(Don’t know who wrote this but its interesting read.)

Ten years ago, America had Steve Jobs, Bob Hope and Johnny Cash. Now it has no Jobs, no Hope and no Cash. Or so the joke goes.

Only, it’s no joke. The line is pretty close to reality in the US. The less said about Europe the better. Both the US and Europe are in decline. I was asked by a business channel in 2008 about recovery in the US. I mentioned 40 quarters and after that I was never invited for another discussion.

Recently, another media person asked me the same question and I answered 80 quarters. He was shocked since he was told some “sprouts” of recovery had been seen in the American economy.

It is important to recognise that the dominance of the West has been there only for last 200-and-odd years. According to Angus Maddison’s pioneering OECD study, India and China had nearly 50 percent of global GDP as late as the 1820s. Hence India and China are no t emerging or rising powers. They are retrieving their original position.

The dollar is having a roller coaster ride at present.

In 1990, the share of the G-7 in world GDP (on a purchasing power parity basis) was 51 percent and that of emerging markets 36 percent. But in 2011, it is the reverse. So the dominant west is a myth.

Similarly, the crisis. It is a US-Europe crisis and not a global one. The two wars – which were essentially European wars – were made out to be world wars with one English leader commenting that ‘we will fight the Germans to the last Indian’.

In this economic scenario, countries like India are made to feel as if they are in a crisis. Since the West says there’s a crisis, we swallow it hook, line and sinker.

But it isn’t so. At no point of time in the last 20 years has foreign investment – direct and portfolio – exceeded 10 percent of our domestic investment. Our growth is due to our domestic savings which is again pre dominately household savings. Our housewives require awards for our growth not any western fund manager.

The crisis faced by the West is primarily because it has forgotten a six-letter word called ‘saving’ which, again, is the result of forgetting another six letter word called “family”. The West has nationalised families over the last 60 years. Old age, ill health, single motherhood – everything is the responsibility of the state.

When family is a “burden” and children an “encumbrance,” society goes for a toss. Household savings have been negative in the US for long. The total debt to GDP ratio is as high as 400 percent in many countries, including UK. Not only that, the West is facing a severe demographic crisis. The population of Europe during the First World War was nearly 25 percent and today it is around 11 percent and expected to become 3 percent in another 20 years. Europe will disappear from the world map unless migrants from Africa and Asia take it ov er.

The demographic crisis impacts the West in other ways. Social security goes for a toss since people are living longer and not many from below contribute to their pensions through taxes. So the nationalisation of families becomes a burden on the state.

European work culture has become worse with even our own Tata complaining about the work ethic of British managers. In France and Italy, the weekend starts on Friday morning itself. The population has become lazy and state-dependent.

In the UK, the situation is worse with drunkenness becoming a common problem. Parents do not have control over children and the Chief Rabbi of the United Hebrew Congregation in London said: “There are all signs of arteriosclerosis of a culture and a civilisation grown old. Me has taken precedence over We and pleasure today over viability tomorrow.” (The Times: 8 September ).

Married couples make up less than half (45 percent) of all households in the US, say recent d ata from the Census Bureau. Also there is a huge growth in unmarried couples and single parent families (mostly poor, black women). Society has become dysfunctional or disorganised in the West. The government is trying to be organised.

In India, society is organised and government disorganised. Because of disorganised society in the West the state has to take care of families. The market crash is essentially due to the adoption of a model where there is consumption with borrowings and no savings. How long will Asian savings be able to sustain the western spending binge?

According to a recent report in The Wall Street Journal (10 October 2011), nearly half of US households receive government benefits like food stamps, subsidised housing, cash welfare or Medicare or Medicaid (the federal-state health care programmes for the poor) or social security.

The US is also a stock market economy where half the households are investors and they have been hit hard by bank and corporate failures. Even now less than 5 percent of our household financial savings goes to the stock market. Same in China and Japan.

Declining empires are dangerous. They will try to peddle their failed models to us and we will swallow it since colonial genes are very much present here. You will find more Indians heading global corporations since India is a very large market and one way to capture it is to make Indian sepoys work for it.

A declining West is best for the rest and also for the West, which needs to rethink its failed models and rework its priorities. For the rest-like us-the fact that the West has failed will be accepted by us only after some western scholars tell us the same. Till then we will try to imitate them and create more dysfunctional families.

We need to recognise that Big Government and Big Business are twin dangers for average citizens. India faces both and they are two asuras we need to guard against. The Leftists i n the National Advisory Council want all families to be nationalised and governed by a Big State and reform marketers of the CII variety want Big Business to flourish under crony capitalism. Beware of the twin evils since both look upon India as a charity house or as a market and not as an ancient civilisation.


Chasing the dragon


How the Asian superpowers compare on various measures of development
IN THE recent Singapore Grand Prix, a car belonging to the Force India team reached the finish line just 111 seconds after the leader. Todays chart uses a stopwatch to compare Indias progress in development against another pace-setter, China. The chart shows the number of years that have elapsed since China passed the development milestones that India has now reached. Indias income per head, for example, was about $3,200 in 2009 (holding purchasing power constant across time and between countries). China reached that level of development nine years ago. The lag in social progress is much longer. A childs odds of surviving past their fifth birthday are as bad in India today as they were in China in the 1970s. Moreover, the chart does not necessarily imply that India in nine years time will be as rich as China is today. That is because China grew faster in the last nine years than India is likely to grow over the next nine. We stopped the clock at $3200 per head. But China did not stop racing ahead.

Originally at http://www.economist.com/blogs/dailychart/2011/10/comparing-india-and-china

The 10th anniversary of 9/11 has been somber. The so-called war on terrorism has not ended in US victory. True, the US has not suffered any repeat attacks since 9/11: its homeland security has been very effective. Osama bin Laden and many of his lieutenants have been killed. Al-Qaida has been defanged and is disliked even across the Muslim world.

Yet the US has failed in Afghanistan and suffered huge losses of men and money in Iraq. Terrorism is more widespread globally than 10 years ago. India is a major victim, as exemplified last week by the bomb explosion at the Delhi High Court.

US analysts of 9/11 have tended to focus on military and nation-building failures in Iraq and Afghanistan. Yet, arguably the biggest impact of 9/11 has been economic. It has been a major, though neglected, contributor to current US woes, adding greatly to other causes of the Great Recession of 2007-09- a housing bubble, financial boondoggles and monetary bungling.

In 2008, Joseph Stiglitz and Linda Bilmes produced a book, The Three Trillion Dollar War: The True Cost of the Iraq Conflict. Their estimates included indirect costs like higher oil prices and long-term medical costs for injured soldiers. At the time, critics flayed the $3 trillion estimate as grossly inflated. But Stiglitz claimed recently that the cost might approach $6 trillion, given that US troops remain in Iraq and Afghanistan with no end in sight. In hard cash, the US still spends $12 billion per day.

The end of the Cold War had fed US delusions of being the sole superpower. But its economic fragility had already been exposed by record trade deficits (which it blamed on Chinas currency manipulation). Never in history has a superpower run huge trade deficits. Never in history has a superpower had a household savings rate of zero.

Wars are expensive and usually financed by high taxes. But George Bush actually cut taxes. Meanwhile, the housing bubble induced an unprecedented borrowing spreehousehold savings fell from 8% of GDP to almost zero. Bush created additional Medicare benefits, and Obama recently added to these in his healthcare reforms.

The Great Recession showed, dramatically, that the US could no longer afford the combination of low taxes, low savings, high welfare benefits and foreign wars. Absent the trillions spent in foreign wars, the US economy may have recovered quickly. But the war on terror doomed it financially. US government debt to outsiders has soared from 40% of GDP to 67 %, and further to 98%, including gilts held by US agencies like the social security system.

Economist Michael Boskin says in a Wall Street Journal op-ed that federal spending (25% of GDP), the budget deficit (10 % of GDP) and federal debt (67% of GDP) are all at their highest levels since World War II. The proportion of employed citizens (58.1%) is the lowest since 1983. The proportion of long-term unemployed (59%) is the highest since the 1930s. The proportion paying income tax (49%) is the lowest in modern times. The proportion getting government handouts (47%) is the highest in history.

This chilling portrait illustrates the length and depth of the Great Recession. Yet its travails could have been avoided, or greatly diminished, without the huge costs of war after 9/11. Left-wing critics of US imperialism have been as blind as instinctive imperialists like Dick Cheney in seeing the US as a superpower that can flatten all opponents. Both the left and right have ignored the financial mess behind the superpower faade.

Osama bin Laden was stupid indeed in thinking that by attacking the World Trade Center he would hit US trade, and that by hitting the Pentagon building he would hit US military capacity. He thought the US had proved in Somalia and Lebanon that it had no stomach for military casualties, and so could be attacked with impunity. He never foresaw that the US would react so strongly to 9/11.

More important, neither he nor others foresaw that the US reaction to his attack would gradually sink the US into financial quicksand. True, Osama required immense help in this endeavour from George Bush– his war on Iraq was inane. Yet, remember that the US politicians across the spectrum supported the Iraq war, and did not call for higher taxes to finance the war. Myopia and hubris were not Bush monopolies.

So, on the 10th anniversary of 9/11, Osamas ghost can smile even as his body sleeps with the fishes. Through unseen financial consequences, he has hurt and humiliated the infidel superpower more than 9/11 did.

SA Aiyar
11 September 2011, 02:28 AM IST
Originally at http://blogs.timesofindia.indiatimes.com/Swaminomics/entry/10-years-on-a-victory-osama-didn-t-plan-for

%d bloggers like this: