RBI Overheating India’s Economy: On Materialist Greed Fueling Ceaseless Consumerism

A phenomenon as massive as the global coronavirus pandemic, which ran from 2020 to 2022, is bound to have major economic ripple, or wave, effects in its wake. India’s record high 9.2% growth of GNP in the 2023-2024 fiscal year illustrates the robust thrust of pent-up demand met with increased supply. To the extent that consumption over savings is the norm in any economy, a couple years off can subtly recalibrate economic mentalities to a more prudent economic mindset wherein saving money is not so dwarfed by spending it. Moreover, putting the brakes on a consumerist routine and societal norm can theoretically lead to putting the underlying materialism in a relative rather than an absolute position and thus in perspective. Yet such a “resetting” must overcome the knee-jerk instinct of any habit to restart as if there had been no change. Coming back to college, for example, after a summer away, students tend to pick up their respective routines right away as if the recent summer were a distant memory. India’s astonishing rate of economic growth just after the pandemic demonstrates that the penchant for consumerism and economic growth as a maximizing rather than satisficing variable returned as if the steeds in Socrates’ Symposium—only those horses represent garden-variety eros sublimated to love of eternal moral verities, to which Augustine substituted “God.”

The full essay is at "RBI Overheating India's Economy."

A Strong State vs.The Market Mechanism in China

Under Marxist ideology, the Chinese economy was a command-and-control economy eschewing the market mechanism. Mao's collective farms provide us with a good example. The economy of the U.S.S.R., also Marxist, was based on production quotas and fixed prices. They changed by fiat rather than by changes in demand. State owned, or socialist, productive enterprises were given quotas based on the prior year's production (plus more). This push replaced that of producing more to sell more. Any hint of a market brought with it the stench of Capitalism. So one would suppose that China marked a significant departure when the government announced in 2013 that it would expand the range in which the yuan currency would float. Yet in 2019 in the midst of a trade tussle with the United States, the Chinese state demonstrated just how dominant the state still was relative to any market system.  

The reforms incorporating the market mechanism had begun under Deng Xiaoping. Although publicly-owned and state-owned-enterprises still dominated, they were set within a market economy. The mix of government-owned (i.e., socialist) businesses and a market mechanism has been uneasy in practice. Private or partially-privately owned enterprises could find it difficult to compete with competitors subsidized by the state. Widen the circle to international trade and foreign private enterprises could be found having the same complaint. Of course, the domestic and foreign consumers stood to benefit by the subsidized lower prices, so assessing the existence of state-owned enterprises is more complex than first meets the eye. In part, this is so because governments tend to emphasize the interests of business rather than consumers.  

The United States, for example, has protested against the Chinese government devaluing its currency. A low currency means that exports are less expensive in exported markets.  The complaint has been that "a weak yuan gives Chinese exporters an unfair price edge in foreign markets and helps swell the massive U.S. trade deficit with China."[1] In the face of the trade dispute with the U.S. in 2019, China promised in August "to avoid 'competitive devaluation' to hold down export prices in the face of of Trump's tariff hikes."[2] However, the yuan's low point of 7.0927 on August 23, 2019 was the currency's weakest rate since January 2008.[3] The heavy hand of the central bank could easily dominant market forces because the bank set the exchange rate every morning and let the yuan fluctuate only 2% against the dollar during the day. 

Interestingly, the Chinese government had announced in 2013, "The exchange rate is going to be more market-oriented" [4] People's Bank of China Vice Governor Yi Gang made this statement on a panel at the International Monetary Fund’s 2013 spring meeting in Washington. In other words, “China's central bank plans to widen the yuan's trading band in the near future," he said.[5] This meant that China's leaders would "press ahead with change despite the surprise slowing of the economy."[6] On the surface, this shows that the "Communists" were really serious about moving closer to a market economy. At a deeper level, this shows just how much power the government still had over its economy--power that could be used to restrict the market in service to state objectives. In the literature of international political economy, the Chinese government would be classified as a strong state because it could resist external pressure. By contrast, six years later, the U.S. Federal Reserve would lower a key interest rate due to political pressure from the White House, where concerns of a possible recession in 2020 were intensifying. The weak state classification could also explain the accumulating federal public debt (i.e., the failure to resist pressures to tax less and spend more). 

From a big-picture perspective, balance or equilibrium in the global economy is in everyone’s financial interest. Keeping a currency artificially low is like a dam keeping waters from reaching a balance. The pressure from the held-up water can be expected to destabilize the global economy. China’s policy to gradually let the yuan’s value be market-determined was thus taken to be a prudent step. However, American frustrations on state subsidies and a low yuan in 2019 suggest that the Chinese government rather than the market mechanism was still very much in control of the Chinese economy. 

1. Joe McDonald, "China Let Its Currency Sink to an 11-Year Low After Trump's Trade Threats," Time Magazine, August 26, 2019. 

2. Ibid.

3. Ibid.

4. Natasha Brereton-Fukui and Bob Davis, “China Vows Wider Yuan Movement,” The Wall Street Journal, April 17, 2013.

5. Ibid.

6. Ibid.

Essays on the E.U. Political Economy: Federalism and the Debt Crisis

The collection of essays comprising The E.U. Political Economy looks broadly at the E.U.'s federal system, with particular attention to the states, including the matter of "Brexit," which refers to the secession of Britain from the Union. The text then turns more narrowly to the government-debt and banking crisis that occurred in the wake of the financial crisis of 2008. The backdrop of federalism is meant to convey the point that weaknesses in that political system hampered the E.U.'s handing of its states and banks that were in trouble with debt. Lastly, several essays are presented on some more general aspects of the E.U.'s political economy. Rather than being heavily theory-oriented, the essays draw on contemporaneous news reports to quote from practitioners from business and government.

Essays on the E.U. Political Economy is available at Amazon.

Banks Too Big To Jail: A Systemic Conflict of Interest

When a blatant conflict of interest is ensconced in a regulatory system, the public can expect to be insufficiently protected from being harmed. Such a people is probably too tolerant of such conflicts, or else too weak to effectively counter the concentrated power of the vested interests benefitting from the sordid design. I submit that the relationship between U.S. banks and the Federal Reserve is plagued by a clear conflict of interest, and furthermore that the refusal of the Fed and the U.S. Justice Department to go after fraud committed at the big banks is a direct result.

The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.

The Bank of Japan’s Quantitative Easing: An Unnatural Imbalance

On October 31, 2014, the Bank of Japan made public its policy of buying larger amounts of government debt—80 trillion yen ($734 billion) a year—so as to stimulate the economy.[1] The Nikkei 225-stock index average rose almost 5 percent that day, while the yen fell to its lowest level against the dollar since the preceding month. In effect, investors and analysts were factoring in the likely stimulatory impact on the economy and the inflationary implication of more yen relative even to the expanded output, respectively. Put another way, the lower yen suggests that any strengthening of the currency from higher economic output would be more than countered by the weakening impact of inflation. Interestingly, not even the likely boost to exports from the cheaper yen was expected by the market participants to give the stimulus the edge in pushing the currency higher rather than lower.

 

I submit that the central bank’s strategy is suboptimal in terms of the mission to stabilize the currency on account of the risk of an inflationary spiral. The imprudence, or imbalance in favor of stimulus, stems from another imbalance wherein exaggerated fears of deflation are allowed to eclipse the common-sense notion that periods of deflation naturally go alone with there being periods of inflation. The problematic mentality, I contend, can be understood in terms of a wave function wherein only the half of each wave above the base line are permitted. Such a policy goes against the nature of a wave function to spend as much time below the line as above it. In monetary terms, price stability is thwarted in favor of an inflationary bias.

 

I suspect the root of the problem involves a failure to distinguish between moderate, or cyclical deflation and the severe, ruinous kind. The lack of balance involved in resolutely shutting off even low deflation after years of inflation can resonate into an economy being out of balance. That is to say, the imbalance can expand like a ripple in a pond—a ripple being of course a natural wave function of ups and downs rather than only ups. Perhaps applying principles of natural science to macroeconomics might help central bankers in their task to maintain price stability.

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[1] Jonathan Soble, “Japan’s Central Bank Unexpectedly Moves to Stimulate Economy,” The New York Times, October 31, 2014.