My contribution to the world: I'm … Still Spending!

My contribution to the world: O boy… Still Spending!

I took a year and a half off to live the life of a respectable bum! (Please refer to the first post). As I had predicted, I have been removed unfortunately from my respectable place in the world and have been forced to work to sustain myself.

For a year and a half that I did not work, I thought I was not contributing to the society, to the GDP. There was an awareness of my uselessness, though in defiance, I decided to contribute only to my GHP (Gross Happiness Product). But then something magical happened! The economy took a nose dive and headed towards the gutter, a march that can only be rivaled by Nazi’s march to Paris. All those “smart” whiz kids of finance, who thought they were “generating wealth” by creating complicated yet worthless financial instruments backing each other (and ultimately backed by worthless mortgages that were supposed to be paid by people who didn’t have any money to begin with!), are now either looking for jobs or are getting paid by taxpayers’ money. While the blame game for this economic debacle is still on, with bankers on Wall Street getting most of the heat, economists are still walking both the Main and Wall Street with clean sheet in their hands.

After all economists only analyze hard facts and based on either their theory, or someone else’s, prescribe what can be done. While none of them ever analyzed and predicted this impending crisis (but for the ones who took heed of the age-old wisdom: after every rise there is a fall!), we still read with interest on what the economists have to say even if do not believe it! Part of the reason is they sit on both (or rather multiple) sides of fence. When one side goes wrong, we don’t listen to it and listen to the other. And that is exactly what every administration does. Now that economic recovery is on discussion table, from the ashes of falling banks, and from his own grave, John Maynard Keynes is re-emerging. One can read more about Keynes here. In articles such as these, they would claim that Keynesian theory was considered dead since 1980s or 1970s. But the fact is that when it comes to tax rebates, shadows of Keynes has always been there (Read my last boring post for analysis if you are suffering from insomnia!). The fact is that Keynes indirectly did something, which every economist, no matter which side of fence he sits on, believes in: the merits of spending!

The fact is that after 50 years of brainwashing, almost every American believes in merits of spending and now even Chinese have started believing in it. Japanese Government (after 1990 crash) tried spending, but Japanese people have adamantly refused to spend, bringing the wrath of American economists who blame them for Japan’s problem and even their own! “World has become a global saving glut”, cried Bernanke, who now heads Fed. Keynes advocated Government to spend during the time of crisis. It may not be exactly what he intended for a common person, but then hey, a common person values money more than Government and is likely to spend it more wisely (atleast true on subjective basis). So the great word is out. People are being advocated to spend. Conspicuous consumption is being celebrated. (You can read a dumb post here). If people do not spend, then Government is going to give them money to spend or will spend itself. Sweet deal! Lord Buddha should be ashamed. He thought he got enlightenment when he advocated the life of moderation to others! His lordship might be in danger of being revoked. After all wasn't Keynes English? :)

Wait a minute! What does all this and the burp in the economy has to with the magical thing happening in my life? It seems like my post-bum self can’t really be removed from my past life, and so I digressed, musing on tangential topics. Really I wanted to get to this mantra: “spending”! Who said I was useless all this while?! I was contributing to the economy, because I was still spending. My capacity to spend only increased in my bum days as I had less time to work and more time to spend. Economists measure economic growth by GDP and my spending is part of the GDP! I feel so relieved. My life for that year and a half was not a waste! Yet Obama administration has no rescue plan for me where I can keep spending and yet increase my GHP!

By now those of you who are still with me know where I am heading to. I outright declare, my crusade here is against the economists, who seem to have easily washed their hands off every crisis. It may seem too presumptuous to be countering these Ivy League PhDs but then hey many of those bankers were also Ivy League graduates. While the economists can justify the failure of their theories for the lack of controlled experiments, it seems somewhat stupid to measure GDP in dollar value, which has a value depending on the perception of those trading with those dollar bills, a tender that American Government is liable to pay only in dollar bills! While markets do assign it a value, they are susceptible to perceptions. And in times of boom and bust, it is mostly perception which determines the value. How perception of the value of dollar leads to its value is evident from the fact that it led Chinese and Sheikhs to keep their wealth in dollars, invest in dollars and lose in dollars, a gamble played on the hard work of Chinese workers and Sheikh’s oil reserves. It is true that human right groups can blame China for not spending the money instead on its own people, on infrastructure and other development needs, and criticize Chinese Government’s investment as gambling; but economists blaming the people of these countries for saving sound preposterous! While some others went far to draw conclusions like these: it is the demand (read conspicuous consumption) of west which led to 10+% growth in China. Well this intelligent deduction beats my common sense: if most Chinese people standard of living didn’t increase, then how was it a growth for its people? A large chunk of that 10+% growth in Chinese GDP helped the conspicuous consumption of west, all because of a perception enforced by history! Chinese bosses, to ward the blame off their shoulders, instead have accused the west and its bankers of greed. But then it is their trust in the value of dollar and letting those bankers gamble on their behalf that led to mad house in Wall Street. Who respects free money anyway!?

Economics 101 will tell you that GDP is the value of total goods and services. But even some services can be a waste. I can not resist to quote the following from a post in NY times:

“If you hire your neighbor for $100 to dig a hole in your backyard and then fill it up, and he hires you to do the same in his yard, the government statisticians report that things are improving. The economy has created two jobs, and the G.D.P. rises by $200. But it is unlikely that, having wasted all that time digging and filling, either of you is better off.”

So it is true that GDP is not easy to measure. And we have taken an easy route out, by measuring it against the dollar value, fudging it here and there by some factors. There are no tests to measure its real worth. There is not even an effort to quantify growth in some more non-relativist term! Till now time has roughly been on Keynes side. The spending has increased demand which led to the supply increase because of the development in science and technology. But until how long? When our thoughtless "spending" has completely trashed the planet?

Obama’s plan is another of those plans whose effects are more psychological than real. If the economy is inherently healthy, it will stabilize after transients of collapse. How big and long these transients are, is always a big question and that is where Government role comes in! The fear I have is of those who are thinking of it as a Keynesian experiment. Because for economists, one successful experiment means a rule! (We engineers don’t have that privilege!) As much as I wish Obama to be successful as a reformer President (I admire that guy!), and as much as I wish my job and jobs of my friends and family to be safe and secure, I fear that a quick economic recovery will only bring wrath on this planet as the world would then be governed by unquestionable mantra: “what would Jesus do? SPEND!