Policy Lessons For The Cognoscenti

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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Giving lessons to world leaders on matters of economic policy was the bailiwick of John Maynard Keynes in the last century. He was a wealthy upper class Englishman, bi-sexual and similar to Elton John, the British singer, much later, was also married to a woman once, a Russian ballerina. He was as inconsistent as he was brilliant.

It is only fitting that such lessons, in particular to the young Secretary of the Treasury of the United States, Timothy Geithner, and his just as young boss in The White House, Barack Obama, come this century once again at a time of great crisis since 2007 which challenges the very institutions which Keynes had founded in 1944.

Secretary Geithner says that the creditworthiness of nations is sacrosanct and ought not to be challenged. True. After all, his signature goes on the US dollar bills issued by the policy directives of the nation’s central bank, the Federal Reserve, as legal tender and debt of the United States, to be honored by its government. His reminder echoes the quasi-bank runs going on in Greece as I write, where citizens are taking their euro deposits out, uncertain about the worthiness of any future drachmas. The diarrhea of low interest rates out of Frankfurt and Brussels is impotent in the backdrop of the glorious Greek pantheon which has been celebrating mind and body for as long as Europe has been civilized.

The cause of flu in the economic bowels of Europe is another form of debt printed differently, also on paper: euro bonds of the governments which are transacted for euro notes. Rich man Keynes – with all the time on his hands as most British elites in the House of Lords did (except for Sir Isaac Newton) since time immemorial, dedicating their time to science – got the budget equations of households, businesses and governments correct.

One look at variations of Keynes’ equations raises some important questions which can confound the very man who created them: why debt?

(1) Y = C + G + I + (Exports – Imports or Net Exports or NX)

(2) Savings, S = Investment, I

(3) Personal Income (P, in aggregate Y) = Taxes (T, in aggregate G) + Expenditures (E, in aggregate C) + Savings (S, in aggregate I)

National income (Y), akin to personal income (P), is apportioned to consumption (C, E), paying for government (G or T), and savings (S, I). That which is saved (S) is invested (I) and all that which is produced is always consumed. Investment is always your own savings are someone else’s savings or some combination of both – individuals, businesses or countries.


(4) Income α (directly proportional) Years of Education

(5) Income (in a democracy) α (directly proportional) Participation in a democracy, the capacity to participate being related to health and education since the Grecian antiquity of healthy mind and body I might add.

Nobel Laureate Gary Becker of University of Chicago would not wince here if I stated that social frictions in the dispensation of health and education structurally limit democratic participation and hence, the share of national income of certain groups.

Still, again, why government debt, no matter the non-pareto optimal income distribution?

There is a fundamental problem in economic system construction which ties monetary issuance to government debt (not private debt) – one form of monopoly government debt to another.  And this is what Geithner must understand, even if Keynes had not.


About Chandrashekar (Chandra) Tamirisa

This entry was posted in Economics, European Union, Fiscal Policy, Government, Monetary Policy, North America and Caribbean, Transformations LLC and tagged , , . Bookmark the permalink.

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