Ravi Batra is an Indian American economist and a professor at the Southern Methodist University, in Dallas, Texas. Over the years Batra has made many predictions which have turned out right. He correctly predicted the fall of communism in USSR and at the same time said it would continue in China. He also predicted an enormous rise in wealth concentration in the United States that would generate poverty among its masses. These predictions were made way back in 1978 in his book The Downfall of Capitalism and Communism. These along with many of his political and economic predictions have come to be true over the years (for a complete list click here). Batra uses the Law of Social Cycle to make these predictions. On the basis of this law he now predicts the rise of the Team Anna political party. “Through long and painful fasting Anna Hazare has captured the attention of people, and finally decided to form a political party. Indians will indeed vote for him or the candidates he supports,” says Batra. Batra is the author of many bestselling books like The Crash of the Millennium, The Downfall of Capitalism and Communism, Greenspan’s Fraud and most recently The New Golden Age. In this interview he speaks to Vivek Kaul.
What is the law of social cycle?
The law of social cycle was pioneered by my late teacher and mentor, Shri Prabhata Ranjan Sarkar. It can be explained in a variety of ways. Let’s start with a simple observation. A careful examination of every society reveals that there are three possible sources of political power –the army, popular ideas, or money.
Could you explain that through an example?
For instance, if we carefully explore the political landscape of our world, we find that in places like the United States, Western Europe, Canada, India, Australia and Japan, money rules society and super-materialism prevails. In places like Iran, the priesthood is dominant with control over religious ideas, whereas in Russia former intelligence officers such as the ex-KGB chief, Vladimir Putin among others, hold the reigns. In China, the communist party is supreme but the ultimate source of political power is the military, which established the party’s rule in a Marxist revolution in 1949. The Tiananmen Square massacre of 1989 clearly illustrates this point. When the Chinese government faced a serious challenge to its authority, it is the army that restored order in the country and crushed the opposition to the communist rule?
So what does this suggest?
This suggests that there are three main sources of political power—the military, human intellect, and, of course, money or wealth. Religion may also bring power, but priests dominate society by mastering scriptures and rituals. In other words, they also utilise their intellect to control and influence people. Thus, ultimately political power or societal dominance stems from three sources—physical strength or skills, human intellect or intellectual skills, and the hoarding of wealth. As a result, through the pages of history, we find that a society is sometimes dominated by warriors, sometimes by intellectuals (including priests), and sometimes by acquisitors who are experts in making money. However, the law of social cycle goes a lot further than merely describing the three classes of people.
Could you explain that?
It analyses the evolution of civilizations and states that a society evolves in terms of a cycle wherein a nation is first dominated by a group of warriors, then by a group of intellectuals, and finally by a group of wealthy acquisitors. Then towards the end of the age of the wealthy, there is so much corruption and crime that people get fed up and revolt against the elite or the rulers, who are overthrown in a social revolution. Since it takes a lot of courage to revolt against the authorities, the successful revolutionaries are the true warriors, who start another warrior age and bring an end to the corrupt rule of money. This way the social cycle begins anew and moves along in the same succession of warriors to intellectuals to acquisitors and then to the social revolution.
That’s very interesting…
Historically, the warrior era has been represented by the rule of the army, and the intellectual era by the supremacy of the priesthood or prime ministers. By contrast, the eras of acquisitors have occurred when feudal landlords or wealthy bankers and merchants were dominant. Thus warriors come to power with the help of physical might, intellectual with the help of ideas, and acquisitors with the help of money.
Since when has this cycle existed?
The social cycle has existed since the birth of human society and its validity can be proved by written history and the logic of social evolution. For instance, in India, around the times of Mahabharata, warriors dominated society; then came the rule of brahmans or intellectuals, followed by the Buddhist period, when capitalism and acquisitors were predominant; this era ended in the flames of a social revolution, when a great warrior named Chandragupta Maurya, put an end to the reign of a king named Dhananand, and started another age of warriors. What is interesting is that India’s overwhelmingly powerful caste system, wherein the brahman is placed atop the social hierarchy followed by kshyatriyas, vaishyas and shudras, was not able to thwart the law of social cycle. There were times when in practice, though not in theory, the brahman accepted the supremacy of people belonging to other castes. During the Buddhist period, for instance, the vaishyas were treated with great respect. They were called shreshthis, meaning “superiors.” In today’s acquisitive age, of course, we clearly see the priest eagerly and humbly accepting money from the rich regardless of their caste.
What happened after Chandragupta Maurya?
Reverting to the cycle, the Mauryan age of warriors was followed by another age of intellectuals in which the kings themselves claimed to be brahmans. The latter period was followed by feudalism, representing the age of acquisitors. Later, the feudal landlords, sometimes called rajas, were overthrown by an illustrious warrior, named Samudra Gupta, who thus organised another social revolution against the rule of acquisitors. Some historians have called the Gupta king the Napoleon of India, because he destroyed the armies of a large number of landowners and brought the wealthy under control.
And the age of Samudragupta was followed by?
The Gupta warrior era gave way to another intellectual era in the 9th century, when a renowned ascetic named Shankracharya revived brahmanism and uprooted Buddhism from the land of its birth. Priests and prime ministers dominated again, but their influence waned in a few hundred years and gave way to another round of feudalism, which was followed by yet another age of warriors, this time under the rule of Muslim invaders. Thus began the Muslim warrior era during the 14th century and continued as the Mughal empire in the 15th. Akbar the Great was the most illustrious emperor of this age, which lasted for a while and then gave way to another intellectual era, this time under the dominance of Muslim priests or Ulemas, who held sway over the Mughal king Aurangzeb. Around these times the great warrior Shivaji founded the Maratha Empire, which, after his death, came under the influence of brahmans known as Peshwas. At the same time, the northern Mughal Empire came under the sway of its wazirs or prime ministers. Thus this Mughal-Maratha period was the latest era of intellectuals, which was followed by yet another era of acquisitors, when the British took over around 1800. India has been in this age ever since. Indians will indeed vote for him or the candidates he supports
So what is the point that you are trying to make?
The main point is that no class remains in power forever, and that the acquisitive age always ends in a revolution. Such was the case in all civilizations. In fact new revolutions are already taking place in the world. Muslim society, where Saudi oil wealth is the main source of power, is also in the age of acquisitors, as is much of the planet. Rebellions have already occurred in the Islamic nations of Tunisia, Egypt, Libya and Yemen, and now Syria is facing the same fate. The Syrians have shown admirable resolve, and even though unarmed or heavily outgunned they are revolting against their ruler, President Assad.
What about the current state of affairs in India?
Courage is contagious and gradually inspires the masses to fight tyranny. The wave of courage that has dethroned many Muslim rulers is now budding in India under the guidance of Shri Anna Hazare and Baba Ram Dev. The movements they have started are still in the early stage but such movements are likely to grow and ultimately succeed in their mission to rid the nation of political corruption, because the age of acquisitors is about to end around the globe. Who could have imagined just a few years ago that Egypt’s Hosni Mubarak and Libya’s Colonel Kaddafi would be overthrown by their people?
Yes you are right…
A revolution doesn’t occur overnight, but when it starts it engulfs the nation in a mighty wave that crushes the ruler. It is initiated by small groups that have been opposing corruption for a long time, and for a while it faces public apathy and even opposition, but when the right moment comes it ignites the people to decimate the elite. The current decade is likely to be the decade of revolutions that will consume the ruling classes around the planet. The revolutionary wave began in the Muslim world and it is bound to spread in all areas where the acquisitors are dominant, because remember that courage is contagious. India gained independence in 1947 and so did many other countries within a few years. The point is that when a revolutionary wave begins in one area, it unleashes a flood that engulfs the neighbours. The moment has arrived to dethrone the corrupt acquisitors, and someone has to seize the moment to feed this flame. Anna Hazare and Ram Dev are doing it and they deserve the support of moralists around the world.
But how do you see the current rule of wealth being overthrown in India?
The rule of wealth in India will end through the electoral process, because people will vote for those who vow to end corruption. Through long and painful fasting Anna Hazare has captured the attention of people, and finally decided to form a political party. Indians will indeed vote for him or the candidates he supports. Although, some of his followers will be unhappy with his decision to enter the political fray, this is the right thing to do. As Mahatma Gandhi demonstrated, fasting alone is not enough to achieve a desired goal. You also have to offer a concrete and credible alternative. The social revolution against the acquisitors has started in Muslim society and is slowly gathering steam in India and the United States. By the end of this decade, if not sooner, the age of acquisitors will be a thing of the past, and those with courage to oppose the elite will start a new age of warriors, because courage is the chief hallmark of a person of warrior mentality. Today, an acquisitor’s democracy prevails in most nations; in the near future it will give way to a warrior’s democracy, where money will not be needed to win an election.
So how do you see this new age that you are predicting?
During the Buddhist period preceding Chandragupta’s ascension kings were elected in some areas of north India. That was an example of warrior’s democracy wherein a person’s martial skills, not wealth, brought him the high office. Similarly, in the future a candidate’s military background could be important in his rise to power. Whoever brings about the new warrior age will also give birth to a new golden age.
(The interview originally appeared on www.firstpost.com on August 7,2012. http://www.firstpost.com/economy/raghuram-rajans-advice-isnt-what-upa-may-want-to-hear-410694.html)
(Vivek Kaul is a writer and can be reached at [email protected])
What Team Anna can learn from Nirma, Sony, Apple and Ford
The decision by Team Anna to form a political party has become the butt of jokes on the internet. A Facebook friend suggested that they name their party, the Char Anna Party and someone else suggested the name Kejriwal Liberal Party for Democracy (KLPD).
The jokes are clearly in a bad taste and reflect the level of cynicism that has seeped into us. Let me paraphrase lines written by my favourite economist John Kenneth Galbraith (borrowed from his book The Affluent Society) to capture this cynicism. “When Indians see someone agitating for change they enquire almost automatically: “What is there for him?” They suspect that the moral crusades of reformers, do-gooders, liberal politicians, and public servants, all their noble protestations notwithstanding are based ultimately on self interest. “What,” they enquire, “is their gimmick?””
The cynicism comes largely from the way things have evolved in the sixty five years of independence where the political parties have taken us for a royal ride. Given this the skepticism that prevails at the decision of Team Anna to form a political party isn’t surprising. Take the case of Justice Markandey Katju, who asked CNN-IBN “Which caste will this political party represent? Because unless you represent one caste, you won’t get votes…Whether you are honest or meritorious nobody bothers. People see your caste or religion. You may thump your chest and say you are very honest but you will get no votes.”
Former Supreme Court justice N. Santosh Hegde said “Personally, am not in favour of Annaji floating a political party and contesting elections, which is an expensive affair and requires huge resources in terms of funds and cadres.”
Some other experts and observers have expressed their pessimism at the chances of success of the political party being launched by Team Anna. Questions are being raised. Where will they get the money to fight elections from? How will they choose their candidates? What if Team Anna candidates win elections and start behaving like other politicians?
All valid questions. But I remain optimistic despite the fact that things look bleak at this moment for Team Anna’s political party.
I look at Team Anna’s political party as a disruptive innovation. Clayton Christensen, a professor of strategy at the Harvard Business School is the man who coined this phrase. He defines it as “These are innovations that transform an existing market or create a new one by introducing simplicity, convenience, accessibility and affordability. It is initially formed in a narrow foothold market that appears unattractive or inconsequential to industry incumbents.”
An excellent example of a home grown disruptive innovation is Nirma detergent. Karsanbhai Patel, who used to work as a chemist in the Geology & Mining Department of the Gujarat government, introduced Nirma detergent in 1969.
He first started selling it at Rs 3.50 per kg. At that point of time Hindustan Lever Ltd’s (now Hindustan Unilever) Surf retailed for Rs 15 per kg. The lowest-priced detergent used to sell at Rs 13.50 per kg. The price point at which Nirma sold made it accessible to consumers, who till then really couldn’t afford the luxury of washing their clothes using a detergent and had to use soap instead.
If Karsanbhai Patel had thought at the very beginning that Hindustan Lever would crush his small detergent, he would have never gotten around launching it. The same applies to Team Anna’s political party as well. They will never know what lies in store for them unless they get around launching the party and running it for the next few years.
Getting back to Nirma, the logical question to ask is who should have introduced a product like Nirma? The answer is Hindustan Lever, the company which through the launch of Surf detergent, pioneered the concept of bucket wash in India. But they did not. Even after the launch of Nirma, for a very long time they continued to ignore Nirma, primarily because the price point at which Nirma sold was too low for Hindustan Lever to even think about. And by the time the MBAs at Hindustan Lever woke up, Nirma had already established itself as a pan-India brand. But, to their credit they were able to launch the ‘Wheel’ brand, which competed with Nirma directly.
At times the biggest players in the market are immune to the opportunity that is waiting to be exploited. A great example is that of Kodak which invented the digital camera but did not commercialize it for a very long time thinking that the digital camera would eat into its photo film business. The company recently filed for bankruptcy.
Ted Turner’s CNN was the first 24-hour news channel. Who should have really seen the opportunity? The BBC. But they remained blind to the opportunity and handed over a big market to CNN on a platter.
Along similar lines, maybe there is an opportunity for a political party in India which fields honest candidates who work towards eradicating corruption and does not work along narrow caste or regional lines. Maybe the Indian voter now wants to go beyond voting along the lines of caste or region. Maybe he did not have an option until now. And now that he has an option he might just want to exercise it.
While there is a huge maybe but the thing is we will never know the answers unless Team Anna’s political party gets around to fighting a few elections.
The other thing that works to the advantage of disruptive innovators is the fact that the major players in the market ignore them initially and do not take them as a big enough force that deserves attention.
A great example is the Apple personal computer. As Clayton Christensen told me in an interview I carried out for the Daily News and Analysis (DNA) a few years back “Apple made a wise decision and first sold the personal computer as a toy for children. Children had been non-consumers of computers and did not care that the product was not as good as the existing mainframe and minicomputers. Over time Apple and the other PC companies improved the PC so it could handle more complicated tasks. And ultimately the PC has transformed the market by allowing many people to benefit from its simplicity, affordability, and convenience relative to the minicomputer.”
Before the personal computer was introduced, the biggest computer available was called the minicomputer. “But minicomputers cost well over $200,000, and required an engineering degree to operate. The leading minicomputer company was Digital Equipment Corporation (DEC), which during the 1970s and 1980s, was one of the most admired companies in the world economy,” write Clayton Christensen, Michael B Horn and Curtis W Johnson in Disrupting Class —How Disruptive Innovation Will Change the Way the World Learns.
But even then DEC did not realise the importance of the personal computer. “None of DEC’s customers could even use a personal computer for the first 10 years it was on the market because it wasn’t good enough for the problems they needed to solve. That meant that more carefully DEC listened to its best customers, the less signal they got that the personal computer mattered — because in fact it didn’t — to those customers,” the authors explain.
That DEC could generate a gross profit of $112,500 when selling a minicomputer and $300,000 while selling the much bigger ‘mainframe’ also didn’t help. In comparison, the $800 margin on the personal computer looked quite pale.
Another example is Sony. “In 1955, Sony introduced the first battery-powered, pocket transistor radio. In comparison with the big RCA tabletop radios, the Sony pocket radio was tiny and static laced. But Sony chose to sell to its transistor radio to non-consumers – teenagers who could not afford big tabletop radio. It allowed teenagers to listen to music out of earshot of their parents because it was portable. And although the reception and fidelity weren’t great, it was far better than their alternative, which was no radio at all,” write Christensen, Horn and Johnson. Sony went onto to come up with other great disruptive innovations like the Walkman and the CDMan. But did not see the rise of MP3 players.
The point is that incumbents are so clued in to their business that it is very difficult for them to see the rise of a new category.
So what is the learning here for Team Anna? The learning is that their political party may not take the nation by storm all at once. They might appeal only to a section of the voters initially, probably the urban middle class, like Apple PCs had appealed to children and Sony radios to teenagers. So the Team Anna political party is likely to start off with a limited appeal and if that is the case the bigger political parties will not give them much weight initially. Chances are if they stay true to their cause their popularity might gradually go up over the years, as has been the case with disruptive innovators in business. The fact that political parties might ignore them might turn out to be their biggest strength in the years to come.
Any disruption does not come as an immediate shift. As the authors write, “Disruption rarely arrives as an abrupt shift in reality; for a decade, the personal computer did not affect DEC’s growth or profits.” Similarly, the Team Anna political party isn’t going to take India by storm overnight. It will need time.
Business is littered with examples of companies that did not spot a new opportunity that they should have and allowed smaller entrepreneurial starts up to grow big. The only minicomputer company that successfully made the transition to being a personal computer company was IBM. “They set up a separate organisation in Florida, the mission of which was to create and sell a personal computer as successfully as possible. This organisation had to figure out its own sales channel, it had its own engineers, and it was unencumbered by the existing organization,” said Christensen.
But even IBM wasn’t convinced about the personal computer and that is why it handed over the rights of the operating system to Microsoft on a platter. Even disruptive innovators get disrupted. Microsoft did not see the rise of email and it’s still trying to correct that mistake through the launch of Outlook.com. It didn’t see the rise of search engines either. Nokia did not see the rise of smart phones. Google did not see the rise of social media. And Facebook will not see the rise of something else.
Team Anna is a disruptive innovation which can disrupt the model of the existing political parties in India. There are three things that can happen with this disruptive innovation. The Team Anna political party tries for a few years and doesn’t go anywhere. That doesn’t harm us in anyway. The Team Anna political party fights elections and is able to build a major presence in the country and stays true to its cause. That benefits all of us. The Team Anna political party fights elections and its candidates win. But these candidates and the party turn out to be as corrupt as the other political parties that are already there. While this will be disappointing but then one more corrupt political party is not going to make things more difficult for the citizens of this country in anyway. We are used to it by now.
Given these reasons the Team Anna political party deserves a chance and should not be viewed with the cynicism and skepticism which seems to be cropping up.
(The article originally appeared on www.firstpost.com on August 4,2012. http://www.firstpost.com/politics/what-team-anna-can-learn-from-nirma-sony-apple-and-ford-404843.html)
(Vivek Kaul is a writer and can be reached at [email protected])
‘US, India are now on the verge of a social revolution’
Ravi Batra is an Indian American economist and a professor at the Southern Methodist University in Dallas, Texas. Unlike most economists who are in the habit of beating around the bush, Batra likes to make predictions, and he usually gets them right. Among these was calling the fall of communism in the Soviet Union more than ten years before it happened. Batra is also the author of many best-selling books like The Crash of the Millennium, The Downfall of Capitalism and Communism, Greenspan’s Fraud and most recently The New Golden Age. In this interview he speaks to Vivek Kaul.
You are a great proponent of the Law of Social Cycle. What’s it all about?
In 1978, to the laughter of many and the ridicule of a few, I wrote a book called The Downfall of Capitalism and Communism, which predicted the demise of Soviet communism by the end of the century and an enormous rise in wealth concentration in the United States that would generate poverty among its masses, forcing them into a revolt around 2010. My forecasts are derived from The Law Of Social Cycle, which was pioneered by my late teacher and mentor Prabhata Ranjan Sarkar. Lo and behold! The Berlin Wall fell in 1989 and Soviet communism vanished right before your eyes. And in 2011, the United States witnessed the birth of a social revolt in the form of the ‘Occupy Wall Street Movement’, which opposes the interest of the richest 1% of Americans. The nation now has the worst wealth concentration in history.
So what is this law?
It is an idea that begins with general characteristics of the human mind. Sarkar argues that while most people have common goals and ambitions, their method of achieving them varies, depending on innate qualities of the individual. Most of us, for instance, seek living comforts and social prestige. Some try to attain them by developing physical skills, some by developing intellectual skills and some by saving and accumulating money, while there are also some with little ambition in life. Based on these different mentalities, Sarkar divides society into four distinct classes: warriors, intellectuals, acquisitors and labourers.
Can you go into a little more detail?
Among warriors are included the military, policemen, professional athletes, fire fighters, skilled blue-collar workers, and anyone who displays great courage. The class of intellectuals comprises teachers, scholars, bureaucrats, and priests. Acquisitors include landlords, businessmen, merchants, and bankers. Finally, unskilled workers constitute the class of laborers. The division of society into four classes based on their mentality and occupations, not heredity, is at the core of Sarkar’s philosophy of social evolution. His theory is that each society is first dominated by the class of warriors, then by the class of intellectuals, and finally by the class of acquisitors. Eventually, the acquisitors generate so much greed and materialism that other classes, fed up by the acquisitive malaise, overthrow their leaders in a social revolution. Then the warriors make a comeback, followed once again by intellectuals, acquisitors and a social revolution. This, in brief, is The Law Of Social Cycle.
That’s very interesting. Can you explain this through an example?
Applying this theory to western society, we find that the Roman Empire was the Age Of Warriors, the rule of the Catholic Church the Age Of Intellectuals, and feudalism the Age Of Acquisitors, which ended in a social revolution spearheaded by peasant revolts all over Europe in the 15th century. The centralised monarchies that then appeared represented the Second Age Of Warriors, which was, in turn, followed by another Age Of Intellectuals, this time represented by the rule of prime ministers, chancellors and diplomats. Since the 1860s the west has had a parliamentary rule in which money or the acquisitive era has been prevalent.
What about India?
India’s history is silent on some periods, but, wherever full information is available, the social cycle clearly holds. For instance, around the times of Mahabharata, warriors dominated society, then came the rule of Brahmins or intellectuals, followed by the Buddhist period, when capitalism and wealth were predominant; this era ended in the flames of a social revolution, when a great warrior named Chandragupta Maurya put an end to the reign of a king named Dhananand, and started another Age Of Warriors. Dhan means money and ananda means joy, so that dhan + ananda becomes Dhananda or someone who finds great joy in accumulating money, suggesting that the Mauryan hero overthrew the rule of greed and money in society.
How do you see things currently through The Law Of The Social Cycle?
Today, the world as a whole is in the Age Of Acquisitors, while some nations such as Iran are ruled by the clergy or their intellectuals. Russia is in transition from the warrior era to the era of intellectuals, while China continues in the Age Of Warriors, which was founded by Mao Tse Tung in 1949 after overthrowing the feudalistic Age Of Acquisitors in an armed revolution. As regards Iran, applying the dictum of social cycle, I foresaw the rise of priests or the Ayatollahs in a 1979 book called Muslim Civilization and the Crisis in Iran. For ten thousand years, the law of the social cycle has prevailed. Egypt went through three such cycles before succumbing to Muslim power. Muslim society as a whole is now in the Age Of Acquisitors. Some Muslim countries such as Saudi Arabia, Kuwait, Jordan, Pakistan, Malaysia and Bahrain are still in the acquisitive age, while some others such as Egypt and Libya have recently seen a social revolution and are in transition to the next age. The wheel of social cycles has thus been turning in all societies, albeit at different speeds; not once in human history was it thwarted.
Any new predictions based on this law?
The United States along with India are now on the verge of a social revolution that will culminate in a Golden Age. That is what I have predicted in my latest book, The New Golden Age. The American revolution is likely to occur by 2016 or 2017, and India’s should arrive by the end of the decade. This is the way I look at some popular movements such as the Occupy Wall Street Movement in the United States, and those started by Anna Hazare and Baba Ram Dev in India. They reflect people’s anger and frustration with the corrupt rule of acquisitors. Such movements are destined to succeed in their mission, because the rule of wealth is about to come to an end.
One of your predictions that hasn’t come true is that about the Great Depression of the 1930s happening again
It is true we have not had another Great Depression like that of the 1930s, although the slump since 2007 is now being called the Great Recession. The difference between the two may be more semantic than real. The Great Depression was not a period of one long slump lasting for the entire 1930s. Rather, there were pockets of temporary prosperity. The first part of the depression lasted between 1929 and 1933. Then growth resumed and the global economy improved till1937, only to be followed by another slump. This time there has been no depression, but at least in the United States people’s agony has been nearly as bad as in the 1930s. Farming played a great role in society at that time so that the unemployed could go back to agriculture and survive. This time around, that has not been possible. Millions of Americans are homeless today as in the1930s. Still the 1930s were the worst ever, but my point is that American poverty today is the worst in fifty years. The wage-productivity gap, consumer debt and the stock market went up sharply in the 1920s, just as they did after1982. The market crashed in 1929 and then the depression followed. So I concluded that since the same type of conditions were occurring in the 1980s we would have another great depression. However, what I could not imagine was that, China, one-time America’s arch enemy, would lend trillions of dollars to the United States. Note that so long as debt keeps up with the rising wage gap, unemployment can be avoided. In other words, China’s loans postponed large-scale unemployment in the United States for a long time, but not forever.
Can a depression still occur?
Yes, it can, but only if countries are unable to create new debt. Such a likelihood is small but cannot be ruled out. On the other hand, if for some reason oil prices shoot up further to say $150 per barrel, the depression will be inevitable.
How do you see the scenario in Europe playing out?
In Europe and elsewhere the nature of the problem is the same, namely the rising wage gap, so that production exceeds consumer demand, and the government has to resort to nearly limitless debt creation. But the PIIGS — Portugal,Ireland, Italy, Greece and Spain — show that government debt cannot rise forever and when debt has to be reduced there is further rise in unemployment. The European troubles are not over and we should expect the debt problem to linger for years to come.
The dangers in Europe have suddenly taken away the attention from the United States. What is your prediction about the United States the way it currently is?
So long as the United States is able to borrow more money either from the world or from its own people, its economy will remain stable at the bottom. But there is a strong sentiment now among most Americans that the budget deficit must come down, and the laws already passed aim to bring it down from 2013 on. This is likely to raise unemployment in that year and beyond. 2012 could also see real troubles after June when the already rising price of oil and gasoline starts hurting the economy. If the speculators succeed in raising the oil price towards their goal of $150, there could be another serious slump by the end of the year.
Do you see a dollar crash coming in the years to come?
Yes the dollar could crash against the currencies of China and Japan, but I don’t see this happening before July. After that the global economy could be as sick as it was in 2008. The scenario would be reminiscent of what happened in 1937 when the global depression made a comeback. Something similar could materialise again in that the Great Recession could make a resounding come back. However, I don’t see an alternative to the dollar at this point because the whole world is in trouble. For the dollar to fall completely from grace, Opec would have to start pricing its crude in terms of a different currency and I am not sure if that is possible.
What do you think about the current steps the Obama administration is taking to address the economy?
The Obama administration has followed almost the same policies that George W Bush did, and in the process wasted a lot of money to generate paltry economic growth and some jobs. In fact, the government has been spending over $1.5 million to generate one job. This sounds bizarre, but here is what has happened since 2009. The administration’s tack is that we should keep spending money at the current rate to lower unemployment, even though the annual federal budget deficit has been around $1.4 trillion over the past two years. It seems apparent that the main purpose of excessive federal spending is to preserve or generate jobs. This is a point emphasised by every American president since 1976, and especially since1981 when the federal deficit began to soar. This is also how most experts defend the deficit nowadays.
Could you elaborate a little more on this?
In 2010, according to the Economic Report of the President, as many as 800,000 jobs were created, and the government’s excess spending was $1.4trillion, which when divided by 800,000 yields 1.7 million. In other words, the US government spent $1.7 million to generate one job. The economy improved in 2011, providing work to 1.1 million people for the same expense. So dividing $1.4 trillion by the new figure yields $1.3 million, which is now the cost of creating one job. Thus, the average federal deficit or cost per job over the past two years has been $1.5 million.
Is it prudent to be wasting precious resources like this?
I don’t think so. The trillion dollar question is this: where is it all going, when the annual American average wage is no higher than $50,000? Obviously, it must be going to the so-called 1% group or what the Republican Party calls the job creators, i.e., the CEOs and other executives of large corporations.
Could you explain that?
Let us see how the main culprit for the mushrooming incomes of business magnates is the government itself. This is how the process works and has been working since 1981. The CEO forces his employees to work very hard while paying them low wages; this hard work sharply raises production or supply of goods and services, but with stagnant wages, consumer demand falls short of growing supply. This then leads to overproduction and threatens layoffs, which in turn threatens the re-election chances of politicians. They then respond with a massive rise in government spending or huge tax cuts, so that total demand for goods and services rises to the level of increased supply. As a result, either those layoffs are averted or the unemployed are gradually called back to work. This way, the CEO is able to sell his entire output and reap giant profits in the process, because wages are dwindling or stagnant even as business revenue soars. In the absence of excess government spending, companies would be stuck with unsold goods and could even suffer losses. In other words, almost the entire federal deficit ends up in the pockets of business executives. With such a vast wastage of resources, the economy has to falter once again, and I think the second half of 2012 will be just as bad as 2008. The Fed will then revive Quantitative Easing III, but it will not help.
What about the entire concept of paper money?
Paper money is here to stay, but in the near future there will be some kind of gold standard as well, so that money will be partially backed the government’s holding of gold. This way there will be a restraint on the government’s ability to print money.
Any long term investment ideas for our readers? Are you gold bull?
Gold and silver may still be a good investment for 2012, but not for the rest of the decade. However, if there is excessive violence, then the precious metals could shine for a lot longer. I used to be very bullish on gold, but with the metal having appreciated so much already, I am now on the side of caution.
(A shorter version of this interview was pubished in the Daily News and Analysis (DNA) on May 7,2012. Vivek Kaul is a writer and can be reached at [email protected])