Here is a story from the treasure-trove of the Net. It is the month of August, on the shores of the Black Sea. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit. Suddenly, a rich tourist comes to town. He enters the only hotel, lays a 100 euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one. The hotel proprietor takes the 100 euro note and runs to pay his debt to the butcher. The butcher takes the 100 euro note, and runs to pay his debt to the pig-grower. The pig-grower takes the 100 euro note, and runs to pay his debt to the supplier of his feed and fuel. The supplier of feed and fuel takes the 100 euro note and runs to pay his debt to the town?s prostitute that in these hard times, gave her ?services? on credit. The hooker runs to the hotel, and pays off her debt with the 100 euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there. The hotel proprietor then lays the 100 euro note back on the counter so that the rich tourist will not suspect anything. At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 euro note, after saying that he did not like any of the rooms, and leaves town. No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism.
This is supposed to be a description of the global economy, especially US, today.? This is the festive season in India, with exchange of gifts.? If there is one pan-Indian festival, that happens to be Diwali.? Even if one ignores Dhanteras, in most parts of India, Diwali coincides with worship of Lakshmi, goddess of wealth.? Accordingly, it is the season for gambling, personal gifts, corporate gifts, dry-fruit and liquor sales, expenditure on fireworks and concentrated quarter for sales of consumer goods.? Estimates of consumption expenditure are no more than guesses.? If one ignores sales of retail consumer goods, one is probably talking about incremental consumption expenditure approaching Rs 10,000 crore. There is a story about Lakshmi being Bhrigu?s daughter.? However, more commonly, she emerged from the ocean and the ocean can be a metaphor for trade, with this Diwali signifying revival of India?s exports.? Let?s not forget elephants are identified with Lakshmi.? Before Diwali, central government public expenditure has been on white elephants and a certain state government public expenditure has been on black elephants, or their statues.? Both invoke multiplier benefits. ?No wonder Lakshmi?s transport is the owl, which is what Central and state governments make of citizens.
Keynes got credit for the multiplier concept.? Keynes never said anything about digging useless ditches and then filling them up to trigger employment creation.? That is Joan Robinson?s interpretation.? But even if Keynes had said that, he would have been beaten to the concept by Asaf-ud-daulah in 1783/4, who built Lucknow?s Bara Imambara as a famine-relief public works programme.? More interestingly, whatever was constructed during the day was destroyed at night, so that there could be incremental employment next day.? Scrutinised through indigenous historical lenses one understands nuances one misses out through Western lenses, such as why no productive assets are created under NREG.? For instance, Hindu rate of growth is believed to have been an off-the-cuff remark by Raj Krishna, suggesting tongue-in-cheek that there was something intrinsically Hindu about 3.5%.? However, 3.5% is more robust than that.? Hindu texts can be interpreted as recommending an overall savings rate of 16%.? This was essentially for private household sector.? Interpreted thus, we aren?t remarkably over that figure, with private corporate and public sectors excluded.? An ICOR of 4.5, then yields a growth rate of 3.6%.
If the savings rate is 16%, there must be triggers for consumption.?That?s precisely what these festivals do.? Unlike some other religions, Hindu festivals are spread throughout the calendar year, with only February and December relatively lean months.? This probably has to do with Hinduism?s evolution as an organised religion, with expenditure shifting from small household-based sacrifices to larger community-based public events, within and without temples.? Earlier, there were kings too. There aren?t any kings now.? So we are left with public expenditure (fiscal multipliers) and private expenditure (consumption multipliers).? The Economist recently ran a story titled ?Much ado about multipliers? and concluded, ?Fiscal multipliers will probably be lower in heavily indebted economies than in prudent ones. But policymakers looking for precise estimates are deluding themselves.?? That story was about fiscal multipliers.? We don?t want elephant-type fiscal multipliers to crowd out Diwali-type consumption multipliers by the owls.
?The author is a noted economist