Some are born great (like Harry Potter). Others have greatness thrust upon them. It seems that President Obama is falling into the latter category. He probably knew something of this sort was coming when he ran for the Presidency. He might not have accounted for how much he would need to rise to meet the challenge. The title of the blog suggests a question which I am in no position to answer. So I’d rather illustrate why the question seems important.
I’ve seen politics in the UK and India but nowhere has it been as polarized as in the US; at least when it comes to serious things. That the tea party, with vocal supporters of default can actually exert considerable influence in the decision making is alarming. While its most likely that default will be averted in the eleventh hour, the very fact that it took that much of give and take to reach a consensus pushes me to ask the question I did. Democracies are strong because they involve people. Any policy made is the result of a consensus and hybridizes ideas of different parties. Yet when faced with obstinate parties and unwavering ideologies: the core of any consensus, “compromise” is lost. That is a divided house. It’s a place where people start caring more about their beliefs and ideologies. Not about the house and the nation.
On the other hand there is the President. He is the elected representative, indirectly chosen by the people to lead them. To prevent concentration of power he is subject to the legislators on Capitol Hill. At times, he has the luxury of exemplary support in both houses. Else he executes the policies of the Federal government by engaging with the hill. His personality, charisma and power are crucial to the enabling of consensus. Several American presidents’ present precedents on this matter, including Dwight Eisenhower (often poor relations with Congress) and Ronald Reagan (exhausted the Soviets). In this case however, President Obama clearly is not able to break deadlock. He might be able to cajole his own party to accept cuts in social policies. He cannot get the G.O.P house speaker, John Boehner to accept closure of tax loopholes, let alone rises. Boehner in turn is under pressure from the conservative right to concede not an inch of ground. The democrats too refuse to concede deep cuts in a bloated and inefficient social service. Clearly if every party is to have their way a default is inevitable. A default will be terrible. It will spark partial government shutdown, quickly depreciate the dollar, increase cost of borrowing, and bump up actual cost of living. It will jeopardize the American and Global economy. Eventually as the American people get affected Congress will undoubtedly act. It would then be too little too late.
What the president must remember is that while Congress will be to blame, it is a body of 535 people. Eventually, they are responsible to their constituent which consists of a couple of million; at most. The president on the other hand is an individual directly responsible to the nation; vested with enormous authority to act in its interest. Congress might be paralyzed by the powerful weakness of democracies: indecision. That is why the executive exists. It is time for the president to do something truly presidential, if he can.
Showing posts with label economy. Show all posts
Showing posts with label economy. Show all posts
Thursday, July 28, 2011
Monday, July 18, 2011
Dont stop at the Debt limit
Defenitions:
Rich-top 20%
Middle-40-60%
Poor- bottom 20%
This post closely follows my last post, both in chronology and essence. Right now D.C is fighting a sharply divisive battle to extend the Federal debt limit. Failure to do so will mean partial U.S default, a drop in confidence in the US dollar and bonds. Bad news for America! The crux of the issue is the means to decrease government deficit to prevent further escalation of the debt limit. De-escalation of the wars and reduced spending on the US military is a partial given. I mean you could squabble on whether to keep one extra aircraft carrier or not but that’s just about it. The military spending of the United States as a percent of GDP is the same as that of a China. So ideally unless China is secretly going bankrupt, this spending seen disjointed from the whole problem should not be of major concern.
Social services are a different ball game. The entire healthcare system accounts for 38%-45% of the entire government spending and 16% of GDP. Private audits as well as most senators would agree that the system lacks in efficiency. During the general economic growth of the US, it would seem money was merely pumped into the system without any concerted effort to increase efficiency. So your doctor gets paid so much more than doctors elsewhere. On the flip side despite being the wealthiest country in the world, the United States suffers from one of the most inequitable distribution of wealth. The GINI coefficient which is a measure of income inequality paints a sad picture. Inequality in the states is worse than most of Asia, Africa and far worse than most of Europe. So when you cap the tax for the richer sections of the society you get far less revenue from taxation than you would in a country with a better wealth distribution. The logical argument has been that giving this financial freedom to the wealthy allows them to reinvest in the economy. This ensures prudent investment, better management of wealth and smaller/efficient government. Something’s going wrong though. This is a theory.
A Forbes survey (1) actually does a pretty good job of highlighting how Americans make and spend their money. Crucially you’ll observe that rich Americans do not spend the highest as a percent of their income on most things. Where they do the difference is only marginal. True, even a small percentage will have high value but so will the difference of the saving they have, compared to the poor and middle class. The question is what happens with these savings. Unsurprisingly a lot is in investment but where? In nations like India and China, banks offer a far higher rate of interest and then use the public money to do the investing. This has an advantage of ensuring the money is invested in the domestic market. Banks have an incentive to stimulate local markets to ensure their own growth. America however seems to be suffering from a flight of capital. High net value individuals seem to be investing more and more in better appreciating economies. Often even if the investment is directed to American companies, the investment is eventually pumped overseas. The fact is that as economic polarization continues (and that is irrefutable) a vast amount of the investment being made is offshore restricting US job growth, further polarizing wealth. A vicious cycle.
Another significant investment the rich in America make is in the luxury market. This can cover anything from Gulfstream jets to Mansions. The market value of these products may be high, but the positive economic impact is far less; depth wise. Simply, if the money was split and invested in other development ventures more people would've been helped. The problem maybe, that America is getting too successful. At least a section is. They chose to fund the lives and the activity of the many others. Doing so they have created a complacent workforce on a global back foot. Now as the rich choose to shrug of this responsibility and the political guns go off like loose cannons, careful planning is again ignored. Question I want to ask is how do you make sure Americans invest in their country again? How do you improve the competitiveness of existing industry and spawn new ventures to attract new investment. For now, the grand bargain is essential. No single avenue can generate enough saving to create a definite impact on debt. So increase taxes for now and look for investment patterns amongst the rich before relaxing them again. As for Medicare/aid well really you cant do much because of the insurance companies.
Thing is you can solve this problem multiple ways with strong leadership. The best way may be to incentivize the rich to invest locally. Use a part of that to modify healthcare and spawn new industry via research. Play forces of corporate insurance payers against insurance companies. Play inventors and entrepreneurs against overseas investment. Importantly try to hasten the global flattening. Promote a more equitable economy by selective reduction of social services. Divert the savings to tertiary education and saving. Promote STEM, making graduates valuable to industry as well as research. Essentially: force skill into the workforce by denying benefits to the uncompetitive but providing support to ensure upward mobility. I accept the fact that eventually India and China will become as rich as the United States, maybe even per capita wise; someday. What I cannot agree with is that the American economy must fall for them to rise.
(1) http://www.forbes.com/2006/07/19/cx_de_americanspending_11.html?thisSpeed=35000
Rich-top 20%
Middle-40-60%
Poor- bottom 20%
This post closely follows my last post, both in chronology and essence. Right now D.C is fighting a sharply divisive battle to extend the Federal debt limit. Failure to do so will mean partial U.S default, a drop in confidence in the US dollar and bonds. Bad news for America! The crux of the issue is the means to decrease government deficit to prevent further escalation of the debt limit. De-escalation of the wars and reduced spending on the US military is a partial given. I mean you could squabble on whether to keep one extra aircraft carrier or not but that’s just about it. The military spending of the United States as a percent of GDP is the same as that of a China. So ideally unless China is secretly going bankrupt, this spending seen disjointed from the whole problem should not be of major concern.
Social services are a different ball game. The entire healthcare system accounts for 38%-45% of the entire government spending and 16% of GDP. Private audits as well as most senators would agree that the system lacks in efficiency. During the general economic growth of the US, it would seem money was merely pumped into the system without any concerted effort to increase efficiency. So your doctor gets paid so much more than doctors elsewhere. On the flip side despite being the wealthiest country in the world, the United States suffers from one of the most inequitable distribution of wealth. The GINI coefficient which is a measure of income inequality paints a sad picture. Inequality in the states is worse than most of Asia, Africa and far worse than most of Europe. So when you cap the tax for the richer sections of the society you get far less revenue from taxation than you would in a country with a better wealth distribution. The logical argument has been that giving this financial freedom to the wealthy allows them to reinvest in the economy. This ensures prudent investment, better management of wealth and smaller/efficient government. Something’s going wrong though. This is a theory.
A Forbes survey (1) actually does a pretty good job of highlighting how Americans make and spend their money. Crucially you’ll observe that rich Americans do not spend the highest as a percent of their income on most things. Where they do the difference is only marginal. True, even a small percentage will have high value but so will the difference of the saving they have, compared to the poor and middle class. The question is what happens with these savings. Unsurprisingly a lot is in investment but where? In nations like India and China, banks offer a far higher rate of interest and then use the public money to do the investing. This has an advantage of ensuring the money is invested in the domestic market. Banks have an incentive to stimulate local markets to ensure their own growth. America however seems to be suffering from a flight of capital. High net value individuals seem to be investing more and more in better appreciating economies. Often even if the investment is directed to American companies, the investment is eventually pumped overseas. The fact is that as economic polarization continues (and that is irrefutable) a vast amount of the investment being made is offshore restricting US job growth, further polarizing wealth. A vicious cycle.
Another significant investment the rich in America make is in the luxury market. This can cover anything from Gulfstream jets to Mansions. The market value of these products may be high, but the positive economic impact is far less; depth wise. Simply, if the money was split and invested in other development ventures more people would've been helped. The problem maybe, that America is getting too successful. At least a section is. They chose to fund the lives and the activity of the many others. Doing so they have created a complacent workforce on a global back foot. Now as the rich choose to shrug of this responsibility and the political guns go off like loose cannons, careful planning is again ignored. Question I want to ask is how do you make sure Americans invest in their country again? How do you improve the competitiveness of existing industry and spawn new ventures to attract new investment. For now, the grand bargain is essential. No single avenue can generate enough saving to create a definite impact on debt. So increase taxes for now and look for investment patterns amongst the rich before relaxing them again. As for Medicare/aid well really you cant do much because of the insurance companies.
Thing is you can solve this problem multiple ways with strong leadership. The best way may be to incentivize the rich to invest locally. Use a part of that to modify healthcare and spawn new industry via research. Play forces of corporate insurance payers against insurance companies. Play inventors and entrepreneurs against overseas investment. Importantly try to hasten the global flattening. Promote a more equitable economy by selective reduction of social services. Divert the savings to tertiary education and saving. Promote STEM, making graduates valuable to industry as well as research. Essentially: force skill into the workforce by denying benefits to the uncompetitive but providing support to ensure upward mobility. I accept the fact that eventually India and China will become as rich as the United States, maybe even per capita wise; someday. What I cannot agree with is that the American economy must fall for them to rise.
(1) http://www.forbes.com/2006/07/19/cx_de_americanspending_11.html?thisSpeed=35000
Bringing America up to speed.
This blog has been long in the writing. Life’s actually getting very busy and challenging for me, in the serene city of Columbus, OH. The story starts though in a far more tropical and bustling metropolis of Bangalore, India. It was summer and keeping with Indian summers I was perspiring like crazy as I walked around with Nandan Nilekani, co-founder of Infosys in their Bangalore corporate campus. To the uninformed, Infosys along with corporations like TCS and Wipro accept 3.32 million jobs(1) outsourced and off-shored from the United States alone. Mr. Nilekani described Infosys as a catalyst of efficiency streamlining business processes and generating huge profits for American businesses and shareholders. He also said, given the relative lower labor costs and high technical proficiency in India and some other places, outsourcing is here to stay. I’ll take his word on that. For one thing, outsourcing strengthens globalization and enhances equitable distribution of wealth. Both of these are progressive traits that have only got stronger over vast swathes of commercial history. To counter these forces would be regressive and defeatist considering a comprehensive global economy is fast becoming a reality and maybe even a necessity. Now why are most countries benefiting while a few losing out a lot? Why do the streets of Greece resemble a third world nation while the world’s only superpower talks about default? (If you already know a lot about the recent depression just skip to the fourth paragraph)
Post World War 2, America experienced an economic boom fueled by demand, industrial growth and innovation. A lot of these were a fall out of post war reconstruction and emergence of new markets in former colonies. Despite intermittent recessions, American economy flourished and innovators across fields created new products and services; IT was one of them. Outsourcing and off shoring became business practices and American corporations found a new competitive edge and profit generator: low cost! As both India and America enjoyed the mutual benefits of the IT miracle people were missing the obvious. It’s a simple question that comes from an equally simple observation. India and America are so differently placed economically. Americans enjoy a far higher standard of life than what most Indians could hope for. Why?
Maybe it’s the fact that America is rich in oil, gold and all those precious stuff under the ground. Think again; the last time mining was economically significant well.. was a long time ago. Manufacturing has remained stable value wise but jobs just haven’t grown a lot (I’ll blame China and better productivity technology for that). So maybe Americans were going to college studying hard and coming out with specialized technical degrees? And if that were not true then America really has no reason to remain where it is and will lose wealth to others. It’s as simple as that: you have money as long as you have something I want to buy. Now say if you really don’t have the cash but still want to live the American dream of a nice house and car and stuff. Well if you’re the only one that’s cool with the USA. But say there are millions like you and people who’ll bend the rules to get you what you want but can’t afford. The rest is the story of the 2008 Economic Depression. The scary part of this depression was that it redefined outsourcing and off-shoring. As companies started losing money they cut back on jobs like they always do. They also moved jobs to cheaper places. Companies actually used their own offices and employees in India and Philippines to do the same stuff well educated Americans would do but for more than triple the cost.
A college degree was no longer a safeguard against outsourcing. To illustrate, imagine someone had upped the ante on what constituted ‘outsourcable’. The result is a pool of qualified young people as well as non-collegiate workforce without jobs in the time of a recession. While the American economy will be able to accommodate many of the qualified ones the problem is far deeper. In the next five years, if more people go to college and get technical degrees and outsourcing continues (which it will) then the existing industries would still be unable to hire a large number of these people. The reason comes back to my argument (para 3). If America does not do things differently from the rest of the world it will continue to lose wealth. Guess how many Indians, Asians, Latin Americans, East Europeans and Africans are going to college to get the technical degrees you’re trying to get? True a lot of their colleges aren’t nearly as good as yours but as the average job description of specialists goes for now: their colleges are good enough. So unless you are something different (smart researcher or inventor often called niche employee) you’re in for a race just like the kids in Asia. If you don’t care and look forward to the social security check you’re fine as long as you’re the only one with that brainwave. But you won’t be.
All’s lost? Well not really because economics has a nice law that comes as an analogue to Murphy’s Law. It goes like this: If you really work hard for something opportunity will present itself. Essentially as a corollary to my argument if Americans do something differently that can make a difference. So say a new industry is created in the United States much like IT and computers were, it will need human resource. This is the question that is of so much focus in certain circles of this country. Will there be a new Bill Gates or Steve Jobs who can create a new industry. More importantly will it happen in America because even as I type I know of at least five other countries in a race technologically to research and create those industries? The winner gets the patents and the chance to build the industry with their own people tandem to American economic interests.
Fortunately America remains the largest spender on research for now. If biomedical is to be the next thing then the National Institute of Health (NIH), the NSF and other agencies are doing their bit. American universities still manage to attract bright brains and sometimes keep them. The strategy must be to keep as much of this human talent and increase public and even private spending in these research which can stimulate new industry. Investment banks which have now slowly returned to profit must take startups seriously. Till (If) these solutions make a concrete impact on the economic scene this country needs to do as much as retooling of its people as possible. National debt needs to be addressed and social programs adjusted. Taxes as well must be put under the scanner as there is no one right way to address the deficit. In this mixed approach there will be bruised parties but that can be easily addressed with strong leadership. So strong leadership then.
Note: Statistics is limited however most sources are from the Federal Labor and Statistics bureau
Post World War 2, America experienced an economic boom fueled by demand, industrial growth and innovation. A lot of these were a fall out of post war reconstruction and emergence of new markets in former colonies. Despite intermittent recessions, American economy flourished and innovators across fields created new products and services; IT was one of them. Outsourcing and off shoring became business practices and American corporations found a new competitive edge and profit generator: low cost! As both India and America enjoyed the mutual benefits of the IT miracle people were missing the obvious. It’s a simple question that comes from an equally simple observation. India and America are so differently placed economically. Americans enjoy a far higher standard of life than what most Indians could hope for. Why?
Maybe it’s the fact that America is rich in oil, gold and all those precious stuff under the ground. Think again; the last time mining was economically significant well.. was a long time ago. Manufacturing has remained stable value wise but jobs just haven’t grown a lot (I’ll blame China and better productivity technology for that). So maybe Americans were going to college studying hard and coming out with specialized technical degrees? And if that were not true then America really has no reason to remain where it is and will lose wealth to others. It’s as simple as that: you have money as long as you have something I want to buy. Now say if you really don’t have the cash but still want to live the American dream of a nice house and car and stuff. Well if you’re the only one that’s cool with the USA. But say there are millions like you and people who’ll bend the rules to get you what you want but can’t afford. The rest is the story of the 2008 Economic Depression. The scary part of this depression was that it redefined outsourcing and off-shoring. As companies started losing money they cut back on jobs like they always do. They also moved jobs to cheaper places. Companies actually used their own offices and employees in India and Philippines to do the same stuff well educated Americans would do but for more than triple the cost.
A college degree was no longer a safeguard against outsourcing. To illustrate, imagine someone had upped the ante on what constituted ‘outsourcable’. The result is a pool of qualified young people as well as non-collegiate workforce without jobs in the time of a recession. While the American economy will be able to accommodate many of the qualified ones the problem is far deeper. In the next five years, if more people go to college and get technical degrees and outsourcing continues (which it will) then the existing industries would still be unable to hire a large number of these people. The reason comes back to my argument (para 3). If America does not do things differently from the rest of the world it will continue to lose wealth. Guess how many Indians, Asians, Latin Americans, East Europeans and Africans are going to college to get the technical degrees you’re trying to get? True a lot of their colleges aren’t nearly as good as yours but as the average job description of specialists goes for now: their colleges are good enough. So unless you are something different (smart researcher or inventor often called niche employee) you’re in for a race just like the kids in Asia. If you don’t care and look forward to the social security check you’re fine as long as you’re the only one with that brainwave. But you won’t be.
All’s lost? Well not really because economics has a nice law that comes as an analogue to Murphy’s Law. It goes like this: If you really work hard for something opportunity will present itself. Essentially as a corollary to my argument if Americans do something differently that can make a difference. So say a new industry is created in the United States much like IT and computers were, it will need human resource. This is the question that is of so much focus in certain circles of this country. Will there be a new Bill Gates or Steve Jobs who can create a new industry. More importantly will it happen in America because even as I type I know of at least five other countries in a race technologically to research and create those industries? The winner gets the patents and the chance to build the industry with their own people tandem to American economic interests.
Fortunately America remains the largest spender on research for now. If biomedical is to be the next thing then the National Institute of Health (NIH), the NSF and other agencies are doing their bit. American universities still manage to attract bright brains and sometimes keep them. The strategy must be to keep as much of this human talent and increase public and even private spending in these research which can stimulate new industry. Investment banks which have now slowly returned to profit must take startups seriously. Till (If) these solutions make a concrete impact on the economic scene this country needs to do as much as retooling of its people as possible. National debt needs to be addressed and social programs adjusted. Taxes as well must be put under the scanner as there is no one right way to address the deficit. In this mixed approach there will be bruised parties but that can be easily addressed with strong leadership. So strong leadership then.
Note: Statistics is limited however most sources are from the Federal Labor and Statistics bureau
Tuesday, June 22, 2010
Getting around on a flat world
This blog is based on the book, The World is Flat, written by Thomas L. Friedman. I’m going to write on his ideas and what it means for people like me; young college going students of India.
The first question I had when I came across this topic was pretty obvious. What does someone mean by, “The World is flat”. I still remember my first grade teacher showing us a globe. She wouldn’t have been bluffing, would she? So that’s how Mr. Friedman hooked me to read the book. I read it because the title made me curious.
The world is flat, as Friedman explains, because “Globalization today empowers, enables and enjoins individuals and small groups to go global so easily and seamlessly”. Thing about it! How many things can you do today, which only major corporations could do a decade or so ago? Building a website, sharing information through voice and text with millions, interacting and communicating across the world are some. You can do all this today because they are essentially free, thanks to the internet. The playing field has been leveled and the global world; flattened.
One of the few new effects of this is outsourcing. India has benefited tremendously from this courtesy the new jobs flowing in. It doesn’t end here. Remember I said in the previous paragraph how individuals are being empowered. This has led to dynamic new ideas and innovations being born and put into business. On both worlds, both new and old (America and Eurasia) individuals are cutting into the growing pie of the global economy.
Friedman’s book fails to mention a recession because it occurred much later. No matter. The recession is a bump, a speed breaker to check the progress we are so rapidly making. The zenith of IT for example was after the DOT COM bubble (more info) burst.
The point that is coming to a clear focus is this. In the new age, there will be two ways to succeed. A mass of people mostly in the developing nations will start doing the work the developed nations had assigned to their workforce. These people will start working for a better standard of life. The other way will be occupied by those in the developed economies,(or even quick growers in the developing sphere) who learn to be more than a professional. They would require being great adapters, explainers, collaborators, leveragers, passionate and good networkers. They will need to create new ideas and make them marketable or offer something that makes them indispensable to a global supply chain. They have the power to do this, thanks to the internet.
Right now no one is completely certain where the developed world is heading next. We are at the brink of a revolution in industry and business, akin to the industrial revolution. Remember all those workers who were left jobless when the machines came to work? That’s kind of where we are right now. The workers starved initially and then as they accepted the machines, they changed their skill set to become operators. In the economic boom that followed, new companies bought more machines, needed more workers and prosperity ensued.
This is what we should be heading for. A world where an individual will have the power to affect his economic destiny; through collaboration with others like him.
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