Thought for the day
”The lack of money is the root of all evil."
-
Mark Twain (American, 1835-1910)
Word for the day
Concomitant (Adj)
Accompanying; attendant; occurring or existing
concurrently.
(Source:
Dictionary.com)
Teaser for the day
I heard Modi implicitly claiming in an election rally that
for the first time in the entire history of Bharat because of him the world community
has recognized India as a force to reckon with.
Do RSS and other Hindu nationalist organizations accept
this?
Have not we always believed that Bharat had been a world
leader since the beginning of human civilization?
Power of denominator
My father once explained me the formula of happiness. He said,
"your happiness is equal to your income divided by your needs. If your
needs are zero, your happiness is infinite and if your needs are infinite, your
happiness is zero, notwithstanding whatever is your income.
The problem with most people is that they focus only on
enhancing the numerator (income in this case), which is completely irrelevant
if you leave the denominator (in this case needs) uncontrolled. The better way
to control problems is to focus on denominator, while keeping an eye on the
numerator.
Applying this formula to the current economic conditions
provides some interesting insights for the managers of the economy. For example
consider the following:
The headline employment data in U.S. has shown steady
improvement in past many months. The current reported unemployment rate is down
to about 5.9% from post Lehman collapse period high of close to 10%. This
sounds great at once. But how do we explain the struggle with low inflation,
poor wage growth, slow household consumption growth, and higher number of
temporary and part time workers, more people living off food stamps and rising
stress on state and local authority finances.
I feel it will be useful to evaluate the denominator used for
unemployment rate, i.e., the total number of workers offering themselves for
work. Data suggests that labor force participation rate remains 3 percentage
points lower than before the crisis and part-time employment remains high. A
whole generation of labor might have become redundant in past 7years due to
technology advancement and closure of many traditional businesses. These people
may now be dependant on the State for their food and healthcare. Some of them
might take up petty part-time jobs. But this does not restore their purchasing
power to pre-crisis level.
Similarly, while talking about the growth rate of Indian
economy, most discussions and arguments are focused on the rate of real GDP
growth over previous corresponding period.
This growth number certainly has a statistical importance. But
for most of the people, including me, the more important number is the absolute
amount of per capita real national income in general and my actual real income
in particular.
This real GDP growth in percentage terms will have little
meaning if the base or the denominator is very low (which is the case at present)
or it is not adjusted for the population growth or the real household
inflation. A 5% real GDP growth with 2% population growth would mean just 3%
growth in per capita income. This is not likely to cause any material
improvement in my lifestyle. Especially when it is deflated by WPI and not the
household inflation.
The denominator in our case, viz., population, household
inflation and lower number for previous periods are too powerful for the
official 6% real GDP growth to have any material impact on my lifestyle.
Politicians and corporate though may have a reason to cheer!
No comments:
Post a Comment