Tuesday, May 23, 2017

Economix - Comics about Economics

For anyone who’s interested in understanding economics and has been put off by the tedious, drab style of the curriculum books -  this book “Economix” is a great resource. It traces the history of economics in chronological order from the point of evolving of the banking system to the present day. It minces no words in calling out what the “economics” and the economists of today over-look and how they are still stuck over debating the ideas of the 70s. However, it is U.S centric but it more or less covers all economic policies which were practiced and how they fell apart. Someone who’s dedicated enough can use the references made throughout the book to read and understand in more detail how the economic policy has been shaped up.

Overall, it is a very informative book – one which definitely deserves a second reading. It also has a very cool site with latest policies like Trumpcare explained via comic strips.

I noted key things while reading the book – sharing them here below. Do read. It’s interesting.

It starts with how banking system originated in the Netherlands and the origin of Laissez-Faire. Then moves on to how Adam Smith’s The Wealth of Nations left a deep impact over economists. Personally, I liked this quote from Adam Smith which is a pure economic view stripped of any emotions.

It is not from the benevolence of the butcher, the brewer and the bakes that we expect our dinner but from their regard to their own interest.

In Smith’s economy (free economy), market itself figured out what people wanted and how to get it to them most efficiently. As per Smith, in a free market, capitalists compete for workers which raises wages. However, Smith had the foresight to see the danger to the free market principle – the capitalists could trick the govt. into doing them favor.

Then it talks about the famous essay by Malthus – The Principle of Population which gave rise to the Malthusian theory which is very conservative. In brief, it means that the food production grows arithmetically while the population increases geometrically.

As we reach the Industrial Revolution mark it turns to how the Communist Manifesto came about and how in Russia different form of Communism sprang about (Vladimir Lenin). Here although it does call out why there was a need felt for such an ideology. As Industrial Revolution went about – it became evident that political power goes hand in hand with economic power.

The govt. helped the rich by -
i)              Tariffs that kept competition out
ii)             Immigration policies that let more workers (cheap foreign labour) in.
iii)           Land policy that let mining, logging and ranching business use public land for almost nothing
iv)           Foreign policy that pushed American businesses abroad.

It came as a surprise to me that Lenin’s New Economic Policy was kind of a mixed economy. He let small businesses run without too much interference and letting farmers keep what they grew and sell it. Rather, he controlled the “commanding heights” of the economy – Heavy industry, banking and mining. But when Stalin took charge of the whole economy (1920s), small farmers lost their land to big collective farms.

Post WW2 media was censored and T.V took place of newspapers. The news was sensitized as to not anger the advertisers which was the source of money. In fact, Dwight Eisenhower warned about the military establishment nexus with a large arms industry.
T.V advertising turned out to be a great asset for the propagation of Capitalism – Relentless advertising creates the want i.e. persuading people feel that they need that item.
This is how it works -
·      advertising creates a want in us for the product.
·      We buy the product to satisfy the want
·      By buying the product we provide money for more such advts. to be produced.

The Great Depression in the 1920s-30s marked a brief return of the Malthusian theory. However, Milton Friedman a big advocate of Laissez Faire returned to champion its ideas. Over the years it got distorted and followed the principle of Privatized Profits and Socialized Losses.

There’s a section called Revolt of the Rich which I found very apt and could see it playing out in today’s times too. This is what it basically says -
By the start of 1980s, the taxes were higher on the rich who started to propagate the idea that poor do not deserve tax breaks and govt. help. Since T.V was the new form of communication medium and it being in their control – this gained momentum. It is funny that the rich made the assumption that poor were lazy – as the two classes never had any interaction b/w them. Funding of think tanks and controlling of print and electronic media contributed to it. Then came the rise of neo-liberal economics (Milton Friedman) and idea of unregulated markets.
Reaganomics started and it promised –
i)              Smaller govt.
ii)             Balanced budgets
iii)           Less regulation
iv)           Tax cuts

As a result, tax rate fell benefitting the rich and big corporations massively. However, unlike his promise of balanced budgets – Reagan raised budget deficits due to increase in spending (military in particular).
In 1982-83, RR ended up increasing the taxes (bracket creep) not for the rich though. At this period of time, importance of Fed rose. Paul Volcker increased interest rates triggering a recession in an election year. Overall, due to increased deficit spending – national debt grew to unheard levels.

Since the rich also grew richer, they and Wall Street started to indulge in riskier practices i.e. junk bonds. Corporate raiders started lurking around. And to stave off them – companies started to focus solely on profit rather than other aspects of running a business like R&D, long term investments, workers benefits etc.
Profit margins were usually given a boost by mergers and layoffs. Thus, real wealth instead of bringing about more jobs and investment just reduced to paper wealth (i.e. balance sheet and stock).

The principle of bargaining for tax breaks and govt. subsidies gained momentum true to the idea of Privatized Profits and Socialized Losses.

Unlike the principle of laissez-faire, big banks were bailed out by the govt. when they were on the brink of failure. It prompted them to continue risky strategies as they figured govt. was always at their rescue. More risky financial instruments were created which were beyond the understanding of Nobel laureates let alone normal people.

By the time Reagan left, national debt was too high – the govt. had no money to spend thus leaving Reagan’s successors in a tight spot. The Cold War had also ended and U.S.S.R disintegrated. Healthcare became costly – insurers came into the picture and made matters worse. Inequality grew at a faster rate. Global warming accelerated and money power tightened its hold on politics. Internet arrived in this time – helping de-criminalize the power of big companies. It levelled a bit the playing field.

Globalization phenomenon drove business models. Third-world workers were employed in pitiable conditions to make goods they could never afford. WTO gained notoriety as it seemed to turn a blind eye to such practices. Finally, the Internet bubble burst when hype couldn’t match the reality.

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