has returned to shareholders. In 2007, before the financial crisis, U.S. companies returned $673 billion in cash to shareholders, which represented 90 percent of aggregate corporate earnings. That’s a mind-boggling amount of money. About three-quarters of this amount is attributable to a small set of very large companies, which increasingly dominate the distribution of earnings and payouts.[i]
To “maximize” a company’s share price has no foundation in history or in law. Nor is there any empirical evidence that it makes the economy or the society better off. What began in the 1970s and ’80s as a useful corrective to self-satisfied managerial mediocrity has become a corrupting, self-interested dogma peddled by finance professors, money managers and over-compensated corporate executives. One can argue that much of what Americans perceive to be wrong with the economy these days — the slow growth and rising inequality; the recurring scandals; the wild swings from boom to bust; the inadequate investment in R&D, worker training and public goods — has its roots in this ideology.[ii]
The change can be seen in statements from IBM’s leaders over the years. Thomas J. Watson Jr., son of the company’s founder, IBM’s president and CEO, published a seminal text in 1963 called “A Business and Its Beliefs: The Ideas that Helped Build IBM.” In it, he wrote that IBM’s philosophy could be contained in three beliefs: One, the most important, was respect for the individual employee; the second, a commitment to customer service; and third, achieving excellence. He wrote that balancing profits between the well-being of employees and the nation’s interest is a necessary duty for companies. Watson took pride in the fact that his father avoided layoffs, even through the Great Depression. “We acknowledge our obligation as a business institution to help improve the quality of the society we are part of,” read the text of IBM’s corporate values. Under Watson’s watch, IBM introduced groundbreaking computers that shot his father’s company to the top of the technology world. On the other hand in 2013 the then chief executive Virginia Rometty had pledged to follow a plan called the “2015 Road Map” in which the primary goal is to dramatically raise the company’s earnings-per-share figure, a metric favored by Wall Street. [iii]
Similar was the perspective of Owen Young, who was CEO of GE almost straight through from 1922 to 1945: “Stockholders are confined to a maximum return equivalent to a risk premium. The remaining profit stays in the enterprise, is paid out in higher wages, or is passed on to the customer.” On the other hand Jack Welch, CEO from 1981 to 2001, believed in “the shareholder as king—the residual claimant, entitled to the [whole] pot of earnings.” [iv]
Since the World War II and till early 1970s, all the stakeholders (customers, employees, suppliers, shareholders and community) were nearly treated equally by the CEOs. With boards heavily stacked with insiders and salaries and cash bonuses the sole source of executive compensation, there was no linkage between changes in stock price and changes in executive pay. In 1970, for example, stock-based compensation represented less than 1% of CEO remuneration.[v]
(Please click here to download entire 16 page Chapter 15 " Shareholder First – Reason for US Economic Disaster", in pdf, from the book India Is a Country, Not a Company: How Anglo-US ‘Imported’ Economists Misled & Mismanaged Indian Economy, Susmit Kumar, Munshiram Manoharlal Publishers Pvt. Ltd., New Delhi, 2018, pp 69-84. The 16 page chapter has a lot of data and discussion on this topic.)
[i]“Corporate America Is Enriching Shareholders at the Expense of the Economy,” Douglas Skinner, July 15, 2014, Fivethirtyeight.com, https://fivethirtyeight.com/features/corporate-america-is-enriching-shareholders-at-the-expense-of-the-economy/
[ii] “How the cult of shareholder value wrecked American business,” Steven Pearlstein, The Washington Post, September 9, 2013.
[iii] “Maximizing shareholder value: The goal that changed corporate America,” Jia Lynn Yang, Washington Post. August 26, 2013.
[iv] “Frenzied Financialization,” Michael Konczal, Washington Monthly, November/December 2014.
[v]“Maximizing Shareholder Value May Have Gone Too Far,” Peter Atwater, Time, June 3, 2016.
India Trade Deficit and Economic Fundamentalism
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Dr. Susmit Kumar, Ph.D.
Note: This article is not about any individual. Instead, it is about the fraudulent and bogus “Reaganomics” economic policy, which is being religiously preached by nearly all US economists/MBAs and Wall Street.
When the future of world trade was discussed and the Bretton Woods conference was planned during World War II, many Third World countries were still under colonial rule and had absolutely no say in those discussions. The main deliberations took place between the United States and Britain exclusively, and at Bretton Woods all other countries were invited simply for the formal signing-in ceremony.
Reasons behind India's Economic Crisis and their Solution
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Dr. Susmit Kumar, Ph.D.
Currently, nearly all economies, including the Indian economy, are facing a downturn. But the downturn of the Indian economy is much worse than others, mainly due to the record NPA (Non-Performing Assets) of the banking and non-banking financial sectors, as shown in Chart 1, which is the highest among the large economies. The record NPA is not due to any faulty policy of the Modi administration, which took over in 2014. Instead, it is due to large scale corruption during the Congress-led UPA governments from 2004 to 2014. During that period banks were forced to provide loans to dubious people after getting calls from the highest level of the government. The NPA has grown from 2.5% of total loans in 2011 to 10% in 2018. Without this record increase in NPA, the Modi administration would have been able to use this same 7.5% money (of outstanding loans) to jump-start the economy.
Think Twice Before Accepting Any Statement of a US Economist/MBA
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Dr. Susmit Kumar, Ph.D.
Few days ago, our Economic Affairs Secretary Shaktikanta Das said in Japan, “In particular, it points to S&P Global Ratings keeping China at “AA-“ despite rising debt and slowing growth, while India has been kept at one step above junk….China’s reported debt surged to 264 per cent of its GDP at the end of 2016, from 193 per cent in 2009. In contrast, India’s debt fell to 66 per cent of its GDP from 72 per cent” (Rating agencies far detached from India’s ground realities: Das, The Hindu, May 6, 2017). In reality, the factors, described by Mr. Das, have nothing to do with our “BBB-“ rating. Credit rating depends on factors like the probability that loan would be repaid. There is no significant change in Indian economy after the India’s Capital Account Deficit (CAD) crisis during 2011-13. Indian economy is still vulnerable to external factors like crude oil price, NRI remittance and Foreign Direct Investment (FDI). Also India is nowhere as compared to China because India has trade deficit year after year in last two decades whereas China has trade surplus during the same period.
Niti Aayog Needs to Stop Following Reaganomics, responsible for Bankrupting the US
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Dr. Susmit Kumar, Ph.D.
[Note: I do not get time to read all the recommendations of Niti Aayog. Sometimes I read Niti Aayog’s recommentions in newspapers. Several weeks ago, I read about its recommendation on Coal India and hence I wrote an article on it which is at my website also. Today I read about the issue which I am writing below.]
As per Niti Aayog’s recommendation, non-performing or "hollowed" government schools should be handed over to private players. The private sector would adopt government schools while being publicly funded on a per child basis (“Hollowed govt schools should be handed over to pvt players, suggests Niti Aayog, Deccan Herald, PIT, August 29, 2017). In India, having wide-spread corruption, it would end up with privatization of majority of government schools because the private firms, in the business of running these schools, would be able to easily manipulate the state officials and ministers to privatize them. In majority of advanced countries like the US and Canada, the school system (elementary school, middle school and high school) is still in public domain. The school voucher system is a pet project of US Republican Party under their much-revered “Reaganomics” policy.
Stop giving any consideration to Privatization and Consolidation of Public Sector Banks: Needs cleansing and overhaul of the entire financial system
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Dr. Susmit Kumar, Ph.D.
After the $2 billion Punjab National Bank (PNB) scam has come to light, Arvind Subramanian, the Chief Economic Advisor (CEA), is forcefully advocating the majority privatization of public sector banks (PSBs) (Time to study PSU bank privatisation: Chief economic advisor, The Times of India, February 18, 2018). It is worth noting that Mr. Subramanian is also vociferously advocating consolidation of banks in India (CEA bats for bank consolidation, The Tribune, October 26, 2017).
In US, banks and financial institutions, including the US Federal Reserve Bank (US equivalent of the Reserve Bank of India) are in private hands. As we will see in this paper, the bank officials and Wall Street bankers were responsible of the 2008 Banking Crisis in the US, which created the 2008 Great Recession in the US and world-wide recession, but as the US banks are “too big to jail/fail,” not a single bank official was prosecuted despite having documentary proofs of illegal means (which can be termed as day-light robberies), used by the bank officials and the Wall Street bankers. These bankers made hundreds of billions of dollars by using illegal practices. Since early 2000s, bank officials in US started creating shading mortgages and the Wall Street bankers created shady derivatives on the top of these mortgages. The ultimate losers were the ordinary Americans, who were tricked into purchasing these shady mortgages, and also people, both in US and throughout the globe, who were tricked into purchasing these shady derivatives. The US government had to spend trillions of dollars (several thousand times the $2 billion PNB Scam) to overcome the 2008 banking crisis created by these corrupt bankers. Just a decade ago before the US bankers started creating shady mortgages in early 2000s, the US had to spend taxpayers’ $132 billion (trillions of dollars in current US dollars) to overcome the 1990s Savings and Loan Crisis, caused by the US bankers. It is worth noting that nearly 1,000 bank officials were sent to jail for their parts in the Savings and Loan Crisis. The Savings and Loan crisis was one of reason for the early 1990s recession in the US. There have been similar bank scams in other Western countries also.
Dump the New Transport Infrastructure Policy
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Dr. Susmit Kumar, Ph.D.
I find Mr. Nitin Gadkiri’s plan for public transport infrastructure very troublesome because his plan would create massive privatization of transportation all over India. The prime motive of private firm is profit and job creation is the least priority.
As discussed in this article. Mr. Gadkari needs to again go back to drawing board to come up with a transportation infrastructure policy for India otherwise there would be massive unemployment in India.
As per recent newsreport (India's public transport infra to be developed on London model: Gadkari, The Tribune, January 31, 2019) – “[Mr. Gadkari] … said that World Bank can come out with a total public transport vision for India and added that public sector Wapcos which has inked a joint venture with Austria's Doppelmayr has prepared two project reports for skybuses in India.”
Here is the question – at how many places in the world, skybus is being used for mass transportation?? Answer is less than 20. Skybus technology is more than 50 years old. Skybus is a jewelry for India which it does not need. Also China is not using it for mass transportation and hence India should never go for it because China, having similar population, is far ahead of India in infrastructure.
China’s OBOR and Niti Aayog
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Dr. Susmit Kumar, Ph.D.
By watching the grand show of China’s OBOR (One Belt One Road) Summit, attended by 65 countries, including US and Japan, all Indians are feeling dejected. Under the OBOR project, China is planning to spend $1 trillion to reshape the global economy. This is one more step taken by China in its goal to replace the US as the super-power. Indians have to blame their political leaders for letdown. Both China and India started the economic liberalization nearly at the same time in the early 1990s, but China is now the global economic leader whereas India is nowhere. Since then, India have run trade deficits year after year whereas China had trade surpluses, enabling it to amass four trillion dollar FOREX (FOReign EXchange), making it the undisputed country to replace the US as the world’s number one economic superpower. Yes, the growth rate of India in last couple of years is the highest in the world but it is vulnerable to economic collapse, due to an economic crisis as a result of generating trade deficits year on year.
China Does Not Care For US Credit Rating Agencies
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Dr. Susmit Kumar, Ph.D.
Rather than paying any money towards its principal, which is right now more than $19 trillion, the US has been accumulating additional debt of anywhere from $300 billion to $500 billion each year. While describing the US debt, Niall Ferguson, Laurence A. Tisch Professor of History at Harvard University said, ("In China’s Orbit", Niall Ferguson, December 1, 2010)
“With a debt-to-revenue ratio of 312 percent, Greece is in dire straits till now. However, the debt-to-revenue ratio of the United States is 358 percent, according to Morgan Stanley. The Congressional Budget Office estimates that interest payments on the federal debt will rise from 9 percent of federal tax revenues to 20 percent in 2020, 36 percent in 2030, and 58 percent in 2040. Only America’s “exorbitant privilege” of being able to print the world's premier reserve currency gives it breathing space. But this very privilege is under mounting attack from the Chinese government.
If a person or a firm is not able to pay his or her yearly expenses, and only increasing their debt year after year, banks will certainly stop providing loans. Then again, the US Treasury Debt has one of the highest ratings from world renowned credit agencies such as S&P, Fitch and Moody’s.
Rupee Crisis - Who is to be blamed and How to solve it
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Dr. Susmit Kumar, Ph.D.
Due to high crude oil price, Indian rupee is sharply going down. During first three years of the Modi administration, the rupee was stable as it went down from 1:62 (USD:Rupee) to 1:64 only, but in last several months of this year, India is facing full blown currency crisis as rupee to USD is now 72 and it is the worst performing currency among all the Asian currencies.
As we have seen in two previous rupee crises - 1991 (resulting in IMF bailout) and again during 2011-13 – both our rupee and our economy are vulnerable to the crude oil price. On the other hand, increase in crude oil price does not have such detrimental effect on economies of China, Japan and Germany, the economic superpowers apart from the US which solves any economic crisis by just printing its currency, taking advantage of the fact that its currency is the global currency. One point worth noting is that all three economic superpowers, namely China, Japan and Germany have had trade surpluses in last several decades. Without having trade surplus for couple of decades, India cannot even dream of becoming a superpower.
US Business Schools, Wall Street and India
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Dr. Susmit Kumar, Ph.D.
In 2009, I attended a conference on Indian economy at a Business School in a Midwest university which is in top five business schools in the US. During the first session, I raised the question that yes Indian economy was booming, but its trade deficit had been increasing like the US trade deficit and US could pay it by printing its currency but India would face a crisis down the line. I also mentioned that I had just published a book in 2008 which had discussion about Indian and global economy in detail. They did not give any direct answer. After my question, they changed the format of question from audience (after the first session) - in the first session, you just needed to raise your hand to ask question. But now they asked to submit questions on a piece of paper to the moderator and it would be up to the moderator to choose from the submitted questions. They did this change because any talk about debilitating effects of growing trade deficit on Indian economy would have had ruined the conference whose aim was to present the bright side of the economic growth in India. In fact just after two years of the conference, Indian economy was in the midst of a grave crisis. Due to record trade deficits during 2011-13, the exchange rate of the rupee (vis-à-vis the US dollar) tumbled from 44.17 in April 2011 to 62.92 in September 2013. After the sharp devaluation of the Indian rupee and double digit inflation during 2011-13 due to the high crude oil price, some economists even started to write the obituary of the Indian economy (read: "None of the experts saw India's debt bubble coming. Sound familiar?", The Guardian, UK, August 26, 2013; ‘Fragile Five’ Is the Latest Club of Emerging Nations in Turmoil, New York Times, January 28, 2014).
Coal India - Niti Aayog Needs to Treat India as a Country, Not as a Firm
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Dr. Susmit Kumar, Ph.D.
Coal India is the country's second-biggest employer. As per a June 2017 Niti Aayog draft of a new energy policy, Coal India Ltd (CIL) should be broken up into seven independent companies to make it more competitive. Apart from this as per the draft paper, fresh production from new mines should come from private sector, calling for comprehensive reforms in allocating coal blocks on commercial lines to independent companies. The division of CIL is fine, but private sector in new mines will be death knell for CIL.
India and the US - Jobless Economic Growths - Part I
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Dr. Susmit Kumar, Ph.D.
Recently in India, some economists have argued that as India has been experiencing nearly 7% GDP growth rate, there has to be corresponding job growth also. As per these economists, proper surveys are needed to find the jobs being created due to 7% GDP growth rate. In the last couple of years, in places like Noida in NCR (National Capital Region), rents have gone down drastically which shows that good-paying jobs are not being created.
India's Real Estate Contradicts Job Growth Theory
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Dr. Susmit Kumar, Ph.D.
The US GDP nearly doubled between 2000 ($10.28 trillion) and 2016 ($18.46 trillion), but instead of increasing good paying jobs, the US lost more than 5 million such jobs during the same period (Chart 1) whereas the job growth was in the low-wage sector ((Recovery Has Created Far More Low-Wage Jobs Than Better-Paid Ones, Annie Lowrey, The New York Times, April 27, 2014). The total number of jobs lost may be two to three times of the factory jobs, if we consider indirectly associated jobs also such as in schools, hospitals, apartments/homes, home repair related jobs, gas/petrol stations, restaurants, grocery shops and auto sector as factory workers would spend their income in these associated fields (please read my article: The Hidden Cost of Imported Items and The Need to Redefine Modi Administration’s “Make in India” Policy). In a small town, if a factory, having couple of thousand workers, closes, it devastates the entire town.
India and the US - Jobless Economic Growths Part-II
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Dr. Susmit Kumar, Ph.D.
Recently in India, some economists have argued that as India has been experiencing nearly 7% GDP growth rate, there has to be corresponding job growth also. As per these economists, proper surveys are needed to find the jobs being created due to 7% GDP growth rate. We will see in this article that despite having 2% to 3% GDP growth rate in last nearly two decades (except the few years of recession), the US kept losing a significant amount of good paying jobs year after year (Chart 1), with job growth coming from mostly low-wage industries. As India is following the US economic policies, there is no wonder that most of the job growth in India may be coming from low-wage industries, which are not being considered in the existing surveys. In this regard, it should be noted that India’s trade deficit with China (Chart 2) is following the same trend as the US trade deficit with China (Chart 3). Due to over-valued dollar, even a low-wage worker in US has living standard of a middle class worker of India (please see my article: Coal India - Niti Aayog Needs to Treat India as a Country, Not as a Firm). But once a high-wage or middle-wage worker in India loses his job and gets a low-wage job, he will be nowhere.
Productivity, Growth Rate, Trade Deficit and Jobs
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Dr. Susmit Kumar, Ph.D.
The US GDP nearly doubled between 2000 ($10.28 trillion) and 2016 ($18.46 trillion) (please see Chart 1), but instead of increasing good paying jobs, the US lost more than 5 million such jobs during the same period (Chart 2) whereas the job growth was in the low-wage sector (Recovery Has Created Far More Low-Wage Jobs Than Better-Paid Ones, Annie Lowrey, The New York Times, April 27, 2014). Therefore it does not make any sense if someone, especially a US-based economist, tries to claim that if India has 7% growth rate, there must be [good paying] job growth also. It is said – what you sow, you reap. As India is following the US economic policies, no wonder most of India’s job growth come from low-wage industries.
Where are the Jobs?? - Please stop talking about $8 trillion GDP in 15 years
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Dr. Susmit Kumar, Ph.D.
In US, the real estate is considered a parameter to measure the job growth in a region. In US Midwest, real estate collapsed during the 2008 Great Recession and still it has not improved. If you try to sell a home in Midwest, it generally takes 8 to 9 months to sell it and it is sold at about 8% to 10% below the market rate. On the other hand if you try to sell a home in Silicon Valley, California (which has the highest per capita income in US), it would sell within a week or two for 10% above the market value. Please see at bottom of this email two cases - (i) one in Rust Belt in US and (ii) another in Silicon Valley, California. This will tell you why Americans in Midwest voted for Trump.
PM Modi, Resignation and Economic Reforms
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Dr. Susmit Kumar, Ph.D.
Right now writers at financial websites like Forbes and Bloomberg are criticizing the Modi administration for the resignation of Mr. Panagariya, claiming that PM Modi is turning back on reforms. But the question is - what kind of reforms they are talking about? These economists/MBAs/Wall Street have destroyed the US economy and middle class in the US. I lived in Ohio (a state in US) for 15 years and it is part of Rust Belt in US which has suffered massive job losses due to shifting of manufacturing jobs to China - the median salary in the state was $56,400 in 2000 whereas in 2013, it was only $48,000, i.e. 15% drop - nearly all the states in Midwest (in US) have similar drop in median incomes (5 States Where the Middle Class Is Being Destroyed, Sam Becker, July 30, 2017, www.cheatsheet.com). Do we need a similar "reformed" economy in India?
US Economy Is Socialist, Not Capitalist
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Dr. Susmit Kumar, Ph.D.
Since the mid-1990s, the US government has been decreasing taxes for the rich. Apart from this, the Wall Street, in collusion with economists and MBAs, compel firms to show profit every quarter to be given to the shareholders, the majority of whom are ultra-rich. In general, socialism has come to mean that the government takes money from the rich to give to the poor. The last four decades of the US economy have seen the opposite, i.e. the US government, in the garb of “Reaganomics”, and Wall Street have transferred massive amounts of money to the ultra-rich from all others (please see Table 1 and Charts 1 to 7 below).
India Is A Country, Not A Firm
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Dr. Susmit Kumar, Ph.D.
After the 1991 economic liberalization, US- (and to some extent UK-) educated/based economists have had great influence on the Indian economic policies. It is worth noting that due to Margaret Thatcher, the British Prime Minister during 1979-90, the UK has been following the “Reaganomics,” i.e. small government, lower taxes, free trade and privatization. But the US economic policies cannot be applied in India at all because the former is based on a Ponzi scheme called “US Dollar” (read my article The US Dollar – A Ponzi Scheme) (please read “Note” at end of this article also). The US had trade surplus from the end of World War II till the early 1970s, but since it has had trade deficit year after year. The reason for it is that Nixon de-linked the dollar from gold in 1971, after which the US has just continued to print dollars whenever it wants, to fund its trade and budget deficits. This has been going on for more than three decades, since the Reagan administration. This US economic policy cannot be implemented in India at all because India cannot print its currency to pay for its trade and budget deficits.
Credit Rating Agencies and US Rating
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Dr. Susmit Kumar, Ph.D.
After the 2002 US midterm elections, when the then Vice-President Dick Cheney started proposing tax cuts, Treasury Secretary Paul O’Neill told him, “the government is moving towards a fiscal crisis,” and moved on to explain the ill effects of rising deficits to economic and fiscal soundness. Cheney replied, “Reagan proved deficits don’t matter.” A few weeks later, President Bush asked O’Neill to submit his resignation (Ron Suskind, The Price of Loyalty, New York: Simon & Schuster, 2004, 291) and found a Treasury secretary who would rubber-stamp his tax cuts. It is worth noting that O’Neill, a lifelong Republican (party to which President Bush belonged to), successfully ran Alcoa, the world’s largest aluminum producer, for twelve years as its CEO and chairman. At that time, the US Government debt was about USD 6.2 trillion only whereas it is now more than USD 19 trillion, i.e. the debt has since tripled. Due to the advent of Information Technology and subsequent boost to the US economy, the US was able to eke out a small budget surplus during the last years of the Bill Clinton administration resulting from the subsequent tax collection increase.
The US Dollar – A Ponzi Scheme
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Dr. Susmit Kumar, Ph.D.
Published at South Asia Monitor on February 27, 2017.
Recently US President Donald Trump declared China the "grand champions" of currency manipulation, only hours after his new Treasury secretary pledged a more methodical approach to analyzing Beijing's foreign exchange practices. [1]
Nearly all US economists, including Nobel Prize winner in Economy Paul Krugman, do not tell the truth. Krugman has maintained that undervalued Chinese currency is the main reason behind the massive US trade deficit. As per him and C. Fred Bergsten, director of the Peterson Institute for International Economics, "Beijing uses currency manipulation to maintain the value of its currency, the yuan, at an artificially low value, which makes its exports much cheaper and its imports more expensive."[2]. Since 2010, China’s Yuan has appreciated by 20 percent vis-à-vis the dollar, whereas the US trade deficit with China has not decreased.
Niti Aayog Policy Papers are Death Certificates of the Indian Economy
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Dr. Susmit Kumar, Ph.D.
In a small town, if a factory, having couple of thousand workers, closes, it devastates the entire town, of population having say 10,000, because the total number of jobs lost may be two to three times of the factory jobs if we consider indirectly associated jobs as well, such as in schools, hospitals, apartments/homes, home repair related jobs, gas/petrol stations, restaurants, grocery shops and auto sector as factory workers would spend their income in these associated fields. In the US Rust Belt states, towns after towns have witnessed this devastation due to large scale shifting of manufacturing units to overseas. The owner of the firm would only consider the profitability of firm while deciding to reduce its workforce or its closure. But on the other hand, the government needs to take into consideration entire town before taking the same decision. The government should never take decision considering the country as a firm. That’s why I decided to keep the title of my new book as “India is A Country and Not A Company” (Munshiram Manoharlal Publishers Pvt. Ltd., New Delhi, Rupee 350, 212 Pages, 2018). India has not fought any war in last 46 years, i.e. after 1971 but it has spent hundreds of billions of dollars on defense without thinking about any profit from this sector. The wellbeing of its citizens should be the top priority of the government. It has to provide means to its population so that they can get minimum necessities, like food, housing, education and medical. The middle class wants jobs and not just the handouts. Hence using its resources, which are of course limited, the government has to provide jobs to them.
China, Brahmaputra, Privatization of Government Services and Income Inequality
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Once I had a discussion on Indian economy with an Indian-origin US-based MBA who lived in Silicon Valley, California. When I explained the reason behind the demise of job growth in India, saying the massive privatization by the government had reduced the purchasing power of millions of Indians as in low category jobs, workers are paid much lower than in similar government jobs. For an example, a car driver gets only say 10,000 rupee a month in Delhi (5,000 rupee a month in state capital like Patna and 3,000 rupee a month in sub-divisional towns) in a private firm whereas a similar job in government fetches 30,000 rupee a month; the owner or the shareholders of the private firms, which are providing the privatized services to the government, are making millions and billions. Like brain-washed Americans, he said that being a tax-payer, he did not want a driver to be paid 30,000 rupee (taxpayer money) a month when a private firm could deliver the same service for 10,000 rupee a month. Then I gave him the following example:
Nearly entire catchment area of Brahmaputra river is in China whereas India and Bangladesh gets all the water. Therefore as per his theory, India and Bangladesh should not object if China diverts all the water of this river to its massive desert areas in the north. It is worth noting that the economies of several Northeastern Indian states and Bangladesh are dependent on this river.
Then he agreed that the government should intervene to make level playing field for both rich and poor.
