Archive for September, 2009

From today’s Economic Times

September 30, 2009

From an AP story printed on page 18:

The wealthiest 10% of Americans-those making more than $138,000 each year-earned 11.4 times the roughly $12,000 made by those living near or below the poverty line in 2008, according to newly released census figures. […]

Median income fell last year from $52,163 to $50,303, wiping out a decade’s worth of gains to hit the lowest level since 1997.

Rs 48.12 per USD from the same paper.  Yesterday’s close price.  So $138,000 works out to Rs 6,640,560 per year.  Roughly 6.5 million rupees a year.  Or 65 lakhs.  Their poverty line, $12,000 works out to Rs 577,440 or Rs 5.77 lakhs a year.  Rs 10 lakhs a year=Rs 1,000,000 a year=$20,781 a year.

Things to do:  Find out the modal income in the US, in India, compare.

The one in the many

September 25, 2009

Saving and investment are expost equal.  No, in fact they are one.  The real social correlate of both saving and investment are one.  The act of abstension on one man’s part frees up resources that can be used to increase output in the future.  It is the productive consumption of these resources, along with machines produce output that can be further productively consumed.  The cycle goes on-reproduction of the self and others over time.  Until one dies.

Production and consumption, at least for 60% of the time (remind me to look up the exact figure for world services) are coinstantaneous, are part of the same social reality.  They refer to the same social phenomenon.  Think of haircuts and massages.  One man’s consumption is another man’s production.  They are one.

The production boundary between intermediate and final consumption is indeterminate.  My consumption of this laptop may be viewed as essential consumption so that I can return to work at IHS on Monday.  My final consumption can be looked at as intermediate consumption for IHS output.  These two are one.

Some chicken and egg type questions

September 18, 2009

Do women like gold because it is precious, or is gold precious because women like it?

Do people like Hollywood movies because it’s all they’ve seen, or are Hollywood movies so popular because people like them?

From Rosa Luxemburg

September 16, 2009

The Accumulation of Capital

Section 1 The Problem of Reproduction

1 THE OBJECT OF OUR INVESTIGATION

Karl Marx made a contribution of lasting service to the theory of economics when he drew attention to the problem of the reproduction of the entire social capital. It is significant that in the history of economics we find only two attempts at an exact exposition of this problem: one by Quesnay, the father of the Physiocrats; at its very inception; and in its final stage this attempt by Marx. In the interim, the problem was ever with bourgeois economics. Yet bourgeios economists have never been fully aware of this problem in its pure aspects, detached from related and interesting minor problems; they have never been able to formulate it precisely, let alone solve it. Seeing that the problem is of paramount importance, their attempts may all the same help us to some understanding of the trend of scientific economics.

What is it precisely that constitutes this problem of the reproduction of total capital? The literal meaning of the word ‘reproduction’ is repitition, renewal of the process of production. At first sight it may be difficult to see in what respect the idea of reproduction differs from that of repitition which we can all understand-why such a new and unfamiliar term should be required. But in the sort of repitition which we shall consider, in the continual recurrance of the process of production there are certain distinctive features. First, the regular repitition of reproduction is the general sine qua non of regular consumption which in its turn has been the precondition of human civilisation in every one of its historical forms. 

Sugar

September 16, 2009

1 kg Parry’s white sugar Rs 35/-.

Labour & Leisure

September 15, 2009

When I said the line between labour and leisure is getting increasingly blurred, what I meant was that I labour at a computer with keystrokes and clicks, and in my leisure time find myself doing pretty much the same thing.  Whether I’m surfing porn, or writing this blog, my actions are immediately and habitually mediated by electronics.  If there ever was a trend, it is this: the increasing presence of silicon.  Couple this with the tendency to store, record, and archive even the minutest transactions in out lives, and what do we have but a vision of a solid state economy.  1984?

Who? Whom?

September 14, 2009

As far as I know, the accounts for the household sector are derived residually, though in advanced economies the penetration of data gathering may be more.  For instance, credit card companies, amongst themselves, have a lot of data on household purchases, creditworthiness (permanent income), and life insurance companies have their data.  We could credibly imagine, between the tax return, the credit card, the bank account, the insurance company, building up a pretty good account of the household finances.  That would be the income or profit and loss statement.  Then all we need is a balance sheet.  There, there are a few stock (pun intended) items.  Residence, car, piano, etc.  There you are-a household balance sheet.

Closed systems

September 13, 2009

It is much easier to do the math for a closed system such as the world.  The planet as such has no external deficit.  All exports and imports are contained within its regional accounts.  What with increasing globalisation and all, it may not be such a bad idea to pull up accounts for this closed system.

Here I would have two sectors, households and governments.  The private sector will have been pushed back to the household sector.  All companies are owned by a subset of households.  Similarly, all assets are held by households (except government assets).  All private financial institutions are ultimately held by households.  We could then trace the effect of new money creation on the household sector.  Wouldn’t it be the most?

@ Indian Investor IV

September 8, 2009

Indian Investor Says:
September 8, 2009 at 6:31 pm | Reply   edit

Suppose you look at the financial status of a country in terms of its external financial transactions – exports result in forex inflows, imports result in forex outflows, there’re reserves in forex and there would be external debt. Add in the inflows and outflows of capital on the capital account. An ordinary person’s finances can be studied through income, expenses, savings and debt. You can also study the finances of a country through the above flows.
Since the sovereign can enforce settlement of transactions within its territories through legal tender currency; the theoretical upper limit on government spending is the level that’s tolerable while still ensuring solvency of the country from an external finance perspective.
Excessive government spending resulting in higher imports, high reliance on external debt, etc are situations that lead to a balance of payments crisis.
To make a short point of it, if the Government of India wants to stimulate development through spending on useful public works, they need to correspondingly limit imports of oil, etc. Or else you get a 1991-style balance of payments crisis, also called a currency crisis. That’s what Zimbabwe, Iceland, South Korea, etc went through recently – the bubble burst triggered an external finance solvency problem that caused their currency to collapse.

 

What seems to me patently obvious is that a country’s external trade cannot be its defining or sustaining paradigm.  India was quite content to be a source and not an importer for several centuries.  It is only  a poorly endowed nation like Britain which takes to trade as a livelihood.  We can imagine autarky on the Indian subcontinent for long swatches of time.  Anyway the import content of ordinary life in India would be minimal for long stretches of time.

I would like to study a normal person’s (as well as an institution’s) financial health by recourse to its balance sheet (what assets does it have? what liabilities ? what is its net worth?) and its income statement (What did he earn, what did that cost him? What did he save?)

In addition, I would like to look at the flow of funds accounts, which tell me how the saving done that year was disposed of, into what real projects and into what onlending.  This is where the debt you mentioned comes in.

The external debt of a nation is just a subset of the liabilities side of the international investment position (IIP) statement.  It gives a one sided view of the external situation.  The assets side is included in the other half of the IIP.  The IIP is the financial account of the BOP (Balance of Payments) amplified for holding gains and other changes in value.  The IIP articulates with the BOP.  The BOP articulates with the National Income and Product accounts, which in turn articulate with the Flow of Funds accounts.  The Flow of Funds gives the total picture.

Government spending

September 7, 2009

The theoretical upper limit of government spending is the entire GDP of the nation.  This is what happens in command economies.