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Monday, 28 September 2015
Audio transcript of discussion with S Gurumurthy on Quantitative Easing
America which introduces more cash into system is to finance largely imports at the consumption level but in Japan it is quantitative using is to promote exports they do export financing. For example Abe govt (Japan Government) decides that they would pump in $50 billion a month over the next 18 months.
They will finance the Japanese corporate for their exports, in which let us assume Japanese govt. insists on 60% of the exports to be funded from Japan that is the import content of a project of say in Bombay-Delhi corridor, if they say 60% of the export from Japan and they finance this 60% so they convert this inflation into income without affecting the local economy, so the most important thing is you export your currency virtually.
This is because Japanese is savings driven economy but in America same may not work as it is a consumption driven economy, there you are financing consumption, here you are financing exports, which add to GDP, there you are financing consumption in imports which reduces the GDP so there is a huge difference.
How do you see the Quantitative Easing in Europe?
Quantitative Easing in Europe is again because of the weakening of the society which places burden on the state. Most of the economies except Germany weighed down by the enlightenment aged progressing into atomization of families and society. So state dependency is increased; so in 2006, there was a paper circulated in European Union where they discussed this issue, what is happening because they can’t discuss very directly just as you can’t discuss secularism in India, you can’t discuss limitations on individual rights, nobody has the guts & these is no leadership but China can do it, Japan can, even Russia can do it, none of these Anglo Saxon countries or Continental Europe can do it because they just don’t have the intellectual leadership which can take on present situation as they discuss in a very subtle manner how the families and communities has weaken in the process burden on government has increased.
The government is no more able to discharge the burden. They will be citing Scandinavian countries which are just nothing (in size), they are not even half the cities of India. So this is actually a State-Society imbalance in bearing responsibilities which is reflecting in economies. It is the western economies which are now failing and they are trying to correct it within the scope of system which is not going to work unless a very large part of responsibility is given back to the society and the family which they will say is republican approach. It is not correct having destroyed the family you can not hand over responsibility to weaken the family if you have to recreate the family. What you need is not economy, you need culture, tradition, religion which you don’t have and you need reverence. Modernity actually targets reverence. Actually there should be no reverence for anybody and there is a lot of study on all of these individually.
Paul Woodruff has written a book titled Reverence: Renewing a Forgotten Virtue. How everybody is equal teacher and students are equal, parents and wards are equal he says, a huge economical consequences this affects propensity to savings, it affects the type of savings whether equity or fixed rate of return so all these are now to be read into economics. So the only Asian can probably re interpret the economics. it is not possible for Europe. May be America will be able to do it because very large part of America even today is religious.
This is what you call middle part of the country; i. e. in terms of the economy what it contributes is overall economy is probably is 20%. This is Pareto principle (80:20) the thing is West Coast and East Coast are the ones that are the engines of America, the middle not so much. If you look at really where the productivity of America happens is usually on the coasts.
No, I am not talking about economy, I am talking about sustainability. Sustainability of life model is very different from the contribution you measure in economic terms. So that in respect I believe normative living is the only way economy will sustain. There is no normative living, there is regulated living. Normative living is something which is generated by society, family without the intervention of formal system. Formal system is regulatory, so I think ultimately you have got to align normative life style which we call “Dharma”. Where there is self restraint, nobody restrains from enjoying, you restrain yourself. Modernity says you go out and enjoy, who are you? Who is anybody to question you? These are 2 different paradigms even if they tell we don’t do it that is a sustaining the fact you go out and enjoy the world, the world is open to you for enjoying it. This is the basis of modern economics but why you are not doing it?
As a rule it was true… One thing is over last 5-10 years small changes are happening… i. e. if a student is going to college for studies, the student loan debt is so high that he/ she doesn’t have a realistic way of paying back that and then start saving to buy a house. So what is happening amongst all families now is that these students are beginning to come back and live with their parents after they do their under graduate education because there is no other source, in a way it is forced upon them. I am not saying it is true for everybody but there is a trend towards that.
These are all marginal developments, how many American students are going for higher studies that is percentage of students going for higher studies?
Right now everybody has to do an under grad degree rather bachelors degree. One : Two – That is I would say 50% and the other one which misses out are the single families, minorities or where there are immigrants who have just come in so they are not able to get into the system and so on and so forth. This is still one of the highest numbers in terms of people applying to go for under grad education that is going up.
See, there are only 28% of American families having husband and wife living with children “Only 28%”. About 21% couples living without children. Parent family is about 20-21% and balance is all……
If you see the rise of single parent families and children and couples with children there is inverse proportion. One is going up and other is going down. See what will happen after 30 years so ultimately if you say single parent families are unable to educate their children’s single parent family are rising. Can you prove it in economics?
They get a lot of breaks, though in the sense if you show aptitude the state underwrites a lot of education.
So again, it means you are putting burden on the state. See basically you don’t have a self restraining mechanism which says I will sacrifice for my child unless the parent thinks like that it is burden on the state. Unless the child thinks like that, the burden is on state. So how are you going to generate that spirit that is my duty to take care of their house. You can destroy it but cannot recreate it. This is what I think is going to be a terminal issue in the western model f what is known as “A Methodological Individualism” which is foundation of efficient market theory. The problem is with that you are measuring efficient market theory on the paradigm which is failing.
What is your outlook on Indian economy in next 4-5 years? How do you see it progressing?
See, India will rise because Indian Entrepreneur spirit is on rise. I am not talking about educated entrepreneurship. India is a paradigm of a Uneducated employer and educated employee. Go to Tiruppur, Ludhiana, Patiala etc.., out of 35% largest exporters one half of them is less than 5th standard.
I completely believe you, I studied in Hyderabad in Agarwal High School where attendance at school was optional but attendance at shop was mandatory. 3’0 clock after the class we had to go to the shop for collection.
RKR institution campus with 30000 students is owned by a person who is 8th standard pass but he is making business out of education
Sometimes I think, not educated also helps because you don’t worry about lot of other things that might go wrong
You become insecure if you are educated unless you have a fixed income.