THE ENERGY DEBATE MAY END HERE

Decentralization which goes in favor of market, means survival of the fittest, will flush out competition sooner or later, and is not very different from centralization, again, a kind of monopoly, in which government dictates the terms and often revenues are important. But, actually, they are revenue minus subsidy or subsidized-revenue. So, the price movements of all the firms are almost predictable, upwards or downwards, mostly upwards and rarely downwards, depending on the consumption patterns responsible for business-cycles and of-course during recession they go down, but India wasn’t severely hit so the effect was almost negligible. And, also because lower levels of demand as compared to developed regions of the world. But it won’t be like this too long and i’am sure I will not. Cartels are also responsible for similar price movements, and, for a common man that’s why they are cartels. But, market, as mentioned above, means survival of the fittest, where survival is not a very difficult term to understand but “fittest” need some explanation. It refers to, as far as, i think, most efficient – lowest cost, lowest price, and content with the margin as long cost does change wile maintaining a capacity (a sub-optimal point, for economists) –firm. Capacity to absorb demand side shocks. And, such a thing is possible only under Perfect Competition, for layman, price-competition with maximum number of firms. Actually, as far as, the regions enjoying monopoly over energy-resources are relishing nature’s monopoly, and as a, whole we are all doing the same. But nature has also suggested the use of JATROPHA ;ent of India, Dr. Abdul Kalam, is one of the strong advocaters of Jatropha cultivation for production of bio-diesel.[4] In his recent speech, the Former President said that out of the 6,00,000 km² of waste land that is available in India over 3,00,000 km² is suitable for Jatropha cultivation. Once this plant is grown the plant has a useful lifespan of several decades. During it life Jatropha requires very little water when compared to other cash crops. For plan for supplying incentives to encourage the use of Jatropha has been implemented.”

“ http://en.wikipedia.org/wiki/Energy_policy_of_India#Bio-Fuels”

“The hardy Jatropha is resistant to drought and pests, and produces seeds containing 27-40% oil [2](average: 34.4% [3]). The remaining press cake of jatropha seeds after oil extraction could also be considered for energy production[4].”

“ http://en.wikipedia.org/wiki/Jatropha”

The plan to use Jatropha should outpace our regular plans and policies, if the debate has to end.

LET’S BE HOPEFULL!!!

RECESSION AND STRUCTURAL CHALLENGES

Economies, world-over, are experiencing structural-challenges , because of money and irregular changes in money-supply, depending on the level of inflation and employment, to affect the level of consumption, level of income(profit, salaries and wages) and thereby the level of growth. Here, profit, salaries, and wages, can be taken to be three classes - high, middle, and low. As we commonly assume and assume it right that all profits are invested, salary is divided between transaction, precautionary, and speculative demands, and, again, we rightly assume all wages are consumed. So, as far as, the threat of inflation is concerned, at a particular point of time, for high-class it is zero, for middle-class they have a capacity to absorb the shock but at the cost of savings, and the low-class, either curtails consumption or loose whatever little savings they have. So, in the next-period, if we assume an increase in money supply and all three types of income, profits will be invested, salaries will be divided between the three types of demand, and wages will be all consumed without affecting the savings, and would directly affect the level of inflation, depending on the level of stocks of basic goods/services. A good stock is likely to absorb the increase in the level of demand and an insufficient stock would add to inflation, spiraling all over the economy, increasing the cost of economic-growth and prosperity. Therefore, structural-challenges mainly imply the supply sides, supply of money and basic goods/services. Changes in money-supply, through interest-rates or printing new-currency, as we all know, affect the level of inflation and thereby the value of money.

Adjusting interest rate as per the economy’s need is an old and common practice, but the latter is not common and in absence of a standard, gold or debt instruments ( securities and others) is a tool to exploit long-term opportunities in the short-run, responsible for frequent trade-cycles. But, if it is accepted as a policy-tool, by all together, and no one is left to blame other, then, I do not think it is a bad idea and discriminatory policy actions that affects the global-welfare-equilibrium, if not positive, is not welcome. In particular, i do not think there is a difference between long-term and short-term objectives, except one, savings for the coming generations.

The recession has left us with low-level of demand and the only way out is to affect the level of demand with a reasonable level of inflation. And, since Economics does not believe in charity and a Keynesian solution, digging and leveling, does not seem rational, not creating any real-asset, besides its multiplier- effect through effective demand, not necessarily through the demand for basic goods/services, and also through the spiral-effect of industrial goods/services on basics goods/services without inflation is not possible. Therefore, an increase in the rate of interest would bolster savings and investment, and, income, savings and purchases due to intervening deflation, lower prices and multiplier-effect. Demographic-structure is also a function of savings, especially for young-couples in developed regions. Another effect of high interest rates would be on expectations, often taken as an indicator of recovery.

In a capsule, we can choose to increase the level of demand keeping the inflationary expectations, mainly a result of prices of basic goods/services, as low as possible to avoid the pressure on profits to increase salaries and wages, thereafter. And, a policy-mix is always good to know what works better in a particular situation, if we are confused, and apply the one which works better than others, in a greater magnitude.

Let’s be HOPEFULL!!!

CLASSICALS, KEYNESIANS, AND THE RECENT ISSUES

The Mark Thoma’s comment,

"I think the thinking of the libertarians and freshwater believers is that if there’s a recession, then the free market has a good reason for it. It’s a “real” business cycle phenomenon, and the best thing to do is let the free market have its recession or depression for as long as the free market wants (and we had some doozys before Keynes, and often). The Fed shouldn’t tamper with the free market, just like the fiscal branch of government shouldn’t. The Fed should just maintain zero inflation, or go on the gold standard. It shouldn’t try to manipulate the interest rates of the free market, or get involved in business cycles at all."

... Seems to be inspired by the supply-side economics, “supply creates its demand.” But, how supply creates its demand and in which situations is worth considering. Classicals never said that if you keep supplying TV it would create a demand even in the face when people are broke. What they mainly implied was either invention/innovation, because it was an age of discovery and inefficient markets, which attracts people to buy and compel them to work hard to get the objects of desire, or they meant increasing employment, income and demand by increasing the production and supply. Unluckily, the state of affairs as a result of recession caused by general overproduction and falling prices due to cheap credit availability has left the economy with lay-offs, salary-cuts, higher-unemployment rates and depressed demand, i mean reduced purchasing power in the hands of consumers. I think Thoma is talking about the case where over-supply and reduced prices are supposed to be matched by the same level of demand, given a certain level of purchasing power, but, here, that is not exactly the case. Where is the purchasing power? When Classicals said Free-market they took the demand for granted or they implied the same thing what Keynes called effective demand but somewhat differently, as explained before. And, even the notion of Classical Stationary-State has resemblance to the famous Keynesian concept of Liquidity-Trap, which a time period between low levels of economic activity and any innovation that shifts the Production-Function upwards, very similar to a period between recession or depression and changes in policies, a kind of innovation. From colonialism to great depression to the recent recession the common thread has been the experience of one or other kind of bottle- necks ranging from technology to raw-materials to labor to search of new markets and last but not least in our level of thinking. Lack of Innovation has been at the root of all the crises and entails all the above. A stationary-state comes where the level of consumption, responsible for high to higher level of economic-activity, ceases to increase and the incentive to invest also becomes zero. This is not a matter of criticizing either Classicals or Keynesians, at all, but only to point-out that the basics remain same either we choose the demand-side or the supply-side economics to affect the growth-rate and a closer look will reveal several common concepts, although the words used to describe them are different besides the time-frame. As far as inflation is concerned it does not only increase due to increases in money supply rather inflation is mainly the result of limited supply stocks. And, if there is enough supply of goods to absorb the increase in demand, increases in money-supply is not a great concern. Remember, “too much money chasing too few goods.” The problem of trade-off between inflation and unemployment by the Central-Banks should be supplemented by the Government attempts to boost the supply of stocks or goods/services and the Bank’s decision should be a little biased for reducing unemployment unless the inflation is too high. I think that’s a good growth plan.