Karma catches up with the rich

The world's most powerful nations are accountable for colossal economic and political mismanagement

The finance minister provided a useful global context to evaluate India’s economic performance during the debate in Parliament on inflation the other day. While it is fair to note, as many Opposition members did, that for the poor absolute levels of inflation matter more than the relative performance against global peers, informed comment needs context. There is no way to judge any government’s policy success or failure without benchmarking, and Nirmala Sitharaman was right to point out that on both the growth and inflation fronts, India was doing much better than its neighbours and the developed world.

Our neighbours are seeking IMF bailouts, and the developed world is paying for monetary profligacy by registering 40-year inflation highs and the prospect of recession. China is slowing down after 30 years of endless capital investment funded by financial repression at home and huge foreign inflows, as is evident in the near-collapse of its real estate firms and the rising home loan defaults. In contrast, we have managed to keep inflation just marginally above the Reserve Bank of India’s  comfort zone, and growth will continue to sizzle, despite some weakening.

While the world was busy printing notes and pursuing cheap money lunacies, we have largely maintained fiscal and monetary prudence over the last eight years. We have cleaned up our banking system, enacted an insolvency and bankruptcy code that worked well before Covid, stopped the leaks in the subsidy delivery system, digitised and formalised our economy, cut corporate taxes, steadily improved our goods and services tax system, enabled a start-up ecosystem that was creating unicorns every other month till recently, and double-vaccinated the bulk of our population against Covid. After building toilets for every other home, we are about to reach power, cooking gas, tap water, mobile phones, and credit to every home and small business. We have ensured that our poor did not go hungry after Covid-related disruptions destroyed jobs and livelihoods.

Of course, it would be fair to point out that none of these achievements is complete, and some of the decisions — demonetisation, for example — caused serious problems for large sections of the cash-based economy. Many of the ongoing reforms are a work in progress, including the effort to boost manufacturing by using production-linked incentives. But the point here is to emphasise that despite a shortage of resources, so much has been achieved in so little time.

This is not just an effort to pat ourselves on the back, but to provide a backdrop against which to evaluate the rest of the developed world and the quality of its economic performance in recent years. They had the best institutions, (allegedly) the best economic advice, and enormous resources to get things right, but didn’t. Neither the US, nor the European Union, nor China , nor Japan can be said to be following sensible economic policies post-2008, despite advising weaker nations to swallow bitter medicine and undertake reforms. None of them reformed anything, least of all the global economic and financial system that they themselves created.

Between 1987 and 2006, when Alan Greenspan was the US Fed chairman and the economy was doing very well, the media assumed that he could walk on water. The 2008 crash put an end to that adulation, but it only created new heroes peddling bankrupt economic thought. Among anti-Greenspan economists, the name of Paul Krugman comes to mind. His only real advice was to keep printing money to get the US out of the economic trough. Now that the wages of endless money printing are falling due, and inflation is hitting new peaks, every Keynesian solution looks stupid. The EU and Japan have done no better.

What we have essentially seen is monumental economic and political mismanagement by the rich and powerful. At a time when the world was facing Covid-related disruptions, and US inflation was already soaring, the US political leadership did not do anything to avoid another European war by talking to Vladimir Putin and addressing some of his security concerns. Now, one wonders if the same mistake is going to push a more threatening global bully, China, into a military confrontation over Taiwan.

Illustration: Binay Sinha

The law of karma needs some tweaks because decades of poor global leadership show how the law really works. Bad decisions and actions do have consequences, but within the context of short- or medium-term public memory, it seems as if the powerful can ward off the negative consequences of bad decisions longer than the less powerful. Worse, the bad actions of the former rain bad consequences on the weak. Net-net: The weak have to be more careful about making bad decisions than the rich and powerful.

If you are Greece, the Germans will demand that you either make sacrifices or get out of the eurozone (Grexit). At the time of reunification, though, Germany courted fiscal impudence and inflation by putting the worthless East German mark at the same level as the West German one. No one had the gumption to call it out.

If you are Sri Lanka, you will pay for your economic policy mistakes in spades. If you are the US, often your disastrous decisions may benefit you, as the world sees you as a safe haven for money. The Global Financial Crisis of 2008 (and an S&P downgrade) ended up strengthening the dollar and stock markets, benefitting the same Wall Street crooks who brought down the global economy by inventing poorly understood financial products.

But this belief in the greenback and US-made economic snake oil will be questioned as inflation rages, and the world sees how Russia’s dollar assets were frozen illegally. The US is no longer a safe haven for all, only for those who toe Uncle Sam’s policy line. The war that the US could have prevented has huge consequences for the whole world. It is time to call out poor leadership in the world’s most powerful economic, political and academic entities.

If India has insulated itself, at least partially, from these follies, it is because it chose to ignore loud calls for mindless handouts during the pandemic and beyond. Some of those calls, for spending money like water, were made by renowned economists and columnists. With hindsight, their advice has proved to be downright embarrassing. The message is simple: As a poor yet rising power, fiscal prudence cannot be abandoned just because politicians and agenda-driven economists ask you to throw caution to the wind.

The writer is editorial director of Swarajya magazine