The Politics Of Economic Expansions And Recessions

success capitalism

I was reminiscing about the few things of engineering and economics that I’d learnt in university (Tennessee) some 5 decades ago, their values and applications now and the differences from those in the past. What has changed is considerably a whole lot for the worse.

After I’d completed bachelor’s degree in engineering, I went on to earn a degree in economics. It was Engineering Economics 301 in my sophomore year that had got me to pursue the degree in economics. Both engineering and economics are politicized now. They’ve morphed into tools of business and politics for business and political leaders specially war politics and economics. Though war economics and politics have always been around it’s never been on such globalized scale as in the past two centuries following the industrial revolution, mechanization, nuclear and space technology and other technological innovations, chemicals (specially plastics), internet of things (IoT), robotics and Artificial Intelligence. The one global industry that has the first access to these innovations before commercialization has been the massive defense industry supported by governments and the competition to produce and sell military hardware which has become extremely sophisticated and lethal.In the words of an American statesman Frank B. Kellogg “the armament industry has been a terrible burden upon peoples of every nations and the greatest menace to world peace”.

One of the pioneers of financial capitalism has been Dr. Ravi Batra, an eminent economist, who proposed in the 90’s that “excessive inequality and political corruption inevitably succumbs to financial crisis and economic depression”. Similarly, the French economist Thomas Piketty in his book Capitalism in the Twenty- First Century has advanced the idea about the “long-term evolution of inequality, the concentration of wealth, and the prospects for economic growth lie at the heart of political economy”. Politicians don’t understand; they only follow political agendas.

The present form of capitalism is usury – the principal reason why poverty is increasing globally at an alarming rate (evidenced in the works of Batra and Piketty) while the rich are hoarding wealth.Every religion including Hindu Vedas or BuddhistJatakas (Note 1) have condemned usury. However, there does seem to be an opinion difference between usury as applied to consumption and investment lending.

Piketty has suggested that if capitalism is not reformed, the very democratic order will be threatened.

A valuable lesson about economics that I learnt was in mid-70s while attending a university in Knoxville to finish a requisite chemical engineering course. Along with that I attended a course in economics. The Professor made it interesting by explaining the “engineering” of economic expansions (growth) and contractions (recessions) and the multiple factors influencing the cycles with the example of a balloon. He demonstrated first  by marking a deflated balloon with small colored dots (representing economic factors such as currencies, interest rates, GDP, inflation, taxes, trade tariffs and duties, budgets, etc). Those dots expanded as air was blown into the balloon. Engineering and common sense (which is in short supply) tells that every material has elasticity and if stretched beyond its limits, the material bursts. It is important to prevent an expansion beyond the elasticity limits by preventing too much air. The example of a balloon applies to economics also.

The longest post-WW2 economic expansion had lasted for 10 years from 1991-2001 due to the rapid adoption of computers and growth of the internet leading to huge increases in productivity and strong economic growth. But that growth led the stock market to record highs, causing a bubble to develop among tech stocks. Unemployment was also very low, making it difficult for employers to find the workers they needed to grow. All of this laid the groundwork for the end of that expansion. Unemployment bottomed out at about the same time that the stock market bubble burst. A year later the recession started and recovery started only after wars started in Iraq and Afghanistan by NATO allies under the guise of fighting extremism and terrorism (an excuse to test out sophistication of armament) . War became a political necessity for military spending and testing of defense hardware due to technological innovations. The war cost huge sums of money synonymous to too much air being blown into a balloon, leading to the Great Recession of 2008.

The current expansion growth started from 2009 with the stimulus spending and tax cuts in the major economies passed in early 2009 to battle the Great Recession. The bailout of the auto industry that summer also helped get the economy growing again. The expansion is now into the longest post WW2 growth which has sustained due to low interest rates,generally been slow, but steady, ever since. It cannot continue especially with a new political player more adept in business, the Republican US President Donald Trump, has been in office with a significantly different economic agenda of America First, very similar to that under the events of 1929-1930 which led to the Great Depression. An anti-trade act had been sponsored by two Republicans, Senator Reed Smoot and Representative Willis Hawley, and signed into law by the Republican President Herbert Hoover 1930. The protectionist act resulted in the trade war that aggravated the great depression.The details were published in my article The New American Agenda for Global Hegemony published in March 2018 (Note 2).

It may seemingly appear that Hoover’s policy had failed following the Great Depression which caused mass economic suffering for Middle America. In reality, those policies catapulted America as an economic superpower following World War 2. It was long term gains for short term pains. Trump administration and his economic team of Navarro, Mnuchin, Lighthizer and Ross are mimicking the economic events of 1929 to make America First but little realising that globalization and multi-polarity over the past two decades is a game changer and may lead to disastrous consequences. Even the IMF has issued dire warnings as recently as June 2018 (Note 3). If the US does not cease with implementing the dangerouspolicies, it just may well lead to the ninety year anniversary of October 24, 1929, the date that the New York stock exchange crashed. Trump’s trade, tariff and foreign policies directed against its allies, Iranor China may even lead to major corrections in the global equity marketsin the 3Q2018.


G. Asgar Mitha recently retired from working with a large oil company in Canada as a Technical Safety Engineer


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