{"id":101356,"date":"2020-04-20T23:54:00","date_gmt":"2020-04-21T05:54:00","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=101356"},"modified":"2020-04-20T16:23:58","modified_gmt":"2020-04-20T23:23:58","slug":"would-the-world-economy-be-taken-back-to-the-classical-era-by-the-corona-pandemic","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2020\/04\/20\/would-the-world-economy-be-taken-back-to-the-classical-era-by-the-corona-pandemic\/","title":{"rendered":"WOULD THE WORLD ECONOMY BE TAKEN BACK TO THE CLASSICAL ERA BY THE CORONA PANDEMIC?"},"content":{"rendered":"

BY EDWARD THEOPHILUS<\/strong><\/em><\/span><\/h2>\n\n\n

The\nworld economy has been radically changing since the great depression\nexperienced in the 1930s, meantime, the cold war also supported control of\nconsumer demand and the market economic system forcing many countries to spend\nfor defense activities than investments in development projects. The war mentality\nlimited the production in various areas thereby increased unemployment and\nexcess capacity. The classical economists looked at this situation considering\nthat the wage cut would positively support to increase wage funds and provide\nmore employment opportunities, but Keynes viewed that the idea of the classical\neconomists would negatively impact the effective and aggregate demand thereby\ncreating more unemployment. The other significant point that should be\nconsidered by policy-makers is can helicopter money concept get the world out\nof the depression from the downturn originated from the corona pandemic. My\nfeeling is there is no difference in the helicopter money concept and deficit\nbudget concept of John Meynard Keynes. <\/p>\n\n\n\n

The\nview of Keynes accepted many countries and presented deficit budgets to achieve\nfull employment level.  However, we can\nsee that the views of economists have been changed since the late 1980s\nespecially Chicago economists understood that deficit budget would support\nhyperinflation and proposed to an inflation tax to take out excess money from\nthe economy.  The current situation is\nhow to off excess money from the helicopter money in the economy and should the\nworld go to a new tax regime in 2022. The World Bank and IMF and other international\nmonetary institutions attempted to correct policies of the world and advantages\nof such efforts of international financial institutions have gone to developed\nnations and lower-income countries relegated to a debt trap and to agree with\ntrade policies which were supported to secure the advantages of international\ntrade to developed nations. A higher volume of national income of lower-income\ncountries goes to debt repayment than the investments in economic activities\nfor stability, creating employment and reasonable distribution of national\nincome. Injustice in the distribution of economic gains augmented in the world.<\/p>\n\n\n\n

Economists\nin the IMF predict that the world economy will be recessed by 5% in 2021, which\nmeans the corona pandemic will negatively impact all over the world and\nunemployment has already risen to more than 10% in the developed world as well\nas in lower-income nations. The prediction of the IMF will have a difficult to\nabide by lower-income countries and injustice in the world is dominating. The\npowerful nations did not listen to the cry of lower and middle-income countries\nand developed nations organized conferences to discuss the matter than taking\naction to give justice to lower and middle-income countries.  Many people talk about injustice and some\npredict that the corona pandemic would be an abstruse blessing to recorrect the\nworld. However, people don\u2019t want to go to the Malthus theory, but they want\njustice. <\/p>\n\n\n\n

The\nCOVID 19 pandemic and related economic crisis seem to be directing the world\neconomy back to the classical era giving a new interpretation to economic\ntheory that a pandemic also can push the world economy to depression and nobody\ncan predict about the concussion of a pandemic without inventing an effective\nmedicine to control it. Economists are poor when depression is created by a\npandemic because they cannot model and effective way out of the problem.  Economic students never learned this idea\nbefore and they were limited to a few points based on experience interpreting\nthe reasons for an economic depression. \nEconomists never believed such a new interpretation and during the\nclassical era, there were theories relating to all production factors and\nmodernization, during the past three decades economists attempted to a new\ninterpretation for economic growth and development but they reluctant to talk\non the difficulties of the poor. <\/p>\n\n\n\n

With\nstrong speculation that the world economy will recess or downturn, the\ntemporary policy direction of high-income countries is to recorrect the market\ndemand giving incentives to consumers and the policy of developed nations\nmotivated developing nations such as Sri Lanka to offer few incentives to poor\npeople for their survival. The International Monetary Fund has focused to\nprovide credit facilities rather than to suggest justice in the distribution of\neconomic advantages to lower and middle-income nations.  The most significant support in the pandemic\nsituation is to help them to enhance the exchange value of currencies in\nlower-income countries to enable them to manage imports, increase foreign\nexchange reserves and the quality of human life. Neither the IMF nor other\ninternational financial institutions are being considered this point.  Many economists feel that it needs restarting\nNorth-South dialog or globalization as the corona pandemic crystallizes the\ndisadvantages of or injustice to lower and middle-income countries. The justice\nto poor nations is not helping to carry begging bowl, but to help them stand on\ntheir feet. <\/p>\n\n\n\n

 If it looks at the changes initiated in the\nearly 1980s with the invention of microcomputers and mobile phones the\nautomation has been supported by the technology in all areas of the economy conscripted\njob losses to poor people and to work more times to gain fewer returns. Quick\ninnovations in technology and product developments such as the internet-based\nUTUBE, Twitter, Facebook, Mobile communication in Whatapp and Viber and other\nnew electronic products have contrived the young generation to follow the technology\nlike mad dogs and spend the assets and revenue to purchase technology.  The advantages of technology and new products\nhave gone to a few rich people. <\/p>\n\n\n\n

When\nanalyzing the spending pattern of the household more than seventy percent of\nmonthly income must spend on technology, renting, and debt repayments and\npeople have no opportunity to spend hard earn income on food and other\nessential requirements such as educating and skills development of kids.  Young kids spend all earning from part-time\nwork on mobile communication and few capitalist owners of electronic products\ngain billions from poor and it is a clear injustice in the world. Few investors\npersistent to make new products and exploit the young generation and the\neconomic advantages of innovation go to a few people and poor people push to\nfurther difficulties.  Technology (Mobile\nphone) use to present an immoral presentation and poison brains of people and\nfinally, payments for these presentations go to pockets of limited rich people.\nIt seems that new electronic products such as Facebook, Utube, and many other\nusers to change political opinion and against laws and regulations in\ncountries, but the governments cannot react because the authority is with the owners\nof products.  They are contrary to\ndemocratic rights.  <\/p>\n\n\n\n

Before\nthe great depression 1930s, to build a house in developed countries as well as\nin lower-income countries had an opportunity to poor people and to buy a small\npiece of land for less than $ 10000, now it has gone to more than a half-million\nand poor people in developed countries struggle their entire life to repay\nhousing loans, personal loans, and credit card debt while rich people build\nhigh rise apartments for renting and exploit poor people.       <\/p>\n\n\n\n

After\nthe recession incurred in the 1990s international financial institutions\ninsisted hard conditions to provide credit facilities to lower and\nmiddle-income customers. When analyzing the post-pandemic era, the opinion\nexpressed by Victoria Wisnieskey Otero in the South China Morning Post on 18\nApril 2020 gives valuable points. According to her opinion Corona Pandemic is\nnot a great equalizer, but it could be a force for good if we learned a lesson\nfor the post-pandemic era.\u201d She mentioned two vital points (a) unprecedented\nlivelihood relief measures would work to reduce social inequality, and (b) we\nmust invest not only in supporting individual needs, but also strengthening the\nfabric of the community.\u201d The spending patterns in the developed world don\u2019t\nreflect that they are with social inequality and investing in strengthening the\nfabric of the community.  My feeling is\ndeveloped countries invest to secure the market that is the source of wealth\nand they haven\u2019t a genuine concern on social equality. Now developed nations\nare looking for strategies to regain the lost market and regain assets.  Economic policy-makers in the world need to\nlook back at the practical implementing of policies like a repenting sinner and\nreduce social inequality.<\/p>\n\n\n\n

Going\nback to the classical era is not the wish of modern people or an option to\ncorrect policy. It is seen that some leaders urge supporters to liberate states\nencouraging protest coronavirus restrictions. Innovation, modernization, and\ntechnology are exigencies to the world and all these must be operated in a just\nsociety, which means advantages of modernization must reasonably go to rich and\npoor.  After the great depression during\nthe 1930s a large volume of economic benefits from technology, modernization\nand innovations went to a small number of rich people in a country. In Sri\nLanka, the economic benefits of the service industry attracted to a small group\nof rich people.  There is a disparity in\ndevelopment between urban and rural areas.<\/p>\n\n\n\n

Policy-makers\nof Sri Lanka need to focus on social equality and the fabric of the\ncommunity.  The restriction of\nmodernization is not the answer, but it needs expanding modernization to the\nrural community and supporting for equalizing them with urban people by more\ninvestment in the rural production process and creating employment\nopportunities.    <\/p>\n","protected":false},"excerpt":{"rendered":"

BY EDWARD THEOPHILUS The world economy has been radically changing since the great depression experienced in the 1930s, meantime, the cold war also supported control of consumer demand and the market economic system forcing many countries to spend for defense activities than investments in development projects. The war mentality limited the production in various areas […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[124],"tags":[],"class_list":["post-101356","post","type-post","status-publish","format-standard","hentry","category-edward-theophilus"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/101356","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=101356"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/101356\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=101356"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=101356"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=101356"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}