The one world government people at the world economic forum are at their game of misleading the world again. In their recently published article titled 3 reasons why consumer demand matters for the post-COVID-19 recovery they are again displaying their ignorance of economic science. The article says,
Consumer spending is the engine of the economy, accounting for about two-thirds of economic activity and underpinning the roadmap for businesses to invest and plan.
This emphasise on consumer spending/demand for post-Covid recovery is an age-old Keynesian fallacy. As I have discussed time and again in my past articles, consumer demand is not an engine of the economy. This whole analogy of economy as some kind of machine or a car, whose engine is spending, is completely false. Economy is a very complex organic natural system and not a machine or a car which government is driving in one direction. Economy and society consist of individuals who are following their own goals which goes in different directions. We all are not part of some car or bus in which we all are sitting and going in the same direction towards which the government wants to take us. We all are sitting into our own cars and going into our own directions. When government tries to steer us into one direction which they have decided for us, they create huge problems for all of us. As F A Hayek said,
The more the state “plans” the more difficult planning becomes for the individual.
And as the classical economist John Stuart Mill so aptly demonstrated in his fourth proposition of capital, there is an inherent antagonism between consumer spending and business investing. Economies grow via prior production, saving (producing more than one’s consumption/spending) and investing those savings wisely in accumulating physical and human capital. This process is the engine (sic) of any economy and its growth. Not consumption. In fact, consumption will reduce our future income because by consuming more we save less and that means less resources are available for investment and capital accumulation. It is the use of the capital, both human and physical, that increases our production capacities making more consumption possible in future. We human beings live our lives in a time dimension where we have to decide how much we want to consume in present and how much in future. And as the first principle of economics tells us, there is an inherent trade off between these two choices. If we decide to consume more in present then we cannot consume more in future and vice versa. It is not possible to spend more in present and expect higher future income i.e., economic growth or recovery from recession induced by the mindless lock downs of governments under the excuse of Covid pandemic. World economic forum is the headquarters of these kinds of lock down policies. The left liberal ideology people who are running that institution cheered the lock down in their recent tweet, which they will have to remove later on because of public uproar, because they thought this lockdown is going to make our cities green and tackle climate change!
In the very same article they also said,
On the flip side, there was a rise in household savings. In a typical recession, savings rates rise by a few percentage points and remain elevated for several years during the recovery. This was the case during the Great Recession when US household savings grew by almost seven percentage points over five years as households paid down their mortgages and the credit card debt accumulated before 2008. Yet in 2020, the savings rate spiked by 18 percentage points in less than six months, causing aggregate savings of US households in 2020 to climb to almost $3 trillion – more than double 2019 savings.
This means the COVID-19 recession was dominated by the collapse in consumer spending and the rise in savings, making the consumer more important than ever as a trigger for investment decisions and achieving economic recovery.
Instead of understanding why people increase their savings during recession, world economic forum people just blame that saving for reducing spending and consumption causing recession. This again is a typical Keynesian fallacy. Saving is not responsible for the recession. Lock downs are responsible. Because of lock down all the production process were halted and that is what caused the economic slowdown.
The reason why people save during recession is because they are not sure about the future so to counter any future uncertainty people save. Animals also do the same thing when they face future uncertainty. And this uncertainty is created by the very same people who are running the world economic forum. Pandemic and following mindless lock downs created this uncertainty. And remember this increased saving is what brings the economy out of recession in future. Spending has nothing to do with recovery. Once lock downs are over, production processes will be back online and that will take us back to pre-Covid economy slowly.
Apart from recession induced by lock downs, the bigger question of recession and depression induced by years of loose monetary policy of central bankers is still pending. We are staring at the greater depression.
5 thoughts on “Is Consumer Spending Key to post-Covid Recovery?”
I can’t speak much for the world, but it’s hard to have hope for India, if you support capitalism. In my state, they already have started enforcing Lockdowns. This time for 2 weeks. And the local media in my state are preaching that it’s not enough. And the MSM too preach the same thing. Even if there is going to be a protest in India, it certainly isn’t for less governmental intervention, it is rather for more (the farmers protest in Delhi is an example). Atleast in places like USA, Brazil, Canada, Australia etc. people protested against Lockdowns. And in the USA, according to a research (forgot which one), the vast majority of people don’t believe in the MSM. But in India, it’s the opposite. One silver lining when it comes to India is that if people do oppose the government, they do it in a quiet manner and not openly. The only hope for India is rather breaking up of India, whether based on religious lines or linguistic lines, I don’t know. But I think mostly on linguistic lines. The only hope for an individual who live in India is to leave it. Anyways, good article.
left has won there is no chance we can fight with them , everyone is leftist now
There is always a chance. Nothing remains forever. As far as I can see, states are in their end stages.
Dr. Madhusudan, I request you do to an analysis of MGNERGS. It is such a compelling scheme that even its critics cite only implementation problems and not an idea-problem. Jean Dreze , a developmental economist, had proposed this scheme and now he is advocating for an urban equivalent of the scheme. Keynesians have touted this scheme to increase aggregate demand. Is this employment-guarantee scheme really a good idea and it only suffers from implementation problems. It is very hard to argue against such a welfare scheme. Thank You.
THERE IS A NEW INDIAN ROPE TRICK AND IT IS CALLED NMP !
NMP is a privatisation and disinvestment,via an operating and/or financial lease.The purpose is NOT to raise funds – as else,the idle/surplus/loss making assets could have been quarantined, in a SPV and sold off,or a JV partner brought in.The purpose is NOT to improve efficiency,as else the assets could have been transferred to a toll operator on a pure O&M Contract (SO NO LEASE CHARGES),with a bonus for INCREMENTAL EFFICIENCY.
The Purpose of the NMP,is also NOT to cut staff costs,as the GOI is the owner of the asset,and so,the staff cost is a sunk cost – who will remain a burden on the GOI,or take a VRS,or hopefully die over the lease tenor.
The Purpose of the NMP,is NOT to increase bank credit,as banks would lend better to a SPV, which had ownership of the asset.W/o an asset, a bank will lend on Balance sheet and Guarantees of Promoters of the operating lessee – wherein THERE WILL NO MORTAGEABLE SECURITY.Banks cannot possess the GOI ASSET, if the lessee goes bust.Of Course,a new lessee can step in – but if the first lessor could not make a profit on the asset,the reasons for the losses,are beyond redemption.
The lessors will obviously make a neat profit (for the NON-MANUFACTURING AND NON PRODUCTION ASSETS – like Roads,Hydro,Bridges,Stadiums etc.,) with the aid of bank leverage, and on the expiry of the lease period,will buy the asset – after a ICB.By then,the banks would have assessed,tested and appraised the technical and managerial competency of the lessor – and so.the Banks and PEs etc.,will easily fund the acquisition.In the alternate the GOI could takeover over the property and land developments (to collect the rentals etc.or do another lease of the same) by the lessor (after the lease expiry) , and just hand over the core toll asset to a ICB Buyer.
The Manufacturing assets leased under the NMP,(like Thermal Power plants etc.) will become junk in 20 years and also technically obsolete,and so the GOI will have no use in its repossession – except to set up a refurbished plant and sell of the surplus land.In 20 years,the land used for the same manufacturing capacity will fall by at least 50%,and so that surplus land will be windfall to the GOI,and the GOI will be glad to let the lessor acquire the plant and take a bank loan to refurbish it.
The 1st Purpose of the NMP,is to SELL the asset BUT BY NOT CALLING IT A SALE – in law.If they had sold the asset,they would receive a MUGH HIGHER Valuation – but that has a huge POLITICAL COST and the CONTINGENCIES OF TIME.
The 2nd Purpose of the NMP,is to MONETISE THE LAND associated with the asset,w/o SELLING THE LAND,and outsourcing this SCAM,to a private person,so that the GOI is free of the taint and scams in the land monetisation.For example, in a toll road,the jackpot will come in the property development/promotion/adverisement/drive in theatres/malls etc.,on the land on the ROW of the Road,and other areas.If the GOI does it,there will be scams – and so,it is outsourced to the private party – who will make a killing,as his tenor is 25 years,and the GOI is getting a Pay down on Day 1 (with no comparable benchmark).The same applies to GOI stadiums,libraries,buildings,Railway stations…………………The core driver of the monetisation streams is the LAND (even for ports).
The 3rd Purpose of the NMP,is to provide a risk free lending option to Indian Banks,as the Banks are lending to the GOI,VIA THE OPERATING LEASE LESSOR (as the bank will fund a part of the lease payment to the state).If the lessee defaults,some other lessor will step in.
The 4th Purpose of the NMP,is to provide an option to the banks to BLOAT the Bank Balance Sheet,TO REDUCE THE NPA %
The 5th Purpose of the NMP is to circulate credit across the supply chain of these revived moribund assets – in the hope that some money flows to the NPA entities – so that they repay the loans.
The 6th Purpose of the NMP,is to boost the fiscal revenues of the GOI,as new business streams will be created across the supply chain – but more importantly,the leased assets
were with the GOI,in non taxable units or loss making units.Now with these assets in a lessee entity – the lessee will run the assets to make a profit – and that will be taxed,w/o any tax shelters,as the assets were constructed some time ago.
The 7th Purpose of the NMP is to use 5% of the Cash raised to do a VRS and kick out all the GOI staff on the leased assets – with an option to them,to ne hired by the lessee.
If this Titanic sails,then next will be the surplus Military and CAPF land – which will be worth USD 100 Billion at the minimum
In essence,a road or a port,post operations,can be run better by a private lessee ONLY BY CUTTING COSTS AND IMPROVING OPERATIONAL EFFICIENCIES.But this incremental PROFIT by the lessee cannot JUSTIFY the NMP UPFRONT PREMIUM.The PREMIUM IS justified ONLY by UNLOCKING THE POTENTIAL OF THE LAND COMMERCIALISATION AND PROPERTY DEVELOPMENT OF THE LAND AND PROPERTY USP, EMBEDDED IN THE GOI ASSET.
The GOI may be able to Unlock the embedded land value,on its own – but that will come with scams – and so,it is OUTSOURCED -wherein the netas will pull all the strings – but the axe will fall on the lessee.
Indian Duds do not realise that GOI does not care for GOI jobs,or Quotas in Jobs.There is no money for these fantasies.That India died with the Chaiwala as PM.dindooohindoo
India is the ONLY Nation in the world,which HAS USED COVID as an OPPORTUNITY,to do an NMP,Privatise Ports,and raise GST and ED,on Fuels and Edible oils – for its fiscal management, which would have been UNTHINKABLE,IF COVID were not there !