Friday, March 26, 2021

Economy of Spending

Economy of Spending

Interesting article written by an Indian Economist about world economy.

“Japanese save a lot. They do not spend much. Also, Japan exports far more than it imports. Has an annual trade surplus of over 100 billion. Yet Japanese economy is considered weak, even collapsing. Americans spend, save little. Also US imports more than it exports. Has an annual trade deficit of over $400 billion. Yet, the American economy is considered strong and trusted to get stronger.

Americans borrow from Japan, China and even India. Virtually others save for the Americans to spend. Global savings are mostly invested in US, in dollars. The US has taken over $5 trillion from the world. So, as the world saves for the US - It's The Americans who spend freely. Today, to keep the US consumption going, that is for the US economy to work, other countries have to remit $180 billion every quarter, which is $2
billion a day, to the US!

Why the world is after US?

The secret lies in the American spending, that they hardly save. In fact they use their credit cards to spend their future income. That the US spends is what makes it attractive to export to the US. So US imports more than what it exports year after year. The world is dependent on US consumption for its growth. By its deepening culture of consumption, the US has habituated the world to feed on US consumption. But as the US needs money to finance its consumption, the world provides the money.

Dr. Jagdish Bhagwati, the famous Indian-born economist in the US, told Manmohan Singh that Indians wastefully save. Ask them to spend, on imported cars and, seriously, even on cosmetics! This will put India on a growth curve. This is one of the reason for MNC's coming down to India, seeing the consumer spending. 'Saving is sin, and spending is virtue.'”

Is this right?

An economy based on spending is growing faster. Debt Equity ratio of 2 is considered ideal where one should borrow twice to one’s own funding. All entrepreneurs follow the same, they borrow more than what they have. If they pay their all debts, the NPA of banks will be cleared and all will become common man like us. The governments in India have also changed their strategy in last 1-2 decades, that was named as successful model, where one increases the debts and improves the infrastructure so that it generates more economic activities that earns more money for the State, that in turns improve the spending and relaying capacity of the State. The budget outlays of GOI and States are increasing every year because of this. And this is called growth, the generation of more and more economic activities to accelerate GDP. More and more people earn and spend and spin the wheel of economic activities faster. But when the goods and services generated are more that the demands, one has to look across the borders at partners like America, otherwise over supply with in native country will pull down the prices of goods and services and make the production unviable.

Without consumption of all goods and services produced, the economic activities can’t move up. Population is increasing continuously, therefore, each hand to keep working and each belly to fill up regularly. Therefore, the model of exploitation of natural resources and increasing the spending in the name of good quality of life has been propagated and became successful.

Imagine, all Indians stops spending, do their all works themselves, live in complacency, remain happy with what they have, accept the life as mercy of God and accept poverty as an outcome of their sins in previous lives, etc, India will go down in past where the entire population was living in houses made of mud and dependent on the food given by the rain God.

But, this model needs control. Otherwise, in the name of development, it will empty the natural resources and leave nothing for the future generations.. Global warming is one of the worst outcome of this race of development. When earth won’t be liveable, who will be left for spending. Economists are trying to find answer from balancing the both. If we follow the principle of ‘survival of the fittest’ directed by the Nature, the human population will come under control and the race of run chase may slow down. Otherwise, all our desires of better quality of life and fights for ego will land us up at the graveyards.

4 February 2018


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