Political Management: Government Deficit

Any elementary literature or mere common sense is good enough to tell us that when the expenses are within the revenues it results in surplus and its opposite, when expenses exceed revenues it results in deficit or shortage.

These days a large number of countries of our world are suffering from the fiscal or financial deficit. The responsible governments of these countries are obviously not able to manage the country's financial health. Either the revenue is not adequate enough to fully take care of the expenses or the expenses are way above the revenues.

Revenues are earned  for running the country's common programs that should benefit the citizens of that country. These common programs are: security and safety, health, education, justice, essential amenities, infrastructure, research, maintenance of common facilities etc. These common programs and people responsible for executing these programs (governmental employees and the contracted employees at all the levels including bureaucrats, ministers and politicians etc) use the revenues for this purpose. 

Revenues come from various means: professional fees, service charges, money earned from the organizations and companies directly run by the government, all kinds of taxes like income tax, sales tax, excise, customs duty, VAT, capital gains tax, wealth tax, vehicle/road tax and what have you.

Government cannot run a country properly if fiscal deficits become perennial. The top and senior officials of the government must take actions to get out of this kind of problem. So they take some actions that come obviously to their minds  (even a child will get those ideas) to cut down the expenditures. So they take some actions and the expedient ones are: 

1. Downsize the government employees at various levels (except at the senior and top levels i.e. the bureaucrats, ministers, politicians etc- we don't see them being fired).

2. Clamp the austerity measures on the government employees at various levels (except at the senior and top levels i.e. the bureaucrats, ministers, politicians etc- they keep continuing with their obnoxious king size/type pay packets and perquisites). 

The other expedient action is towards earning more revenues and the first idea that comes to the minds of the top and senior governmental officials (even a child will get that idea) is to increase the taxes (putting the whole burden of mismanaging the finances on the people).

And many of the so called financial geniuses and experts in the government try for both the above mentioned  expedient measures simultaneously troubling everyone around (except themselves).

The question to ask is: are these the only two measures available to tide over the fiscal deficit or fiscal cliff (or any other fancy name for it)? Can't the officials and politicians think of the following actions and implement them on the top most priority:

1. Stop and eliminate for ever the corruption at the top/senior levels and as a resultant at lower levels (the biggest drain on revenues). The huge chunk of revenues get siphoned off to the coffers of the corrupt governmental people at all the levels from top to bottom. Punish severely the people guilty of corruption. The severity of the punishment should set an example for others.

2. Stop and eliminate for ever the stashing of the unaccounted illegal black money by the unscrupulous people of the country in the foreign banks that allow such an atrocious activity. Bring this money back in the country and punish severely these unscrupulous people. The severity of the punishment should set an example for others.

3. Stop and eliminate for ever the practice of these foreign banks (in whichever countries they are) accepting the unaccounted black money from the unscrupulous people of the world. If they don't tow the line, the countries should boycott them.

4. Infuse effectiveness. efficiency and overall productivity and accountability in all the government and associated departments at every level of hierarchy. This is also one most important measure that must be implemented very seriously.

5. Stop and eliminate for ever the wastage of all kinds in all the government and associated departments. This is vital.

6. The salaries and perquisites of the top/senior level bureaucrats, ministers, politicians (members of parliament) should be controlled (that forms a big chunk of expenditure).

Screwed up Global Economy

Current Fundamentally Defective Economy Model

The boost in economy in any country or at the global level definitely gives rise to employment and in turn to the well being of the human beings on this planet earth. That's the whole essence.

The economic growth follows a positive or negative spiral pattern. But since 2008 onwards the positive spiral pattern has almost ended and it has taken a reversal to the negative spiral pattern.

In economy one thing leads to the other but fueling this interdependency in a fundamentally wrong manner screws up the whole positive growth process.

The present model of boosting the economy is largely based on more consumption, more sales, higher prices, more profit margins per sale and overall very high profits to the producer and the seller. The seller gets motivated to sell still more at still higher prices and makes still more higher overall profits. In doing so, he does expand his business and gives employment to many more people.

People (the consumers of goods and services), either from their savings or by taking loans in a reckless manner start buying things even at the higher prices even on those items of consumption that are really not required or needed by him. Also they start buying even the really needed items in disproportionately large quantities or large sizes. A stage soon arrives when their savings get depleted and they are not in a position to repay the loans- the interest burden itself kills them, forget about repaying the principal amount.

The loan sharks (the banks and other financial joints) go on distributing the loans in this mad racket of artificial economic boom to make more and more money out of their greed and lose track of the soundness of the repayment capacities of people and the companies whom they have advanced the loans. They also boost their business by resorting to many unethical and business-wise unsound practices.

One fine morning, the consumers find no money in their coffers for repayment of loans. The banks and other financial outfits are not in a position to realize the money loaned out. The consumption falls down, sales fall down, prices can't be held at artificially inflated levels for a long period, profit per sale drops and total overall profits of the producers and sellers start diminishing at a fast rate. They stop their expansions and growth. They go on a cost cutting drive. The only thing they know under such conditions is to downsize and retrench their employees. Thus many more people who are the actual consumers of the goods and services stop earning the money because of this kind of increased unemployment. They stop buying. The economic activity comes to a grinding halt.

Many producing and selling companies go bankrupt or wind up their shops, others start limping. None of them are in any sound position to repay the loans borrowed by them from the banks and financial institutions. The banks and financial institutions are not able to recover these loans either from such companies or from the individuals whom they had advanced the loans. The banks and financial outfits too declare their sickness and bankruptcy.

The recession goes on and on because even after getting the bail-out money from the governments (actually from the people of the country- because they have been paying enormous taxes), the banks, financial joints and the producing and selling companies keep chasing the same fundamentally defective economic model of consumption, inflation, loan, higher sales volume, higher profit margin per sales and higher overall profit.

This model will always ultimately lead to perennial economic downtrend cyclically.

Also in this consumption oriented model we are depleting the environmental resources of this planet at a very aggressive rate. That is horribly dangerous to any kind of sustainability we are talking about so much these days.

Proposed Fundamentally Prudent Economy Model

To attain a continuous positive spiral of economic growth, for ever increasing prosperity of all the stake holders and for a prolonged sustainability of the environment of earth, the following model of economy needs to be adopted:

1. Consumption should be real- it need not be artificially inflated. Consume what is really needed. It will help not to waste the planet's resources recklessly.

2. Profit per unit sale should be increased not by increasing the prices (by inflation) but by keeping the prices lower and lower and by reducing the costs of production and sale by adopting creativity and innovations, eliminating wastage of all kinds, reduction of overall costs and improved productivity every where.

3. Overall profits should be an outcome of the above-mentioned two points and not an outcome of wrong and corrupt practices often followed by the corporations and financial bodies.

4. Downsizing and retrenchment in effect cut out on the buying capacities of the people and it is detrimental to economic activities and economic growth. Rather than resorting to increasing the unemployment, adopt all those policies and practices that will boost the employment potential and increase the number of employed people.