Friday, May 2, 2014

Little bit of Economics.

Public/Governmentdebt is the debt owed by a central government. When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings), it is deficit. Deficit differs from debt, which is an accumulation of yearly deficits.

In other words,  if a government wants to come out of its debt, it need to refrain completely from any sort of spending, except repayment of debt, till the time the debt becomes zero. This absolutely impossible. The other way out is, it has to generate revenues such that the spending must be much much less than the revenues so that from the surplus revenues, the debt can be repaid. Of course, this is very simple. Anyone can understand this.

The revenue of any country is the tax collected by the government from its citizens, including the tax collected from the companies owned by its citizens operating in other countries also (Revenue from global trade). To increase the revenue, the citizens need to spend more. Part of that spending is collected by various taxes by government and that is the revenue of government. To increase the spending of public, they need to get more individual revenue. Individual revenue is result of public spending. That is, when the public spending is more, individuals get that spending as their salary and once they receive it as salary, they can spend more. This appears as a spiral - more public spending --> more individual revenue-->more individual spending --> more tax collection --> more government revenue-->...... Or to keep the government revenue more, individual spending have to be more, for that, public spending have to be much more. No way to repay the government/public debt.

Hence the only possible way to get more revenue is get it from foreign trade. That is produce in one country, for the consumers in other countries. The consumers who have more money (surplus budget)  only can purchase the consumable of other countries. In other words, if a country which is already having public debt is consuming the products of other nations, it is actually increasing its debt.

I think, at this point, it will be helpful to understand, what is the price of any commodity according to Carl Marx. According to Carl Marx, (as I understand from little bit reading of Carl Marx) the price of any commodity is the price of labor spent on producing it. The raw material for the product is taken from nature free of cost. But labor is spent on extracting it from nature. Probably a commodity takes it final form after numerous intermediate forms and  each intermediate forms consume labor and the price of final product includes the labor of all intermediate forms.

Based on this principle, more consumption means consuming more labor as well as more natural resources. Now I think, we need to analyse two cases. 1) By consuming more, Are the economies really getting any better? 2) Do we have enough natural resources in earth to withstand the consumption spree of human species?

Based on above discussion, for a country to get free from its public debt, there must be budget surplus consumers in some other part of Globe. (Even a country can get its public debt cleared by means of trade with budget deficit countries,  but in this case at the cost of other country).
Now let us analyse some statistics. All the so called wealthy nations are having public debt greater than their GDPs. (Figures taken from internet resources - may not be exact value)
Public debt (%age of GDP)

When the public debt of so called wealthy nations are close to 100% of their respective GDPs,  who is going to consume more to get them free from public debt? Let us have another statistic about budget deficit of nearly 200 countries at It indicates most of the nations which are having budget surplus are at middle east and far east. And the GDP of many of them are negligible. Furthermore, the world as a whole is budget deficit with -3.8 % of world's GDP. This data is for the year 2013.

For a world, which is spending more than its whole revenue, how is it going to repay its debt? Is it possible to find another world to trade and hence earn money? it seems to be impossible.
However the wealthy nations are spending more on the hope of getting it free from debt, which seems to be impossible any way. Yes, it may possible in one case - By getting the wealth of poor nations and, on its way make them extinct from earth - that is the only way out available for the so called wealthy nations , it seems. However we keep on spending....

Let us analyse the case with respect to natural resources and cost of commodities. As per Carl Marx's theory, to get more value, more labor to be employed on converting natural resources into commodities. On this conversion, on one side we extinct the resources of earth- earth has its own intelligent, it will rebalance itself. When we wait for the earth to rebalance itself, the outcome will be catastrophic to human being and other life forms on earth. On the other side the available labor is exponentially getting increased and in turn consumption is getting increased. We had little more than 1 billion humans in earth a century ago. Now it is more than 7 billion. With increased productivity of humans, we are consuming resources of earth at much faster rate - And natural rebalancing of earth may appear much sooner....

Let us think over at individual level. If we do, then the nations will start acting on it.

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