Lost Jobs and Unemployment Benefits...

The Bankruptcy-code passed few months back was among the most important legislations of the parliament, besides the GST and the price-control during high inflation, the government has proposed to set prices of some categories during high-prices due to demand and supply mismatch and lower interest rate and unemployment (more jobs). The uncertainty before the Bankruptcy-code on the hiring and firing of employees was a major road-block in the way of starting investment and employ people when the Indian-economy is growing at a high-speed even when the developed world is going through weak demand, which has undermined the Indian-exports and achieve us double-digit growth-rate. Once a company is declared bankrupt it becomes easy to lay-off labor and dilute the assets to pay bank-credit or credit… During slowdowns unemployment or lay-off increases which lowers demand and growth and investment and lowers the price-level whereas due to boom employment or hiring and demand, growth, investment and prices increase. The bankruptcy-code deters firms to fire labour because of loss or low demand. The market that has a weak labour bargaining-power, employ more people temporarily than a labour-market which gives importance to permanent-jobs. The temporary labour by contract could be fired when there is a downturn. The bankruptcy-code was positive for firms to decide for solvency; naturally a bankrupt firm could not support workers because of balance-sheet recession. Nonetheless, an economy with more permanent-jobs is likely to recover fast during a slowdown because demand would go down less while an economy with more temporary-jobs would take more time to recover. Lower nominal wages given to the labour could be substituted for lay-offs… lower nominal wages instead of complete lay-off could help the economy to recover fast, however during heavy headwinds it is not possible to continue employment… Lay-offs might be the last option used to tackle unemployment and demand and growth. Notwithstanding, the social-security-net by the government is also a land-mark labour-reform, but INDIA still face void in terms of a comprehensive unemployment-benefits plan because it is true that during recession firms employ temporarily and create low paying jobs or less jobs…  Unemployment-benefits during downturns could replace the demand lost because of joblessness…       

Problems with the GST...

The GST is an issue i used to avoid writing on because i think all types of taxes have the same demand and supply effect on the economic-growth, have discussed taxes before that lower taxes would boost private spending when the public pays a higher part of their income as taxes. Both, income and indirect-taxes are levied in a big-part of the world when there should a choice to pay in indirect taxes or direct-tax over a year. This should be a choice of the public to pay either income-tax or indirect taxes. Both would have a dampening effect of demand and growth… Since taxing twice, direct-income-tax and indirect-taxes do not look rational, a developing economy is likely to have higher taxes because higher fiscal deficit and the fear of debasing money… Nonetheless, higher debt-GDP-ratio in much of the developed-world, the rolled over fiscal-deficit over the years has resulted in a heavy debt which does not allow the government to commit a stimulus the size the problem warrants… Thus, lower taxes are expansionary and higher taxes reduce demand and inflation… Higher government spending is often the cause of higher inflation… However, the economy-policy must be there to increase demand/supply and economic-growth to the potential… Nevertheless, the GST is the indirect tax part of the economy, but it would also affect demand, growth and investment in the next-period… However, I was always conscious of the problems the GST would have to be through… and a same rate of tax for every good and services would not be feasible because different goods and services have different utility and dependent on the needs of the society which is important for growth and development… which turned out to be the same as thought… we have four slabs for goods and services… Higher GST would be demand-negative which would regress both, consumption and investment… Notwithstanding a proper VAT could be the best for the economy… A single VAT –Value-Added-Tax because we also measure the GVA, i.e. Gross Value-added… According to the Laffer-curve taxes are revenue increasing only upto a point, but after then it decreases revenue… A tax on value, for both direct and indirect taxes could be the way to simplify the tax-structure for a better understanding of our tax-system. Taxes are also an effective tool to incentivize investment in case of higher social-utility or somewhat important for controlling inflation…  

The US might target higher real-wages # 2....

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 The US might target higher real-wages....

The central-bank could commit higher real-wages through tighter labour market and low inflation and inflation expectations through low interest-rate when unemployment is below the natural-rate and there is an upward pressure on the real wages by lowering the borrowing cost, increasing supply and lowering the general-price-level because lower prices would increase the value of money and demand and lower unemployment and higher growth. Higher real-wages could increase investment in people skills and reduce voluntary unemployment and increase the supply of labour and productivity too, it would increase demand and growth... Nonetheless, lower interest rate due to higher supply and lower price-level could increase real-wages-expectations and increase spending and lower prices may help increase savings and investment and the economic-growth rate... Higher real interest-rate, since of lower-prices, would also increase return on capital...A little higher real-interest-rate would save both little, labour and capital and would help lower  demand and prices with a downward bias to make the money strong and valuable to increase demand in the long-run when population growth rate is going down... Higher real-wages in this scenario would help maintain demand/supply and the price-level and the real- GDP... Too much expansionary and too much contractionary policy would increase volatility and in the attempt to control the swings during booms and busts, either we slow too much or grow too much... If the FED tries to stabilize the value of money at the current-level of the prices or increase disinflation or little deflated expectations is would increase the wealth expectations and demand and the economic-growth-rate... Borrowed from the Milton Friedman’s OPTIMAL MONETARY POLICY...  The government too may contribute by increasing the real wages expectations by demanding more labour and help achieve wage-gains... Nevertheless, if the budget increases on infrastructure and skills-development or reduce taxes on the lower and middle-class it could also increase real-wages and expectations and spending – consumption and investment...  When the value of money increases in the economy it affects everybody in the same way by the way of inflation/disinflation/deflation...                                                                                                                                                                                                                                              

The US might target higher real-wages....

The Fed could try to moderate long-run interest-rate and interest-rate expectations that the economy can weather rate-hikes in the long-run one its current growth... without decelerating.... A little higher unemployment rate may save the economy from overheating... When the neutral real interest-rate has some positive bias so that the downward pressure on the price-level to make savings worthwhile... Capitalists earn profits, save and invest; they have a low propensity to consume... they demand less compared to income... The value of multiplier would be low... The economy is demand deficient... Since 1970s real wages have stagnated low even after increase in the economy’s productivity... Higher real wages would increase domestic demand and income and growth..

The US might target higher real-wages....

Targeting economic-variables has had been popular...

Targeting economic-variables has had been popular though targeting the economic-growth-rate is more common than others like wage-rate, interest-rate and the exchange-rate… These variables do have a significant effect on growth by the way of manipulating supply/demand or in common the economic-activity after accounting for inflation and inflation expectation in the nominal terms… Nominal rates include the real-rates plus inflation… Similarly, we have a corresponding real-rate after subtracting inflation for every nominal-variable… Inflation decides the future expectation about the real-wages, the real-interest-rate and the real-exchange-rate…Like nominal-wages and real-wages, nominal- interest-rate and real-interest-rate and the nominal-exchange-rate and the real-exchange-rate… By targeting these variables we try form an impression or expectations about the health of the economy by managing supply/demand and inflation and the economic-growth-rate… The counter-cycle economic-policy makes the transition between boom and busts, in a controlled way so that that the trade-off between unemployment and inflation during trade-cycles for the underlying objective of growth becomes smooth… Expansionary-policy during slowdowns and tight budgets during inflation to control demand and expectation by the way of targeting variables has been the role of economic-policies for the past three decades… Targeting variables has been a popular practice also through forming expectations… Inflation or the general-price-level and expectations about the same determine the expectations about the real-variables – real-wage-rate, real-interest-rate and real-exchange-rate - and demand/supply/growth… The economic-growth and expectations about it would increase spending and demand in INDIA, if expectations about the economic-growth are bright, people would demand more and it could help achieve the full-employment and full-growth and investment to help the economy innovate could increase productivity and wages and incomes… In the West, the developed-world is cutting real-wages with inflation to make exports competitive, is also not uncommon, too… Every developed-country has a higher weight-age of exports in its trade-account… Depreciation or the efforts to increase exports during slowdown has pulled economies out of depression because when a country compares it’s domestic-demand vis-à-vis the export-sector it is more vast and also because of foreign exchange earnings… In the past three-years the low import of gold due to higher-tariffs has saved INDIA much of its exchange-reserves and foreign-money, too, through higher debt and equity inflows in the form of FPI’s, FII’s, and FDI’s… have all shot-up… Nonetheless, the export sector in INDIA is under-penetrated… The government might try to increase depreciation to give exports a kick in-terms of higher nominal-exchange rate, it is short-term fix, but, in the longer-run lowering the general-price-level or prices would save the domestic demand with the foreign-demand… lower-prices too can make exports competitive and also increase domestic demand because of increase in the real-wages… Expectations about higher real-wages increase spending… Likewise, interest-rate and interest-rate expectations affect investment and spending decisions… An interest-rate cut cycle may increase investment… the RBI has maintained that it would target a neutral or natural-rate of 1.25% which means lower real-rates than in the past which would increase real interest-rate-cut expectations... A lower real-rate would increase risk-taking because investors would move to higher-yielding asset classes… Bonds are safe but equities have higher yield, but more liquid… Lower-interest-rate-expectations could give a push to spending, higher demand through higher real wages and real-wage expectations could also increase spending… INDIA is going through expansion… but, NPA’s and impediments to rate cut-transmission by the commercial-banks is a drag on the economic-growth-rate, but, delay in action could further pull the growth-rate expectations down… Expect our governor to bring innovative ideas to the board to curb bad-loans… It is more a matter for the government because the majority of bad assets are in the Public-Sector banks…. Lowering cash-reserve-requirements during a bad-turns may help banks pass-on the rate-cut by the RBI… In the last rate-cut-cycle the nominal interest-rate was just above the 4%... Committing a higher real-wage, a higher real-interest-rate and a higher  real-exchange-rate and expectations would increase consumption and investment and foreign demand, too, in the economy through more spending and higher supply/demand/growth… and, more jobs, too…            

The Warranted Growth-Rate...

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  Industries should be local to villages where wages are cheap... and there is manpower... Industry may use more labour when real rates are also expected to go down in the medium term... Investment should be hedged through derivatives... The capital-labour or labour-capital ratio or the ratio of the cost of the both is also expected to go down... A lower ratio should increase both consumption and investment... It is a stylized fact that real-wages and real interest-rate would go down in the long-run because population could go down and supply may go up... A lower inflation expectation would increase spending... Lower real interest rate might be positive for the economic-growth rate... Growth expectations may improve...



In The Developed-World...

Lower cost of supply - lower real interest rate and lower real wages - and lower population growth-rate have made supply outpace demand and lower the price-level, and lower oil prices have all contributed to low inflation and low inflation expectation... Fundamentally we are in a lower price regime...

Protection for the sake of domestic un/employment might be feasible... If it increases domestic economic-activity and the economic growth-rate... in terms of jobs... more domestic jobs must come-up...

The government might bring out tenders where it thinks there is potential... It should guide investment... The government has the data...

Foreign FPIs can make the market dance on their tunes... The magnitude of their demand is very large... They could destabilize the market very easily... Hot money should be controlled for the sake of domestic-investors... FPIs must invest for atleast three months before they are allowed exit... Too much volatility on the downside should be restricted... SEBI should think over making the market more attractive for investors...

My Experience in the Stock-Market...

It’s been 9 days since i re-joined the stock-market as an online-trader and this time my experience has been very-good and is worth sharing... It was beyond the expectations... With the same demand and supply... of the stocks... it’s the volume... When you will search net http://www.investopedia.com/university/stocks/stocks4.asp you would agree.... The most important link is Gainers from the ECONOMIC-TIMES website (at this very news paper).... Last time i lost much in brokerage of penny-shares, therefore, you do not need to invest heavily in this type of shares if your are  are not a long-time investors... This time i got the impression that you can earn Rs 500 per/day if you invest Rs 50 Thousand, if you follow my procedure... 1% per-day...  In Gainers, the above link. you have to find in the volumes of demand and supply from Bids and Offers, i.e. Demand and Supply, respectively... they follow the same demand and supply-functions like the Economics text-books... when demand increases prices increase and otherwise they go low, during low supply prices will increase and higher supply would reduce prices, lower prices are the right-times for investment when the Sensex is RED and GREEN is the time to sell... It would also stabilize the market because during bear-cycle when the stock price is cheap buying would increase the market and in the bull-cycle sell it when it pays 1% or more... In the next-year possibly you would be able to double your investment... If i’am not exaggerating... One percent every day could pay you back at 20% a month... On a Rs 50 Thousand investment you could earn 1% every day and double the income and investment next-year... No investment doubles your investment in One-year... The probability is that if you buy   6 shares  3 would give you 1% equity-returns form investments every day... You have to find-out the gap between the demand and supply, bids and offers... A larger gap and higher bids would help higher-prices, the volume of demand and supply is very important... you need little idea about demand and supply... little Economics.... Patience would save you brokerage...