Saturday, September 24, 2011

Big spending and the middle classes

In a recent post, I criticised Paul Krugman and his obsession for deficit financing. Yet this weekend's IHT column is interesting. I agree with Paul Krugman that on the revenue side, the rich need to be taxed more. Even the rich Warren Buffet seems to agree, but he may be a lonesome cowboy. And I agree with Paul Krugman that it has become a class war, and this is what this party for the middle classes is. A witness to total pandeminium and confusion.

On the spending side, of course, I don't agree . Is there no exception to the vice of major spending? Can public debt never do good? Well, take a lesson for the conservative middle classes. What are the constructive reasons for taking debt? A brighter future, and not a brighter present. A brigher past may let you afford the debt, but without good expected futures, you are going to whittle down your collateral. Education and property/house are two reasons why the middle class takes debt. Big government spending should also follow this logic. And this is exactly what Paul Krugman is recommending. Expenditure on education and infrastructure.

But the middle class logic is based on answering the question: Does it create a brighter future or does it create useful infrastructure for the future?

In countries where infrastructure already exists, do we need to constantly reconstruct? What are the added benefits of renewing infrastructure before its life time?
Similarly, is it necessary for people to spend thier lives in taking education that they will never use just to form a part of the reserve army of unemployed waiting at the beck and call of their rich masters. Thanks to technologies and institutional infrastructure, the rich masters don't even need to see this miserable eduated unemployed lot on the doorsteps. Thus education seems to observe the fallacy of composition: if some people can gain relatively, more unproductive education for all does not mean better jobs for all if effective demand is finally limited.

So, if we want to construct, we have to construct elsewhere where the marginal productivity of capital is not only positive but higher than the cost of capital (excuse the shortcuts in logic). We have to construct where nothing exists. We have to construct in Africa and much of Asia. Yes, we can take European material there. We can take European esthetics and make the construction beautiful, but we need to find out from the local people what they need. Not to impose our own logic of their needs. For this we need market surveys performed by our middle class researchers in conjunction with their local researchers.

This construction of a bright future for Africans will employ our middle class workers today. It will create travelling opportunities today. European Airlines will benefit. Tourism agencies will benefit. Tourism industry of the poor countries will benefit.

Similarly, we can take our educated students to take classes there. With generations of education experience inherited, this education delivery needs to be mixed with local conditions demand for what needs to be studied. Our researchers need to travel to find and document their history, their geography, their cultures in exercises conducted in collaboration with their researchers and students. All this would employ our middle class researchers in consturctive research instead of masturbating on the next growth model for a mantra which is irrelevant in this part of the world. The existing growth models are quite adequate for that part of the world, but execution is lacking for want of resources.

Part of the money would be spent there. That would create a multiplier effect there. This would reinforce their microfinance and other participatory development movements. Another part will be spent here. Don't forget this! Be useful.

Are you ready to take the lead?

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