[Samurai]

Originally Posted by DigitalOne

Trickle down economics works well initially. The problem is if you continue to give tax breaks to the rich expecting him/her to drink more, that's not going to happen .

You nailed it here. Trickle down economics makes many assumptions, which rarely comes true. It is supposedly fiscal spending by corporates. But corporates don't do fiscal spending. I have had visibility to P&L of 3 unfunded startup companies in the last 24 years, two of them as co-founder. I don't remember a single time when we spent money to improve the economy. I don't remember a single time we hired people when we didn't need them. I also know many CXOs, and even they admit to the same, except for the CSR compliance.

Let's not talk about the anomaly where departments are given budgets and they go on a spending spree in Feb-Mar to retain the same budget for next year. Even that is not fiscal spending, the motivation there is different. Corporates are reluctant job creators, as I had explained 4 years ago in another thread.

Creating jobs is merely a side effect of building any profit-making business. If a business finds a way to make more profit without hiring anyone, they will do it in a heartbeat. This where trickle-down economics goes dry.

Let's say the central bank (Fed or RBI) reduces interest rate to encouraging more spending. This will lead to more spending and less savings. But there is no control on how this spending happens, because every company will seek the most profit-making avenue. The company might simply decide to borrow the funds to do stock buyback, or to build a plant in a low cost country and shift the jobs there. This is what happened in the 80s-90s in USA, companies could indulge in laissez faire economics thanks to Reagan.

https://www.businessinsider.in/lates...w/59760478.cms

in 1982 he (SEC chief appointed by Reagan) made it legal for companies to repurchase their shares on the open market pretty much whenever they wanted. Previously, the SEC had considered this a form of stock price manipulation.

This was also the era of the corporate raider, pushing companies to become leaner and more profitable as quickly as possible.

The shareholder became the main thing for a company to worry about. Employees lost their status. Companies feared getting attacked, so they bent over backward to mollify the former at the expense of the latter. Those new stock repurchasing rules, for one thing, allowed them to shore up their defenses by buying back stock. But, of course, that meant spending money that could've gone to innovate, invest in new technology and equipment, or reward workers.

When all this was happening, highly populated poverty-stricken countries like China and India were fertile grounds for cheap investment with very high ROI. English speaking Indians were source of cheap service jobs, and labour law devoid China was open to cheap manufacturing jobs. Indian government's financial reforms in 1991 was done with this reality in view. So service jobs started flowing in and became a deluge over the years. China experienced the same for manufacturing jobs.

The main beneficiaries of Reagan's trickle-down economics were China and India. Bush senior called it voodoo economics in 1980, when he was running for primary. He toned it down after becoming the Reagan's VP. But he was proved right eventually.

So, when someone speaks fondly about trickle-down or supply-side economics, those of us who lived through 80s-90s can only be stupefied.

[Fishtail]

Originally Posted by Samurai

You nailed it here. Trickle down economics makes many assumptions, which rarely comes true. It is supposedly fiscal spending by corporates. But corporates don't do fiscal spending. I have had visibility to P&L of 3 unfunded startup companies in the last 24 years, two of them as co-founder. I don't remember a single time when we spent money to improve the economy.

Why will corporates do fiscal spending? Fisc means public treasury. Fiscal spending is government spending. I think you meant something else here.

[Samurai]

Originally Posted by Fishtail

Why will corporates do fiscal spending? Fisc means public treasury. Fiscal spending is government spending. I think you meant something else here.

Fiscal spending is government spending to influence the economy. I am saying we can't expect corporates to do the same. Corporates don't do the equivalent of fiscal spending. Corporates do everything from profit maximization point of view.

[Fishtail]

What I understand is that capital formation by the private sector can be driven by profit motive. No problem with that. The economy benefits from the multiplier effect and the possible employment effects.

However, regarding the relationship between fiscal spending and capital formation by the private sector do check the notions of crowding-in and crowding-out.

[Samurai]

Originally Posted by Fishtail

What I understand is that capital formation by the private sector can beis driven by profit motive... The economy may benefits from the multiplier effect and the possible employment effects.

I would suggest couple minor changes to your statement.

[Sran]

Originally Posted by Samurai

Let's not talk about the anomaly where departments are given budgets and they go on a spending spree in Feb-Mar to retain the same budget for next year. Even that is not fiscal spending, the motivation there is different.

We don't use zero based budgeting, India uses traditional budgeting method. America use zero budgeting. It has no bearing on us or how funds are used by institutions. Ministries cannot spend more than 33% of expenditure of budget estimates in the last quarter and not more than 15% of expenditure in the last month of the fiscal (this can be/are changed).

[DigitalOne]

Originally Posted by Samurai

.....The company might simply decide to borrow the funds to do stock buyback, or to build a plant in a low cost country and shift the jobs there. This is what happened in the 80s-90s in USA, companies could indulge in laissez faire economics thanks to Reagan.
.....


When all this was happening, highly populated poverty-stricken countries like China and India were fertile grounds for cheap investment with very high ROI.....

.....The main beneficiaries of Reagan's trickle-down economics were China and India.....

...So, when someone speaks fondly about trickle-down or supply-side economics, those of us who lived through 80s-90s can only be stupefied.

Agree. So a couple of billion people in India and China got out of poverty because of Reagan's policies. What's to feel bad about that? Or are we to feel constantly guilty towards American or British workers who lost out? Does the rest of world owe anything that the unionised workers in US and UK? If tomorrow manufacturing moves to Africa because of lower costs, shouldn't we cheer that?.

This thread is just too obsessed with the welfare of US/UK workers because they wield huge megaphones (Guardian, AOC, Bernie et al) .

[Fishtail]

Originally Posted by Samurai

I would suggest couple minor changes to your statement.

Yes. You are right. The multiplier may not work if the marginal propensity to consume is equal to zero. Which is an extreme case.

And if one moves beyond Economics 101, there is a branch of Economics called Industrial Organization which recognises that profit maximisation is one of the many objectives that firms might pursue.

[Samurai]

Originally Posted by DigitalOne

Agree. So a couple of billion people in India and China got out of poverty because of Reagan's policies. What's to feel bad about that? Or are we to feel constantly guilty towards American or British workers who lost out?

No, nothing to feel guilty about that. The point is about unintended consequences. If a plan is executed claiming to benefit X (regular americans), and it ends up benefiting Y (rich minority) and Z (China/India) and not X, then we have to ponder if the plan was correct. We benefited massively from globalization, but we could be victims of it someday.

Originally Posted by DigitalOne

If tomorrow manufacturing moves to Africa because of lower costs, shouldn't we cheer that?.

I don't want to cheer a plan that does that. If India implements trickle-down economics, we will be screwed and some other cheaper country will benefit when the MNC move jobs to maximise profits. What's there to cheer?

Originally Posted by DigitalOne

This thread is just too obsessed with the welfare of US/UK workers because they wield huge megaphones (Guardian, AOC, Bernie et al) .

That is because that an economy that benefits most citizens is a much superior one. A society that is hurtling towards more inequity will soon become a failed society.

[DigitalOne]

Originally Posted by Samurai

.... We benefited massively from globalization, but we could be victims of it someday.
.....
I don't want to cheer a plan that does that. If India implements trickle-down economics, we will be screwed and some other cheaper country will benefit.....

That is because that an economy that benefits most citizens is a much superior one. A society that is hurtling towards more inequity will soon become a failed society.

You are equating the welfare of trade-union protected Americans with the welfare of all Americans. When a couple of billion people in India and China prosper, they become a huge new market for American goods and services. Middle-class Indians now can afford and consume Californian almonds/walnuts, and Washington apples. Indian airline companies are ordering record number of planes from Boeing, manufactured by American workers. Indian and Chinese tourists are sustaining many places in Europe .

I agree that Reagan did not go about his policies keeping India or China in mind but if Africa gets out of poverty because of these "unintended consequences", that's likely to screw Indian workers in the short term, but India and the rest of the world would be a lot better off in the long term.

As an entrepreneur/employer, you may understandably be upset thinking about something that screws up workers even in the short term. I understand that and truly respect that.

No country can keep growing in isolation. The market for your products gets saturated. You can't keep building higher walls.

[Jeroen]

Contrary to Boris I have not given up on my Caribbean holiday. We are Currently in Barbados. My wife is Bajan, we meet and got married in Barbados many many moons ago! My mother in law has been very poorly, so we are here with all the children and grand children. My mother in-law, although physically in very poor state still has a sharp mind and calls the current UK political situation ridiculous and absurd. This from a 88 year old lady who loves the UK.

If it helps, I would like to think I have mocked just about every political figure and or party over the last ten years on this forum. (obviously all within the mods guidelines). I don’t think I have ever mentioned Reagan or Thatcher though.

My kids call my an ultra right wing old guy, but I like to see myself as more of a social democratic fair person. I vote Volt, look m up! I do follow politics, but only of those countries I have lived in. I will be honest, Indian politics has always completely baffled me!

But we did live in the UK in the late seventies until mid eighties. And we have owned property and a second home inthe Uk for ever till Brexit. We were supposed to retire in the Uk. Sold it all because we did not believe in Brexit.

My daughter in law is from one of the Caribbean Islands, my wife is from Barbados, I am Dutch. So when I write about the old folks in the UK being racist take it from me, it is based on actual experience! Not hear say.

Although certain historical events will have a long lasting effect, I don’t think the inflation or anything else can be explained by politics flavour from the 70s Because it suggest a detachement from global realisaties in my opinion. Current politics are far more dynamic.

Local leaders can only do so much. It is one of the reasons I prefer politician who take a more holistic view of the world rather than those who deal with current crisis only. No doubt it needs to be addressed, but without a bigger plan, it is just opportunistic in my opinion.

There are not to many politicians these days that look further than their current day twitter feed. To me that is a big problem. None of the current problems and countries and the world faces can be solved by means of a few bullet type actions. Irrespective of political affiliation

I detest and will mock those who are opportunistic. You can say a lot about Margret Thatcher and I am no fan of her, but we lived in the Uk during here reign and at least she was a politician with long term views, objectable as some of them were, and took action accordingly.

My personal take on the UK from an historic perspective is there is still a major devide between a large portion of the country and the elecectorate.

Not unusual Perse, but just more pronounced in the UK then in most Western European countries.

As mentioned by other poster I do feel strongly about a society with more equality. It is not about that everybody is the same, but that everybody needs to have the samenhangen in life.

Jeroen
Jeroen

[v1p3r]

Originally Posted by apachelongbow

Can't help but think how similar the UK's thinking is to Maharashtra. The same issues: foreigners taking our jobs, bloody foreigners, the locals either not interested or incompetent, jobs steadily moving across the borders, rising inequality and social anger, idiot politicians trying to cash on the 'us versus them' feeling, the captial city a financial powerhouse but only on paper with no real manufacturing GDP.

MH actually has agriculture and industry - a lot of manufacturing occurs in Pune, Nashik, Aurangabad, etc. Also, there are no self-imposed trade barriers with the rest of India, unlike the UK and Brexit. As for the rest, who do you think we learnt divisive politics from?!

Originally Posted by nakul0888

Also, still waiting for someone to tell me how the 70s were so bad in US and UK. Please don't say its because of a pitiful oil embargo. That's just lazy.

I've literally said it. The Bri'ish got lazy and demanded everything on a platter. Unlike the other European countries, their population was much larger and their industrial competitiveness dropped. A slide began, which Thatcher arrested in a way that is now paying harsh dividends. I am still a British resident (not a citizen) and I've seen the idiocy over a few decades turn it from a 'developed' country to one that will soon be 'third-world'. On the positive side, assets just got a whole lot cheaper to acquire!

Originally Posted by v1p3r

The UK has been on a slide since the 70s when labour unions decided to strike on days that ended with a y. Thatcher's reaction was to destroy industry, and set the ball rolling for them to turn into a services economy. The country currently has less manufacturing than Indonesia. Proper Bri'ish engineering.

Originally Posted by Jeroen

I vote Volt, look m up!

I did, interesting. If I were European, I would vote for them, based on most policies. Cursory searches don't reveal much about their immigration policy though. Of course, I voted for Brexit.

Originally Posted by Jeroen

Local leaders can only do so much. It is one of the reasons I prefer politician who take a more holistic view of the world rather than those who deal with current crisis only. ...

People vote using their eyeballs now. Create a bogeyman - religion, caste, immigration, inequality - and win based on it. Enjoy the power and wealth, and change laws and discourse to ensure further such victories. Long term nation-building is now solely the preserve of China, it would seem.

Originally Posted by Jeroen

Local leaders can only do so much. It is one of the reasons I prefer politician who take a more holistic view of the world rather than those who deal with current crisis only. ...
...You can say a lot about Margret Thatcher and I am no fan of her, but we lived in the Uk during here reign and at least she was a politician with long term views, objectable as some of them were, and took action accordingly.
...
It is not about that everybody is the same, but that everybody needs to have the samenhangen in life.

Holistic views of the world are also, unfortunately, often the standard for genocidal megalomaniacs like Churchill, Hitler, Tojo. Hopefully Thatcher's influence will not kill as many people in the long run. Also, thank you for teaching us a new word.

Always interesting to see those who live in high HDI standards decry the system that brought them such living. The UK whines about foreigners, who it needs for everything from tourism and trade, to toilet cleaning. The Americans whine about Mexicans and Chinese, without whom their manufacturing would die. Kerala whines about socialism, without which they would be BIMARU.

[carboy]

Originally Posted by apachelongbow

Likewise the US of A has outsourced everything meaningful to either China, India or elsewhere, leaving out only the defense related industry.

The USA has the 2nd largest manufacturing in the world. Only country in the world with more manufacturing than USA is China. USA's manufacturing output is 5.5 times that of India.

[am1m]

(Might be a bit of a noob question) How much of the coming recession is going to be a 'self-fulfilling prophecy'? I mean everyone around us is talking about the coming recession. The only places where the experts seem to disagree is about how severe or how many quarters it will be spread over. So that I think naturally leads to people and businesses being more careful about how much they spend, which in turn will cause some level of contraction anyway. (Personally, I too am going to postpone any major spending that I planned to make till all this blows over.)

[thanixravindran]

Not sure whether this is the right thread. Ministry of statistics has released payroll stats from 2017 to 2022 on formal employment through a combination of EPF, ESI and NPS. You can see the job growth declining just before pandemic and a clear dip with net exits exceeding the new entrants during pandemic and till now. The number of people rejoining sees steady increase. Not sure how to interpret it. It may be a temporary loss of job during pandemic? I am not sure of the long term viability of EPF. Bank FDs have come closer to 7% due to inflation but don't see much activity on EPF interest rate.

ESI, I believe is now applicable only for entry level employees with salary of less than 15000INR. Hope this number picks up as per the trend so that formal job growth happens where it matters. I will leave out the NPS as its optional for private sector. I know formal job growth is only one parameter among many but I couldn't see how the corporate tax cut in general and the low tax regime for new manufacturing companies (at 15%?) has translated to job growth.

I believe the new labour code allows EPF coverage for gig workers too and if implemented may see a huge change to the data. Perhaps it will make this data set unusable for formal employment indication?? Please share your views and inferences.

Attaching the PDF file and link to press release.
https://pib.gov.in/PressReleasePage.aspx?PRID=1870710