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Another setback which is ought to happen if there is fiscal cut on the government side. I've been saying this for a long time now to all my students that there is no need for a monetary policy. A corporate tax cut, thinking that the giant firms would invest more, is either a strategy by the government to exploit the economy which is basically a foolishness or rather and more obvious the government doesn't want to increase it's expenditure because of a GST return failure. A lower return from GST and building pressures from states and a BoP deficit has boggled the mind of the "chai-waala", and his non - economic advisors. Kindly go back four words before the full-stop and read again. Yes, that's Correct, I said Non-economic advisors.
You've done a tax cut, thinking firms would help the economy. Well here comes what we economists think and how the government and it's illiterate politicians think. You don't have to teach me, every citizen of our country knows that a majority of the politicians of India are illiterates and even have been convicted for illegal agendas. So, since they never studied economics, I would throw a free class for them.
Prof. Karl Marx said, the firms or the capitalistic firms, aim only to earn profits. Their sole motive being profit only. How? Via exploitation. The exploitation of labour. I would like to add something more to this, keeping in mind the current scenario of our nation.Thre is not just exploitation of labour, there is an exploitation of our rights, of our constitution, of each and every individual, of our future childrens, of our minds, our physical structurs, our cognitive abilities and what not!
You being an illiterate as far as economics is concerned, the current government , thinks they are better than Prof. Raghram Rajan, Prof. Amartya Sen and Prof. Abhijit Banerjee. Wait, Mr. Look at yourself in the mirror, you'll get to know what you are and what they are! You guys did a basic mistake. You, instead of taking money from firms (that is a tax rise), you gave it to them in the form of tax cut, they will keep more money with themselves and not spend more. This makes me recall the Keynesian model stating people don't spend more than their income. For example, if you are earning Rs. 1 lakh, you'll likely spend less than that, implying a MPC<1 (Marginal Propensity to Consume). Let's get this inside your head! Say, a big firm's turnover is 1000 crores, and the owner's income is 100 crores. Apart from his basic subsistence, how much will he consume in a year? Think and estimate, say Rs. 70 crore. Rs. 30 crore he'll save. Right?. Now your did a tax cut, thinking they would spend more, but that's a wrong concept. A tax cut would leave them with more profits and more savings and they would not spend more than Rs 70 crore. Why will they do that? They are already enjoying their lavish life. What you did, is increase their profits and the money in the economy went down further. If you would have increased the tax instead, your tax revenue would have increased, and the poor who don't have the money to spend would have got the money via jobs etc. And these demands would have gone up, this adding up with the demands of the rich capitalistic firms, thereby increasing the aggregate demand in the economy. A diagrammatic explanation for your fat head!
According to the above diagram, having more revenue would increase the 'G' (Govt. Expenditure) implying a rightward shift of IS curve (mind your LM remain intact - no monetary policy into play). At the initial r*, Y increases to Y' and an increase in r to r1 would imply a bit of crowding out through reduction in investment via firms, but then overall Y increases from Y* to Y1. But, unfortunately, this never happened! What happened is a reduction in AD, a leftwards shift of IS curve as shown below :
Thus, leading to a fall in r and Y both.
Now, as i started this article with the expectation of a fiscal cut simple because of a poor GST return, the government might reduce it's spending. Now, again, if G decreases (govt. Expenditure decreases), again AD declines, thus IS shifts more to it's left as shown below :
If you see closely, Y was falling before, now it declined further from Y* to Y1 to Y2. Hence, no growth, reduction in National Income, GDP, employment, unemployment in the economy increases, thus making this more as a structure issue.
I rest my case!
Thank You,
An honest citizen,
Taha Hayat
You've done a tax cut, thinking firms would help the economy. Well here comes what we economists think and how the government and it's illiterate politicians think. You don't have to teach me, every citizen of our country knows that a majority of the politicians of India are illiterates and even have been convicted for illegal agendas. So, since they never studied economics, I would throw a free class for them.
Prof. Karl Marx said, the firms or the capitalistic firms, aim only to earn profits. Their sole motive being profit only. How? Via exploitation. The exploitation of labour. I would like to add something more to this, keeping in mind the current scenario of our nation.Thre is not just exploitation of labour, there is an exploitation of our rights, of our constitution, of each and every individual, of our future childrens, of our minds, our physical structurs, our cognitive abilities and what not!
You being an illiterate as far as economics is concerned, the current government , thinks they are better than Prof. Raghram Rajan, Prof. Amartya Sen and Prof. Abhijit Banerjee. Wait, Mr. Look at yourself in the mirror, you'll get to know what you are and what they are! You guys did a basic mistake. You, instead of taking money from firms (that is a tax rise), you gave it to them in the form of tax cut, they will keep more money with themselves and not spend more. This makes me recall the Keynesian model stating people don't spend more than their income. For example, if you are earning Rs. 1 lakh, you'll likely spend less than that, implying a MPC<1 (Marginal Propensity to Consume). Let's get this inside your head! Say, a big firm's turnover is 1000 crores, and the owner's income is 100 crores. Apart from his basic subsistence, how much will he consume in a year? Think and estimate, say Rs. 70 crore. Rs. 30 crore he'll save. Right?. Now your did a tax cut, thinking they would spend more, but that's a wrong concept. A tax cut would leave them with more profits and more savings and they would not spend more than Rs 70 crore. Why will they do that? They are already enjoying their lavish life. What you did, is increase their profits and the money in the economy went down further. If you would have increased the tax instead, your tax revenue would have increased, and the poor who don't have the money to spend would have got the money via jobs etc. And these demands would have gone up, this adding up with the demands of the rich capitalistic firms, thereby increasing the aggregate demand in the economy. A diagrammatic explanation for your fat head!
According to the above diagram, having more revenue would increase the 'G' (Govt. Expenditure) implying a rightward shift of IS curve (mind your LM remain intact - no monetary policy into play). At the initial r*, Y increases to Y' and an increase in r to r1 would imply a bit of crowding out through reduction in investment via firms, but then overall Y increases from Y* to Y1. But, unfortunately, this never happened! What happened is a reduction in AD, a leftwards shift of IS curve as shown below :
Thus, leading to a fall in r and Y both.
Now, as i started this article with the expectation of a fiscal cut simple because of a poor GST return, the government might reduce it's spending. Now, again, if G decreases (govt. Expenditure decreases), again AD declines, thus IS shifts more to it's left as shown below :
If you see closely, Y was falling before, now it declined further from Y* to Y1 to Y2. Hence, no growth, reduction in National Income, GDP, employment, unemployment in the economy increases, thus making this more as a structure issue.
I rest my case!
Thank You,
An honest citizen,
Taha Hayat