All posts by Naresh

Intrigued by age-old questions ... which are not yet answered!

Globalization: A Sneaky Overview

Consider the hypothetical case of an economy with annual GDP of 5 trillion US dollars, the broad economic dynamics of which are the subject matter of this exploration.

The hypothetical country whose economy we analyze here is named AB, because its internal economy is composed of two distinct components A and B. The total population of AB is 100 million, but only about 2% of it belongs to B; the rest of it belongs to A. For the ease of dealing with round numbers, we shall say that A and B have populations of 100 million and 2 million respectively.

To a large extent, A and B are geographically separated within AB, but the separation is not total. Intermingling does occur. Main roads and highways, for example, carry cars belonging to members of both A and B. Commercial airlines also carry members of both A and B, whereas private and chartered airplanes carry mostly the members of B. Schools, residences, shops, recreation et cetera are largely segregated, since the members of B see themselves as being a class apart.

From the point of view of governance, the members of B have almost total control over how the country AB is legislated and governed. Any attempt by members of A to have their voice heard is met with hysterical and shrill denunciations by members of B – using terms such as “nationalism”, “populism”, “socialism”, “deplorable” and so on.

From the point of view of economic prosperity, the members of B are doing far, far better than those of A. In fact the total GDP of AB is about equally divided between A and B, which means that an average member of B earns about fifty times more per year than the average member of A.

Attribute A B
Share of GDP 2.5 trillion US$ 2.5 trillion US$
Per capita income 25,000 US$ 1,250,000 US$
Flow of funds from other countries Negligible 0.5 trillion US$
Internal trade balance between A & B Deficit 1 trillion US$ Surplus 1 trillion US$
Effect of monetary expansion Negligible 0.5 trillion US$
Education UG or less UG or more

Internal trade & governance:

The economy of A consists of low value and low profit margin goods and services – such as farm produce, basic industrial products, manual labor, security (including police and military), clerical, retail, supervisory and delivery services, transport, nursing, housekeeping, beauty/hair care, and so on.

Therefore A supplies to B such low value and low margin goods and services. Since a population of 100 million supplies these goods and services to the much smaller population of 2 million, the prices of these goods and services remain depressed. To make matters worse for A, the members of B have fiercely kept their options open of replacing suppliers from A with lower cost suppliers from any other country in the world. Thus the B-types have retained maximum bargaining edge in their purchases from A.

B supplies to A high value and high profit margin products and services, related to finance, insurance & real estate (FIRE), media, PR, pharmaceuticals and law. Since these products tend to be complex, the relevant legal terms of trade between B and A are heavily biased in favor of the former. In fact this situation reflects the fact that members of A have almost no influence in the governance of AB.

A-B-trade-flows

As a result of this rather one-sided trading arrangement between A and B, every year B enjoys an “internal trade surplus” with A to the tune of about 1 trillion dollars, which explains a large part of the difference between the annual per capita incomes of A and B.

B-types are addicted to chasing ever higher returns on their already huge assets; in fact that seems to be their only goal in life. They have fine-tuned to perfection their schemes of exploiting debt-financing and to-the-hilt leverage in all their financial ventures. To meet their growing demands for more and more debt, they have arranged for cheap and plentiful credit to be available “on tap” 24×7. For PR purposes, this “debt-on-tap” scheme is called “monetary policy”, and is touted as being good for AB.

From this “debt-on-tap” policy, the economy of B gains about half trillion newly-created dollars a year. No benefit of this accrues to A, however, since the economies of A and B do not overlap much at all. However, when things go wrong, the members of A are expected to bail out the bad debts in B – supposedly to maintain “financial stability” within the entire country.

Wealthy citizens of other countries around the world also participate in the free money party going on within B. Foreign money flows into B to the tune of about 0.5 trillion dollars a year. The spirit of the age seems to be this: As long as money can be created out of thin air, let the champagne flow.

The economy of B is run like a very exclusive and expensive club. Its entry charges and annual maintenance charges are extremely high. As a deliberate PR policy, the myth is created that the highest goal available to a human being is to become a prominent member of the economy of B. As a result, the life-goal of many a Tan, Deep and Ali outside AB is to become a recognized member of B.

The wealthiest among the members of B take great care to ensure that the hoi polloi of A have no say in how the affairs of AB are run. At the same time, however, they go to great lengths to convince the same hoi polloi that their best interests remain foremost in the minds of the wealthiest and the most powerful members of B. The PR term for this great manipulation of A by B is “the art of governance”.

Periodically, the wealthiest and most powerful members of B select a suitable person to act as the “front-person” for the great manipulation, with the understanding that the “front-person” will also become the “fall-person” if perchance the game of manipulation is in danger of being exposed.

B-types understand very well how useful it is for them to maintain the myth of AB being “one country”. After all, the multitudinous members of A are their dumb customers, low-cost labor, tax payers, fall guys, soldiers … and more. A “godsend”, one might say. How can B ever manage without them?

But the members of A must never be allowed to learn that they are being manipulated – in their own self-interest, of course. The poor folk of A would be so lost without the high cost governance provided by the smart people of B – all in the spirit of public service, of course.

Global B-Networks

We now extend this model to the 200 odd countries of the world. Admittedly, some countries are more “A-like”, while others are more “B-like”. By and large, however, most of the country economies around the world are divided somewhat as described.

The diagram below illustrates how the economic networks may operate among four countries AB1, AB2, AB3 and AB4. In the real world, similar networks span all the 200 odd countries.

We saw that, from the point of view of money flows, each of these legal countries is effectively divided into two parts A and B. The B parts of almost all the countries around the world – that is, B1, B2, B3, B4 and so on – collude economically when their interests coincide.

Typically, what are these coinciding interests? All the B-types around the world want maximum annual returns on their already massive assets. Therefore they – B1, B2, B3, B4 et cetera – compete, collude or collaborate with each other as the need arises. To them, the rest of mankind – A1, A2, A3, A4 et cetera – are people of a different kind: deplorable, underdeveloped, backward … whatever.

Consider an example of two countries, say AB1 and AB2. The economy of each is divided into two parts, as explained above. Within AB1, the two parts are A1 and B1; within AB2, the two parts are A2 and B2. For the reasons described, B1 and B2 are economically much closer to each other than A1 and A2 are to each other. This makes it possible for B1 and B2 to collude and exploit A1 and/or A2, as the need arises.

B-networks

To keep the gravy-train rolling, the basic code of behavior of the B-types is: Whatever it takes. There is no other morality or ethic underlying their behavior.

You say 500,000 children may die? So what?

You say a region must be bombed back to stone-age? So what?

You say negative interest rates rob savers? So what?

Friction and resistance here and there

A simple point missed by the B-types is this: Healthy, normal human beings of whom the B-types have no understanding resent being denigrated, insulted, exploited or manipulated.

To make one’s way in the B-world, one has to eradicate from oneself any trace of normal, healthy human tendencies. Otherwise, one would face daily conflicts between what is right and what one must do to survive in B. Since leaving the B-world is not an option for most B-types, the only way to survive is by quenching any sense of right and wrong. It is no surprise, therefore, that B-types do not understand the feelings of the rest of their countrymen. The two are practically strangers.

As understanding spreads around the world, evidence of friction and struggle is seen here, there and everywhere. Reaction of the B-types verges on the hysterical. That is not surprising because, after all, their much-trumpeted – no pun intended! – way of life is being questioned.

B-types’ lack of understanding has huge implications, calling to mind the famous lines of Robert Burns:

The best-laid schemes o’ mice an’ men 

Gang aft agley,

An’ lea’e us nought but grief an’ pain,

For promis’d joy!

That’s where things seem to be poised rather precariously, Dear Reader, at this crucial juncture in the ever-unfolding story of mankind’s search for happiness on Planet Earth.

 

 

 

 

 

 

 

Taxes or Debt?

Economists define ‘the wealth of a society’ as its total stock of useful assets – homes, cars, buildings, roads, factories, cattle, money, gold … et cetera. Let us call this definition D1.

A definition serves merely as a starting point for a logical exploration of related ideas. However – and necessarily – the direction which the exploration takes depends on the definition. In any discussion of ideas, a  conscious effort is needed to understand how it is influenced by the definitions of its basic terms.

Continue reading Taxes or Debt?

Response to the Bank Chairman

The Chairman of a large global bank recently gave a TV interview about the state of the world economy [1]. Not surprisingly, the Chairman gave what was intended to be a sound and learned justification for a world order characterized by barrier-less trade.

However, the justification came out as being utterly sophomoric in its quality. That is to say, it was not too different from how a privileged undergraduate might argue in a college debate. Only the mannerisms were different – the uncle spoke, not the nephew or the niece. Continue reading Response to the Bank Chairman

From Barter to Debt: A Brief History

[In which the brilliant deductive techniques of Sherlock Holmes are applied to the origins of debt, currency and the debt-linked economy.]

  1. BACKGROUND

Imagine the simple human economic life of about five thousand years ago, based on the production and exchange of the necessities of life. If one family has a surplus goat, say, and another family has surplus wheat, then both would benefit by making an exchange — so much wheat for a goat. Economically, the exchange would make excellent sense, because it would leave everyone better off. Continue reading From Barter to Debt: A Brief History

A FALSE DUALITY

Our species today has a total headcount of some 7.6 billion, spread all over the unique and beautiful planet Earth. The species originated a few hundred thousand years ago in a region of the great continent of Africa. In this evolutionary ‘blink of an eye’, heroic individuals and groups of our species have migrated to the remotest parts of the planet − overcoming in the process innumerable and enormous challenges and adversities. Continue reading A FALSE DUALITY

Gutless Wonders

The English word ‘gut’ is rich in its range of meanings. In Biology, ‘gut’ means ‘intestine’ – as in ‘gut bacteria’ or ‘gutting a fish’; this meaning extends to the racquet strings used in sports such as tennis and badminton. In common usage, ‘guts’ refers to ‘courage’, as in ‘having the guts to take on the huge challenge of _______’ (fill in your favourite). Continue reading Gutless Wonders

Homo Implacatus

People often wrongly interpret the process of natural selection – which drives the evolution of living species – by the phrase ‘survival of the fittest’. However, the latter phrase can be highly misleading – for two reasons. One reason is that ‘survival’ may be wrongly understood as ‘survival of an individual’, whereas the correct understanding should be ‘survival and continuation of a species’. The second reason is that a criterion of ‘fitness’ is left unspecified in the second phrase. If these two potential errors are avoided, ‘survival of the fittest’ can be brought into agreement with ‘natural selection’. Continue reading Homo Implacatus