There is a fully functional (opponents would claim dysfunctional) economic principle called the Trickel-down Economics or Trickle-down Theory. Present day Republicans in USA, and the current BJP regime under PM Narendra Modi subscribe to this theory.
The Trickle-down Theory basically presumes that benefits given to the upper income level citizens, which itself is a euphemism for the richest, will benefit everyone, including the poorest of the poor. The argument goes that the rich will spend the extra money, which will create demand, and so will produce more jobs. Since those jobs will be filled in by the poor, the benefit 'trickles down'.
But the term 'trickle down' itself was considered too risky to be flaunted about, and so a new term was coined to soften the impact - and it became 'supply-side economics'. In practice, it was called Reaganomics in the USA, and as Thatcherism in the UK. Today in India, it is being tagged as Modinomics.
But the latest (June 2015) research by IMF in over 150 countries titled “Causes and Consequences of Income Inequality: A Global Perspective”, has rubbished the Tricke-down theory. The research showed that where the rich get more money the economy actually shrank, while where the benefits were poor oriented, the GDP actually grew. The IMF study shows that by whatever name the 'supply-side economics' is called - Reaganomics, Thatcherism or Modinomics, it will lead to worsening economic conditions.
The researchers calculated that when the richest 20% of society increase their income by one percentage point, the annual rate of growth shrinks by nearly 0.1% within five years.
By contrast, when the lowest 20% of earners see their income grow by one percentage point, the rate of growth increases by nearly 0.4% over the same period.
The reason for the shrinkage is the poor struggle to obtain quality health-care and education - two most essential factors for higher labour productivity. So even though more people may find jobs under Modinomics, the actual output would continue to suffer, especially when the current BJP regime has cut down Plan Outlays for both health-care (from a pathetic 1.3% to ~1% of GDP) and education (from 4.52% to 3.26% of GDP).
To top it, under the garb of Modinomics, the rural employment scheme has also been curtailed. By one estimate the total cuts by this BJP regime on social expenditure - agriculture, livelihood security, food security, or drinking water - have been slashed by a massive Rs. 175,000 Crores (~1.75% of GDP). If we also add in the projected El-Nino effect on a dismal Monsoon, which is expected to cost the economy another 1.75%, it looks like a very tough time ahead. A 3.5% shrinkage of economic spending, predominantly targeting the rural and poor sections of society, is not good news for the government.
It now appears that my earlier prediction of 1-1/2 to 2 years till an internal putsch in the BJP to oust Narendra Modi may well come true.
The Trickle-down Theory basically presumes that benefits given to the upper income level citizens, which itself is a euphemism for the richest, will benefit everyone, including the poorest of the poor. The argument goes that the rich will spend the extra money, which will create demand, and so will produce more jobs. Since those jobs will be filled in by the poor, the benefit 'trickles down'.
But the term 'trickle down' itself was considered too risky to be flaunted about, and so a new term was coined to soften the impact - and it became 'supply-side economics'. In practice, it was called Reaganomics in the USA, and as Thatcherism in the UK. Today in India, it is being tagged as Modinomics.
But the latest (June 2015) research by IMF in over 150 countries titled “Causes and Consequences of Income Inequality: A Global Perspective”, has rubbished the Tricke-down theory. The research showed that where the rich get more money the economy actually shrank, while where the benefits were poor oriented, the GDP actually grew. The IMF study shows that by whatever name the 'supply-side economics' is called - Reaganomics, Thatcherism or Modinomics, it will lead to worsening economic conditions.
The researchers calculated that when the richest 20% of society increase their income by one percentage point, the annual rate of growth shrinks by nearly 0.1% within five years.
By contrast, when the lowest 20% of earners see their income grow by one percentage point, the rate of growth increases by nearly 0.4% over the same period.
The reason for the shrinkage is the poor struggle to obtain quality health-care and education - two most essential factors for higher labour productivity. So even though more people may find jobs under Modinomics, the actual output would continue to suffer, especially when the current BJP regime has cut down Plan Outlays for both health-care (from a pathetic 1.3% to ~1% of GDP) and education (from 4.52% to 3.26% of GDP).
To top it, under the garb of Modinomics, the rural employment scheme has also been curtailed. By one estimate the total cuts by this BJP regime on social expenditure - agriculture, livelihood security, food security, or drinking water - have been slashed by a massive Rs. 175,000 Crores (~1.75% of GDP). If we also add in the projected El-Nino effect on a dismal Monsoon, which is expected to cost the economy another 1.75%, it looks like a very tough time ahead. A 3.5% shrinkage of economic spending, predominantly targeting the rural and poor sections of society, is not good news for the government.
It now appears that my earlier prediction of 1-1/2 to 2 years till an internal putsch in the BJP to oust Narendra Modi may well come true.
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