Spend To Increase Productivity, Not Just Demand...

The discussion among the analysts and economists on the rationale of the Universal-Basic-Income (UBI) in INDIA has yielded momentum as the present government’s revenue has shot-up after demonetization and there is a demand to transfer a minimum amount in poor people’s account in order to re-distribute the society’s resources which could spook public-debt resulting in higher taxes and interest rate, later, for future-generation. However, the economists deter too much borrowing, but someone with a liberal perspective would tell you that more money in poor-pockets would increase their welfare when there is no restriction of the gold-standard and the central banks can print more money keeping prices and unemployment stable. Nonetheless, money from monetary-policy and money from fiscal policy might work differently because higher money supply by the central-bank would lower interest-rate and increase employment or demand and supply or investment up to full-employment, but more money from fiscal-policy would diverge capital and labour from their optimum uses as per the market allocation than to increase public-goods and services, that has been the bone of contention among the economists of different schools, especially between the neo-Classicals or freshwater economists and neo-Keynesians or saltwater economists. The former camp favors the market-mechanism to restore deviations from full-employment, but Keynesians support government intervention during high-unemployment, they advocate use of fiscal-policy during slowdown. The idea of UBI gained higher clamor after the recession 2008 when the western or developed economies were stuck in higher unemployment and low demand. The unemployment benefits or jobless claims and social-security in countries like the US supported consumption from slumping too low, they acted as cushions to the falling demand due to sub-prime crisis, housing-bubble-burst and unemployment. Unemployment-benefits and UBI are more or less same as far as their effect on demand and the use of fiscal-policy is concerned, they increase effective-demand in the economy, nevertheless, economists like Barro oppose high-public-debt and Keynes also advised fiscal-policy during slowdowns because higher public-debt might constrain the economy’s budget during high unemployment. Notwithstanding, public-spending on increasing productivity might have a positive effect on the economy than merely increasing demand because higher productivity could reduce prices by increasing supply and higher wages would also increase demand, but higher demand after  full-employment and limited supply would increase inflation or prices and interest rate. INDIA is still recovering from the previous slowdown and effects post-demonetization, read lower demand, which might require government spending to increase productivity and wages when inflation and growth projections or expectations are biased lower.