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COMMENTARY: Economic planning in an austere culture

Igwe

By Dickson Igwe, Contributor

Effective long-term strategic economic planning specific to a country’s customs, traditions, and culture is great for everyone: national stakeholders, citizens, employees, employers, businessmen, investors, and governments.

However, any type of economic planning for the British Virgin Islands must take into account the various nuances, arguments, and discussions, of contemporary western economics.

The proceeding story continues the assessment of austere thinking in economics. The narrative assesses austerity as a model in strategic economic planning, in the post-disaster British Virgin Islands.

Austerity is top-down and asserts that the wealthy are the key drivers of an economy.

Stimulus does not necessarily oppose the austerity culture of top down. However, stimulus argues that the masses at the base and middle of the wealth pyramid are the key drivers of the economy.

Austerity is the idea that ‘unfettered private enterprise’ is the answer to growing an economy, from recession, to growth.

Preceding stories in the series of articles on post-disaster economics have asserted that austere economic thinking is the belief that deregulation, and tax and public spending cuts, lead to reductions in national debt and annual deficits. Austerity creates a competitive economy.

There is a bias towards austerity in certain powerful circles. Austerity is simply another name for supply-side economics.

Austerity powerful idea in western thinking

Austerity drives the thinking that business and the entrepreneur are omnipotent in the Odyssey to prosperity. Austerity remains a powerful idea in western economic thinking.

Austere thinking, ‘a perverse belief that economic hardship is good for the soul’, has led to a number of observable outcomes in western democracies: number one is a great increase in wealth inequality; two, the destruction of the idea of a middle and working class; and three, a divergence of demand and output, in favor of output.

Output has increased with the triumph of capitalism. Public policy in the west favors the investor over the consumer, the businessman over the customer. The common term used: trade liberalization, austere thinking birthed globalization, and globalization was further strengthened by the information revolution.

Now, austerity is a belief in top-down, trickle down. It is a culture that has increased the output of goods and services. Businesses have been encouraged in a super friendly business environment that places free enterprise on the proverbial pedestal.

However, austerity has also brought about a fall in consumer demand in real terms since the end of the Great Recession in 2009. This is an imbalance driven by the impoverishment of the middle and working classes, by a massive transfer of wealth from the base and bottom of the wealth pyramid to the pinnacle.

Trickle down

Trickle down — the idea of wealth trickling down from the one percent to the 90 percent — is an austere narrative that has threatened the western economy with deflation, as consumer demand has contracted, as a result. Then, consumer debt has increased, making for a ‘double whammy’.

Deflation occurs when there is an excess of supply over demand, leading to falling prices.

Deflation is further strengthened by burdened debtors who keep their spending down, their wallets zipped. Deflation is not considered healthy by economists who see a healthy economy as one where a small rise in inflation points to strong consumer demand and an ability of businesses to meet that demand.

To solve the problem of deflation, economic policymakers in western capitals allowed for the growth in credit to bridge the gap between falling demand and increasing supply.

A highly-leveraged economy was the result. Credit rises increased the profits of both the banks and the businesses where credit purchases are made.

But, consumers and businesses borrowed heavily to meet demand and investment needs. However, the businesses owned by the one percent, increased profitability, and the owners of those businesses grew enormously wealthy, as consumers and borrowers became increasingly indebted.

This was a see-saw invariably weighted towards Jack the billionaire corporation owner.

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3 Comments

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  1. TurtleDove says:

    What a mouth full!

    We simply have a situation in which there is not much money and it has to be spent only on things that are necessary at this time. Lets try accentuating nature, the simplicity and benefits of a less hectic lifestyle in the BVI.

    Definition of austerity
    plural austerities

    1 : the quality or state of being austere: such as
    a : a stern and serious quality the formal austerity of his manner
    b : a plain and simple quality the austerity of the design
    2 : enforced or extreme economy especially on a national scale lived through years of austerity after the war fiscal austerity a series of austerity measures [=measures taken to reduce spending]
    3 a : an austere act, manner, or attitude monastic self-denial and austerities
    b : an ascetic (see ascetic 1) practice

    https://www.merriam-webster.com/dictionary/austerity%20measures

  2. Diplomat says:

    Both stimulus and austerity models require strategic planning.Due to lack of resources to fully deliver/supply required services, government has to borrow to make up the shortfall. Similarly, residents often have to borrow to meet their demands and maintain their desired standard of living and quality of life. Borrowing is way of life in both public and private sectors.

    Government is expected and promised to deliver a certain level of services but the revenue stream is insufficient to deliver the services; or inefficiencies prevent them from doing so. Consequently, they have to borrow to meet expectations.

    Residents trying to keep up with the XYZs also borrow to meet their adopted and desired lifestyles.

  3. Economics says:

    I appreciate the attempt to engage western economic theory into the BVIs planning, however, there is some misrepresentation that Trickle Down is completely failed and that only government through stimulus will be our savior.

    Let me discuss modern US policy and offer outcomes of such policies as a reality check. The Troubled Asset Relief program also known as the bank bailout had two main objectives. First was to stabilize the dollar to prevent a global depression and the second was for the bank money to work its way int9 the economy as a stimulus. The first objective was met but the second did not occur as new legislation was introduced that prevented banks from lending to the extent needed. By and large TARP was viewed as a succcessful program as almost all of the billions lent by the government to private companies was repaid.

    But the economy was not recovering as fast it should after a major correction so The Stimulus was introduced which promised the creation of 3 million jobs at a cost of a trillion dollars. Mathematically that’s $333,333 to create a job!

    Not only did the stimulus not create those millions of jobs it was paid for by incurring more debt. I challenge the author here to defend this stimulus as a good example for the BVI to follow.

    Fast forward to December 2017 when the US passed a new tax law that lowers corporate taxes and could be labeled as a trickle down policy. The result has been billions of dollars being repatriated back to the US, manufacturing plants returning the US and numerous companies providing raises and bonuses to their employees and the creation of millions of jobs.

    Did this trickle down to the average person or just favor the rich as the author asserts? Walmart is the largest private employer in the US and just increased its minimum wage by 10 percent and handed out $1000 bonuses to 1million employees. Many other companies are doing similarly and guess what? Unemployment is low and black unemployment is at historic lows. Seems to me that we shouldn’t discard what Igwe is calling Austere thinking.

    Neither should we discard stimulus as the BVI will need both and then some. Keep in mind that part of the stimulus programs I mention above are substantially paid for by trickle down theory. To be specific, tax cuts were part of the all the stimulus programs mentioned above.

    There is theory and there is reality and I am hope Dickson will include more of the latter in future articles.

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