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The Print
13-07-2025
- Business
- The Print
As Trump targets trade imbalances, economists' data traces over 200 yrs of global wealth flows
A trade deficit occurs when a country imports more goods and services than it exports while balance of payments is a record of all economic transactions between residents of a country and the rest of the world during a specific period. To bring new answers to these core questions, two economists, Gaston Nievas and Thomas Piketty, have pieced together a new database on global trade flows and the world balance of payments covering the period 1800 to 2025. Singapore: When US President Donald Trump talks about the need for a 'big, beautiful trade deal' because of the nation's trade deficits with many countries, and alleges that the US faces unfair trade, the question that needs to be asked is whether today's trade imbalances are unique in history. How do current patterns of global surpluses or deficits and foreign wealth accumulation compare with those of the past? Their research, based on the historical balance of payments constructed from various data sources, aims at understanding the historical pattern of trade and financial imbalances over the years, and was published as a working paper in May this year by World Inequality Lab, a Paris-based research centre dedicated to studying inequality and its impact on public policies. In it, the economists examine the patterns of global imbalances from 1800 to 1914 as one globalisation period and 1970 to 2025 as the other, and find some striking similarities and unique differences as well. Between 1800 and 1914, Europe owned a good chunk of the rest of the world without having a trade surplus. On the eve of World War I, its foreign wealth, i.e., net foreign assets owned by European residents in the rest of the world, reached about 70 percent of Europe's GDP (30 percent of world GDP), while all other parts of the world had a net foreign debt. Interestingly, between 1914 and 1950, Europe's foreign assets vanished and were replaced by foreign assets owned by the US between 1920 and 1970, and later by oil countries, and especially by East Asia (China and Japan), since the 1970s-1980s. By 2025, the magnitude of foreign wealth ownership seems to resemble a level comparable to that observed in 1914, but with a very different geography of lender and borrower regions. The two peaks (1914 peak and 2025 peak) in foreign wealth positions, i.e., countries owning assets in other countries, are also different in many ways. The magnitude of the 1914 peak was much larger than the 2025 peak, especially if we consider the fact that only a subset of the core European powers (Britain, France, Germany, Netherlands) held substantial positive foreign wealth, while the rest of Europe owed money. 'An even more striking difference between the two peaks is that Europe was able to build a very large foreign wealth without ever running trade surpluses over the entire 1800-1914 period,' the authors note in their paper. For Europe, there was rather an enormous trade deficit for primary commodities like agricultural products, minerals etc. (as large as 3.5-4 percent of world GDP each year between 1860 and 1914), and a large but insufficient trade surplus for manufacturing goods (about 2-2.5 percent of world GDP on average over the same period). This indicates that while Europe was the manufacturing powerhouse in the 19th century and early 20th century, making large trade surpluses by exporting its manufacturing products (e.g. British textiles), these trade surpluses were a lot smaller than the deficits in the primary commodities. This means Europe was importing a lot of primary commodities for its consumption (such as foodstuff) and that a large part of its manufacturing output, using primary imports from the rest of the world such as cotton, wood, minerals, etc, was devoted to domestic consumption and investment. So, how did Europe have a large and permanent trade deficit in primary commodities over the 1800-1914 period yet built large foreign wealth. The answer lies in observing the invisible flows of Europe's balance of payments–trade in services, foreign income, and foreign transfers, which all show a positive European surplus. To quote from the paper: 'The main European powers are receiving during this period enormous flows of dividends, interest, royalties and profits from the rest of the world, and these are the flows which allow them not only to pay for their trade deficits but also to generate large current account surpluses and to keep accumulating foreign wealth in the rest of the world.' 'It should be noted that no country or region in the world has ever received foreign income inflows approaching this magnitude since then.' Also Read: Trump extends deadlines for trade deals to 1 August, takes swipe at allies Japan & South Korea Colonial extraction During the 1800-1914 period, foreign transfers flowed from south and north and mostly consisted of colonial transfers towards Europe, one example being the debt imposed by France on Haiti in 1825, and most importantly, permanent public and private transfers of tax revenue from colonies to the metropolis (especially from India to Britain and Indonesia to the Netherlands). Haiti in 1825 agreed to pay an indemnity of 150 million gold francs to the European power which was meant to compensate French plantation owners for 'lost property' following independence, but the amount far exceeded actual losses. A large part of Europe's total foreign income inflow over this period corresponds to what is identified as 'excess yield', i.e., wealth accumulated due to the differential between rate of return on gross foreign assets and gross foreign liabilities. This means that the countries that control the dominant currency and the leading financial institutions of the time can borrow at lower rates and obtain high returns on their foreign investments. Although these patterns of 'excess yield', positive and negative incomes play a very important role, the point is that they are not large enough to reverse the trade patterns in the current scenario. This is the key difference between the 'Pax Britannica' of the 1800-1914 period and the 'Pax Americana' of the 1970-2025 period. The first refers to a period of relative peace and stability in Europe and the world, primarily during the 19th century when the British empire was the dominant global power. The second refers to a period of relative peace, particularly in the western hemisphere and globally, following World War II, largely influenced by US dominance as a global superpower. In the first period, Europe could appropriate large foreign transfers and income flows from the rest of the world, to be able to transform large trade deficits and accumulate massive foreign wealth. In the second period, while the US, through its financial dominance, appropriated sizable 'excess yield', this wasn't enough to offset the trade deficit. The researchers say this explains the 'nervousness and aggression' of the US administration in 2025, in which Trump seems to believe that the global public good provided by 'Pax Americana' should be better rewarded by the rest of the world, through financial transfer by allies in compensation for military spending or direct appropriation of mineral resources and other assets in Greenland, Ukraine or elsewhere. The challenge they face is that the rest of the world does not appear to be entering a new colonial era compared to that observed during the 1800-1914 period. Another part of the economists' research looks at alternative development trajectories by running certain simulations. These simulations illustrate the role of power relations and bargaining power in global imbalances: relatively small changes in terms of exchange can make enormous differences in long-run outcomes. 'In effect, without the colonial transfers, and in particular without the colonial transfers of the early 19th century, the geography of wealth would be radically different in 1914: South & South-East Asia – and to a lesser extent Latin America – would own large assets in Europe rather than the opposite. In particular, India and Indonesia would own large parts of Britain and the Netherlands,' note the economists. Akshaya Prakash is an intern with ThePrint (Edited by Nida Fatima Siddiqui) Also Read: BRICS leaders slam Trump tariffs & unilateral sanctions, US President promises additional tariffs
Forbes
18-06-2025
- Business
- Forbes
Books: Phil Gramm And Don Boudreaux Address Seven Major Economic Myths
The front page of the Brooklyn Daily Eagle newspaper with the headline 'Wall St. In Panic As Stocks ... More Crash', published on the day of the initial Wall Street Crash of 'Black Thursday', 24th October 1929. (Photo by FPG/) The rain was heavy for parts of last weekend in the Washington, D.C. area. Seeing it coming down in sheets, it got me thinking about how people used to live. How awful it must have been in the days of primitive construction. Everything must have always been damp, moldy, buggy, and surely worse than that. Surely is operative here, and was confirmed in The Triumph of Economic Freedom: Debunking the Seven Great Myths of Capitalism, a new book co-authored by former U.S. Senator Phil Gramm (R-TX) and George Mason University economics professor Donald Boudreaux. Gramm and Boudreaux brought harsh coloring to what was merely imagined. In their chapter addressing the popular notion that the Industrial Revolution impoverished workers, they cite (among others) historian and philosopher Arnold Toynbee's description of it as 'a period as disastrous and as terrible as any through which a nation ever passed.' Philosopher Bertrand Russell asserted that the Industrial Revolution 'caused unspeakable misery in both England and America.' Where it becomes both comical and sad, Gramm and Boudreaux relay that noted class warrior Thomas Piketty uses the poetry of Thomas Hood and the fiction of Charles Dickens as ''evidence'' of the Industrial Revolution's brutality. As Piketty sees it, the cruelty of commercial progress ''did not spring from the imagination of their authors.'' Gramm and Boudreaux reject the consensus. They write that 'by every available economic measure,' the Industrial Revolution marked the 'beginning of a golden age of material well-being – especially for workers.' It had to be. The movement of people is easily the purest market signal of all. Migration is an expression of a desire to live better by working better. The rural situation individuals left had to have been awful, and the authors indicate that it was. Which explains how this review began: the authors address the actual living conditions of the 'thatched roof' variety that some choose to romanticize to this day. Rain vivifies the brutality of it particularly well. Gramm and Boudreaux cite historians Frances and Joseph Gies, who write that pre-industrial dwellings 'had formidable drawbacks; they rotted from alternations of wet and dry, harbored a menagerie of mice, rats, hornets, wasps, spiders and birds; and above all they caught fire.' Which requires a pause, now and in the future. Think about the 'thatched roof' scenario if it's raining now, or when it next rains, snows, or when it's hot. How difficult life once was. Keep all of this in mind as the simplistic claim 'we're raising a soft generation,' an 'anxious generation,' or surely something else that appeals to those invested in the laughable notion that everything's getting worse. Think about the conditions in which kids once had to be raised, and that parents endured. 'Raising a soft generation' is stupendous progress to the mildly sentient, as is 'anxious' and any other alleged pejorative that modern handwringers ride to notoriety. The crucial point here is that per Gramm and Boudreaux, 'the average dwelling changed little until the beginning of the industrial revolution.' Which explains yet again the migration of people to the exponentially better opportunities that revealed themselves in cities where production was on the rise. Boudreaux would likely agree that the Industrial Revolution by its very name signaled an escape from the autarky that by its own very name associates with poverty more closely than any other word. Equally important, the labor division that the Industrial Revolution implied resulted in 'higher pay, shorter hours, better working conditions, and even more fresh air.' The more hands and machines working together, the much greater the productivity. Eventually the previous truth resulted in more and more children being freed from daily work in favor of schooling. Those 'soft generations' revealing themselves yet again… Moving to the next chapter on some of the myths about 'progressive era regulation,' it was perhaps inevitable that government would insert itself into the prosperity that labor division rendered inevitable, which helps explain the regulation that followed. John D. Rockefeller looms large in this chapter. Gramm and Boudreaux note that amid Rockefeller's mass production of kerosene from 1870-1885 alone, prices of it 'dropped by 69 percent." In other words, Rockefeller quite literally lit up formerly dark nights and brought heat to cold winters at prices that enabled greater and greater usage among common people. Oil was no different. The authors cite trustbuster Senator George Edmunds (R-VT) as admitting that the so-called 'oil trust certainly has reduced the price of oil immensely.' And while Rockefeller's Standard Oil is to this day described as a monopoly, Gramm and Boudreaux report that Standard's market share was 88 percent in 1890, but 64 percent by 1911. From this we can conclude two things that the authors would likely agree with: to this day the most valuable corporations are the ones most expert at bringing prices down. There's exponentially more money to be made selling to many more people at falling prices than there's made selling to much fewer people at higher prices. Much more important is that monopoly is a beautiful thing. Think about it. It reveals the discovery of a market that existing businesses have completely missed. That competition eventually erodes monopolistic conditions is not just a statement of the obvious, but also a case for more monopolies. As in the profits achieved through the discovery of a heretofore unknown market are what attract the investment necessary to infuse a singularly populated market with competition. The authors vivify these truths through Standard Oil, and in the process explode the myth that industrial advance required antitrust and other forms of regulation as mitigation of what was undeniably positive. Upton Sinclair's The Jungle is much discussed in Chapter Two. In the words of Gramm and Boudreaux, Sinclair's book 'stirred the public to believe that large producers left unregulated by the government were a menace to both consumers and workers.' The assertion that Sinclair's book had vast influence brings up a slight quibble with the authors, though one they might agree with. How much of an impact did The Jungle really have? Per David Von Drehle's 2023 book, The Book of Charlie (my review here), as of 1900 only 6 percent of Americans could lay claim to the designation of high school graduate. That's not to say that schooling was necessary for literacy, but it's just hard to imagine that an avowed socialist agitating for government control (how the authors described Sinclair) could have reached many people. Again, the speculation here is that Gramm and Boudreaux would agree. This is based on their citing of a statistic indicating that the best known packinghouses were visited to the tune of 2 million per year, plus they cite a statistic from economist Gary Libecap that between 1890 and 1910, meatpacking was always either the first or second highest valued sector in the U.S. Corporate valuations indicate that Sinclair in no substantive way reached the masses with his critical portrait of packinghouses, but did succeed in reaching the relatively few with the means to not just buy a book, but who also possessed the time to read it. Which is a call for optimism today too. Ludwig von Mises made clear in his classic book Socialism that wealth begets myriad individuals to demagogue it. It's just a comment that if you lack any knowledge about the prosperity (or lack thereof) of a country, one of the most accurate clues would come care of the number of books promoting the horrors of big business, the goodness of socialism, or both. If there's lots of them, along with lots of politicians gaining fame from attacks on the rich, that's a near certain indicator of substantial prosperity. Put another way, if Gramm were president (he ran in 1996) and Boudreaux vice president, the U.S. would be thick with AOC, Sanders, and Warren types. Yes, the U.S. economy would be booming. What's important is that in the book's first two chapters, Gramm and Boudreaux are making a case for prosperity born of the freedom to innovate. From this comes greater access to market goods at lower and lower prices. They laud Jimmy Carter and Ted Kennedy (yes, that Ted Kennedy) as instrumental in the reversal of the regulatory state that was an effect of the Industrial Revolution. Traveling back in time to the 1970s, air travel was something most Americans were innocent of. Air travel was an industry sector created to move mail around the country, and that had its routes centrally planned by the Civil Aeronautics Board. The effect was expensive air travel that few could afford. Fast forward to the present, and air travel is the rule for pretty much all Americans. Gramm is from Texas, Boudreaux from Louisiana, and one guesses from their geographical origins that each knows more than a few people who travel cheaply and regularly in the fall to college football games. Packed college football stadiums are to some degree a consequence of the deregulation that Gramm and Boudreaux describe and cheer in their book. Which brings us to Chapter Three. It's titled 'The Myth That the Great Depression Was a Failure of Capitalism.' There's no argument with the authors' assertion about capitalism not factoring in what was by its description ('Great Depression') government error, but there was much disagreement with their analysis. Up front, your reviewer is not an economist. The authors are. Second, most will agree with the authors' assessment, one that is to some degree conventional wisdom among right-of-center economists. But that's why it's hopefully worth reading an analysis that rejects conventional wisdom. Figure that truth of any kind is never arrived at by the counting of heads, including very smart heads. Gramm and Boudreaux start with what's easy to agree with, that the 1929 stock market crash didn't cause the Depression. Markets are a look ahead, which means investors saw something economically troubling ahead and corrected to reflect an unknown becoming a known. The authors don't point to the Smoot-Hawley tariff as the newly arriving known. There's disagreement there, since it was in late October of 1929 when it became apparent that President Hoover would sign the execrable tariff deal in 1930. Markets don't wait to price knowns, whether good or bad. Still, if the authors and others disagree about the market impact of Smoot-Hawley, that won't be debated here. What will be debated is their assertion that the real driver of the crash was that 'American industrial production had begun to decline two months earlier, in August 1929, which is the official start (as reckoned by the National Bureau of Economic Research) of the formally defined initial recession.' They follow the latter with a quote of Marquette University economist Gene Smiley, who contends that the 'initial downturn in economic activity was a primary determinant of the ending of the 1928-29 stock market bubble.' That's what will be challenged here. If we ignore that 'bubbles' are an impossibility as is when it's remembered that there's always a buyer and a seller in any transaction, we can't ignore that it couldn't have been two-months-old news that sparked the correction in October. Markets are once again looking ahead while relentlessly pricing all known information, which means it couldn't have been the pricing of industrial production information from two months earlier that sparked a correction two months later. Moving on to what happened during the downturn, to do so requires a little bit of pre-commentary to help clarify the disagreement with their analysis. For background, it's notable that in 2023 alone, $50 billion worth of investment found its way to U.S.-based AI, and AI-adjacent business concepts. This investment surge took place amid 525 basis points worth of increases in the Fed funds rate. It's a reminder that capital finds production, and without regard to what central banks are doing. And the capital inflows are global. This isn't a modern concept. In the decades and centuries preceding the Great Depression, along with the decade (the 1930s) that most defined the U.S.'s Depression, China was growing by leaps and bounds, and its growth was most prominently an effect of capital allocated by Jews with origins in Baghdad, and who were headquartered in India for substantial timeframes during which they were financing growth in China. They didn't even speak Chinese. Where there's talent there's always capital. A statement of the obvious to readers interested in a book Gramm and Boudreaux? Most certainly, but that's why some of the analysis in the chapter didn't ring true. It's important to add for clarity that where there's talent there's always trusted money. And the money is there not because of central bankers, but because production is itself money. Per Adam Smith, 'the sole use of money is to circulate consumable goods.' We produce to trade, and money is always where there's production as though – yes – placed there by an 'invisible hand.' That's why the dollar liquefies trade as you're reading this not just in Caracas and Teheran, but also in Pyongyang. The Fed didn't place so-called 'money supply' in those cities, but the existence of market goods ensures it. What's true now was also true of the former Soviet Union. Illegal though the dollar was, it facilitated transactions there before the Soviet Union's demise, after, and does to this day. Which brings us to money in circulation in the U.S. It's not planned in amounts any more than the amount of dollars circulating in Buenos Aires or Beirut is planned, rather it's an effect or production. That's why there's copious amounts of money in Palo Alto, but relatively small amounts in El Monte, CA, or copious amounts in Chicago, but very little in Cairo, IL. The booming growth in Palo Alto isn't an effect of a generous or 'easy' Fed (money is so tight in Palo Alto that just about all capital for businesses is equity capital, as opposed to loans), instead it's an effect of the remarkable innovation that takes place there that is a magnet for global capital. On the other side of the world, it's a known quantity that China's technological advance is largely an effect of capital produced right here in the United States. Money is a consequence, never an instigator, which is why no one need ever worry about so-called 'money supply.' Where there's production there's always money. As Mises himself put it in The Theory of Money and Credit, 'No individual, and no nation need fear at any time to have less money than it needs.' Precisely. If Jeff Bezos moves to impoverished West Virginia to start a business next week, capital flows into the Mountain State will be staggeringly large, and that's true even if Bezos arrives penniless. Why all the throat clearing? It's hopefully useful ahead of Gramm and Boudreaux's commentary about what the government did, or didn't do, as the economy began to contract. They write that 'when the Great Depression came, the Federal Reserve stood by, allowing one-third of banks in the country to go out of business, and the money supply to fall faster than prices.' What they assert is accepted wisdom, but is it true? The view here is that it's not. For one, the Fed was never intended to just bail out banks, rather it was expected to lend to solvent banks. This is an important distinction, and more than anything a reminder of the Fed's superfluous nature as a lender of last resort. That's because solvent banks have generally avoided going to the Fed for a distressed loan of any kind. To do so is an admission of bankruptcy that feeds on itself to the bank's detriment. The reputational harm of going to the Fed for a loan is massive, and realistically existential. The good news then and now is that there are endless non-Fed sources of credit ready and willing to lend to solvent banks. The authors themselves point out that before the Fed's creation, 'With no formal lender of last resort in place in 1907, bank clearinghouse associations in large banking centers acted as nongovernment 'quasi-central banking' institutions, as they had done in past panics.' Assuming their analysis of the Fed's inaction is true, and worse, was a negative for banks, then it's only logical that market-driven sources of capital (including clearinghouses) would have filled in where the Fed allegedly didn't. Or not, and this too is crucial. Markets work brilliantly because businesses are routinely allowed to fail if they no longer rate capital. Banks are no different, nor should they be. Just the same, for the authors to imply that the Fed is or was the only entity capable of propping up banks is like saying that without Social Security no one would have retirement accounts, that without the U.S. Postal Service no one would get packages, or much more pertinent, that without banks there would be no credit. Quite the opposite with banks. By the early part of the 20th century, most credit was business-to-business as is, and well outside the traditional banking system. The authors cite Milton Friedman and Anna Schwartz, and their lament that 'the money stock' fell 2.6 percent from August of 1929 to October of 1930, but money circulates most when there's production to move around. That the so-called 'money stock' would decline amid a substantial downturn is logical, as opposed to alarming. It's as though the authors want to acknowledge a very real downturn, and the government's role in it, only for them to expect that money will continue to circulate as before, and as though nothing has happened. No, money in circulation is an effect of economic activity, which is once again why there's lots in Chicago and very little in Cairo, IL. But assuming a decline in the so-called 'money stock,' why didn't private and global sources of credit fill in for an allegedly absent Fed, and in the process attain great reward for meeting a glaring market need? If the answer is that the whole world was on fire, then wasn't the decline in the so-called 'money stock' once again a loud market signal that demanded inaction by government? And if a lack of government action is seen by readers or the authors as unsophisticated, do they or readers really believe the Fed could have altered reality? Much more important, should the Fed make it its mission to alter reality by suffocating market signals? Thinking more about 'money stock' or so-called 'money supply,' in a book about economic freedom that asserts via Lord Macaulay at the outset that politicians should observe 'strict economy in every department of the state,' the authors are making a surprising case for government to fix what they assert that government broke. As the authors note, President Hoover combined tax increases with massive increases in the federal spending burden, he leaned on top employers like Ford to not reduce wages such that the market for unemployed workers couldn't clear, after which FDR doubled down on Hoover's errors with a dollar devaluation (the authors don't mention it, but the view here is that the devaluation was significant), massive new regulation of farming activity when farming still represented a lot of U.S. output, even bigger increases in the federal spending footprint, an undistributed profits tax of up to 74% on corporations that had the temerity to sit on earnings ahead of putting them to work, etc. etc. Policy under Hoover and Roosevelt was awful, period. About the previous truth, the authors are clear. And there's no argument with them there. Where there's argument is in their belief not just that the Fed was the principal cause of the Great Depression, but that having allegedly caused it, the Fed could have somehow ended it. No chance. Boudreaux knows more than anyone that governments have no resources. To then suggest that the Fed could keep so-called 'money supply' artificially low in the 'closed economy' that was and is the world economy is impossible to countenance, as is the notion that the Fed possessed the power to overcome the monstrous economic policy errors overseen by Hoover and Roosevelt that were reflected in declining amounts of production, and by extension, declining amounts of money in circulation. In short, you don't fix central planning with central planning. The authors are particularly and rightly critical of President Hoover for his 'successful jawboning of Henry Ford and other corporate leaders to extract promises not to cut wage rates,' but two pages before they cite as valid Allan Meltzer's assertion that ''if the Federal Reserve had prevented the decline in money, falling prices would have raised real balances [i.e., raised households' and businesses' purchasing power], created an excess supply of money, stimulated spending, and limited or ended the decline when the economy began to recover in spring 1930.' Why was it ok for wages to match market realities, but not market prices? It's a long way of once again agreeing with the authors about the many policy errors made by Hoover and Roosevelt, all the while disagreeing with their focus on the Fed as the primary cause of the Great Depression. It can't be said enough that declining money in circulation is an effect of reduced production, not a tight Fed. We know this from now and then simply because capital then and now moves around the world to its highest use. Boudreaux knows this particularly well given his decades worth of commentary about how so-called 'trade deficits' are as old as the U.S. is. It's true, and it's just a reminder that for most of the U.S.'s existence, it has been a major destination for global capital. Applied to the 1930s, it wasn't a tight Fed holding the economy down, it was bad policy that restrained the recovery in a way that repelled capital from around the world. Shrinkage in so-called 'money stock' or 'money supply' wasn't the cause of the downturn, it was the effect. Not so, according to Gramm and Boudreaux. The authors are up front that they agree with Friedman, Schwartz and Meltzer about the Fed's 'catastrophic failure to act as lender of last resort, the primary function Congress had created the Fed to perform.' As opposed to money being a natural effect of production a la Mises, Smith, and, at risk of insulting those listed, your reviewer (see The Money Confusion), they write of money creation by central banks as the economic instigator, accelerant, or both. In their words, and in a description of a near-term recovery under FDR, they write of how an increase of so-called 'money supply' provided 'much-needed fuel for increased economic activity.' None of this rang true, particularly from Boudreaux. The idea that a market economy requires creations of government to "supply" exchange media in proper quantities is difficult to take seriously. From there, and if we ignore that the Fed was never expected to lend to just any bank, why didn't private sources of credit fill in for the Fed? From this are we to conclude that 'market failure' caused the Great Depression? Considering so-called 'money supply' some more, Gramm and Boudreaux's analysis suggests money doesn't go where it's treated best or where there's production, but instead that central bankers can just create it and that the creation of it will immediately restart the economy as though the latter is an engine. That simply cannot be. And if anyone doubts this, they need only contemplate how long millions or billions deposited in west Baltimore's banks would circulate in west Baltimore. To say that 99.99% of the money would never touch a hand of any local is a blinding glimpse of the obvious, so why wouldn't what's true for west Baltimore apply to a nation enduring truly mindless economic policy? Of greatest importance, why are two free-market champions fairly explicitly calling for government intervention of the bank bailout variety in a book not just about economic freedom, but that routinely notes the government's role in economic troubles? Governments are rightly described within The Triumph of Economic Freedom as the cause of economic downturns, but when the bitter fruits of bad policy infect banks, the authors are clear that the government must step in to save financial institutions. Why? Why not leave it up to market-based sources of credit when it comes to choosing to save them, or not? Closer to chapter's end, they cite Friedman biographer Jennifer Burns's assertion about the Great Depression, that 'what appeared to be a failure of market was in fact a failure of men.' Yes, so true. Policy failure. Despite this, Friedman, Schwartz, Meltzer, Gramm, Boudreaux, and countless other economists contend that the men from the same government that oversaw policy failure could have sidestepped a lot of it if only the men at the Federal Reserve had stepped on the market's message? That's hard to take seriously no matter what passes as conventional wisdom among real economists. And it also arguably misses the point. Whether the Fed as the all-powerful entity capable of propping up the economy is true or not, since when are bailouts and central planning of monetary aggregates part of the free-market playbook? Boudreaux has a long association with the libertarian Cato Institute, as does Gramm. It rates mention as a way of wondering if the view inside Cato has evolved such that a little or a lot of central planning has suddenly acquired good attributes at 1000 Massachusetts Avenue; that for an economy to continue growing during difficult stretches, central bankers must plan so-called 'money supply' all the while being on the ready to liquefy or bail out banks if and when the central bank's planning of the aggregates fails, or policy fails more broadly. Getting right to the point, do Gramm and Boudreaux believe government intervention in declining economies is necessary to keep them free and growing (they cite Ben Bernanke's assertion of just that in glowing fashion, describing a famous speech he gave about the alleged causes of the Great Depression as "extraordinary"), and do they believe bank bailouts are a necessary part of this playbook? Their book indicates that they very much do, and it's not just Chapter Three that informs this assertion. Chapter Five similarly indicates that Gramm and Boudreaux don't just favor government intervention and bank bailouts during slow economic periods, but that they also view the mix of interventionist policies as essential. As someone who lunches near weekly with Cato Institute co-founder Ed Crane, these are views he decidedly does not share. In between Chapters Three and Five, Gramm and Boudreaux address the myth about trade 'hollowing out American manufacturing.' Quite the opposite. As they note, a big problem with the analysis involves a 'a failure to distinguish manufacturing output from manufacturing employment.' It's an important distinction exactly because it speaks to the beauty of cooperation among humans and machines. As machines and global hands joined in the production of food, more and more Americans were freed from the production part. This is called progress. The authors write that while 75% of Americans worked on farms in 1800, 33 percent did in 1900, and 1.6 percent by 2000. In the words of Gramm and Boudreaux, 'jobs weren't stolen, they were abandoned for better opportunities off of the farm." Factories are no different. As production processes become more sophisticated, and globalized, fewer U.S. hands are required to produce exponentially more. It's beautiful. Yes, trade and advances in production techniques freed more and more Americans from factories. Paraphrasing the authors only slightly, 'factory jobs weren't stolen, they were abandoned for better opportunities outside of factories.' There was one notable disagreement in the chapter. Gramm and Boudreaux write, 'Protectionists pretend that, starting in the late 1970s, increased trade ended the postwar golden age of American manufacturing, but they leave out the fact that the destruction of war and the explosion of trade in the immediate postwar period produced this 'golden age' in the first place.' This didn't read right. It didn't because there was no post-war golden age. Boudreaux in particular knows why, and it's explained by his and Gramm's comment that manufacturing romantics like Oren Cass fail to distinguish between manufacturing employment and manufacturing output. Considering the so-called post-WWII 'golden age,' stop and think about the 'unseen' (Boudreaux is a big fan of Frederic Bastiat) economic burden for the U.S. of a world on its back economically. As Boudreaux once said off air during a taping of The Bill Walton Show, Jeff Bezos's billions don't mean much without global production to exchange the billions for. That Americans were somewhat uniquely situated to immediately start producing after WWII wasn't a feature of the postwar U.S. economy, but a major bug. As Mises wrote in Liberalism, 'War only destroys. It cannot create.' The postwar U.S. economy was a fraction of its potential self as are all country economies to the extent that millions are dead or not working. About what's been written, the belief here is that the authors would once again agree. As they write a page later, when the U.S. economy is growing 'it becomes an irresistible magnet for the world's talent and capital.' That's the crucial point that protectionists can't grasp, and that Trump apologists choose to ignore: it wasn't trade or 'globalism' that created the so-called 'Trump voter' who was allegedly victimized by trade and globalism, rather it was that the U.S. economy wasn't even more open to trade and globalism. That's because the division of labor is economic growth personified. And economic growth is a magnet for capital without which there are no companies and jobs, along with the talent that similarly attracts capital that associates with companies and jobs. The simple, undeniable truth is that American workers were not happier or better off after World War II. What a sick myth to presume that they were, that millions had to die and that millions more had to be reduced to abject poverty for Americans to be economically sound. It's nonsense, and worse, it's dangerous. Without knowing Gramm (other than being sat next to him at an AEI dinner long ago), I know Boudreaux reasonably well. The view here is that in a chapter meant to discredit the myth about trade hollowing out manufacturing, they weren't aggressive enough in pointing out that there was no golden age, that in truth Americans were desperate to escape the factories that a stupid a war (a redundancy of the first order) kept them in longer than they would have liked. Promoters of free trade have no need to apologize, period. Trade loves workers more than any other economic concept in existence precisely because it frees individuals to specialize. While there are arguments for Donald Trump, the trade argument is baseless. There's no need to give an inch, and the view here is that the authors did in paying even slight lip service to the post-WWII 'golden age' myth. Quoting the authors once again, when the U.S. economy is growing 'it becomes an irresistible magnet for the world's talent and capital.' Truer words are rarely written, after which production among as many hands and machines as possible is the path to stupendous growth that builds on its brilliant self. Chapter Five is titled "The Financial Crisis Myth: Deregulation Caused the Financial Crisis." There's no argument with what the authors deem a myth about 'deregulation,' but the chapter was a disappointment just the same. And it was because it revealed a more interventionist side to the authors that first became apparent in Chapter Three. As the chapter begins, they write that with the 'global economy in a recession,' the 'Federal Reserve Bank expanded the money supply, thus injecting liquidity into the financial system, and the Treasury proposed that Congress adopt a financial bailout, which it did by providing aid in the form of loans to both troubled financial institutions and some nonfinancial businesses.' The authors are quoted in full as clarification for the meaning behind what they wrote in Chapter Three about a role they're willing to arrogate to the government in times of trouble. While governments are the obvious cause of economic problems as Chapters Three and Five make plain, they believe government should also be empowered to intervene in the problems of its own making. This belief in intervention exists as the major source of disagreement with the authors given my own belief that the bailouts were the crisis. It's that simple. Again, it's not conventional wisdom, but the crisis is always in government actors stepping on market signals. That's why there's so little agreement with Chapter Three's routine assertion that the Great Depression could be laid at the door of the Federal Reserve, and it's alleged inaction. Chapter Five was once again no different in the interventionist sense, which made it very difficult to nod along to Gramm and Boudreaux's explanation of 2008. In their words, 'Simply said, the financial crisis was caused by a lot of banks making a lot of loans to a lot of people who either could not or would not pay the money back.' Except that as Blackstone co-founder Stephen Schwarzmann observed in his memoirs (my review here), Whatever It Takes, north of 90 percent of the mortgages completed from 2003-2007 performed. No doubt banks need much more than 90 percent of their loans to perform, but it's just a comment that unpaid loans as the so-called 'crisis' isn't as compelling as most would like to believe. Once again, the crisis was the government's intervention in errors made, not in the errors made. In other words, the crisis was a lack of markets when markets were most needed. To which Gramm and Boudreaux would perhaps not unreasonably reply that what I've written is true so long as actual markets are at work. They might claim they weren't at work. They write of how 'Fannie's and Freddie's minimum quota for 'affordable housing' loans was raised to 40 percent in 1996 and to 42 percent in 1997; then, in 2000, HUD ordered the quota raised even further, to 50-55 percent.' They write about how Community Reinvestment Act lending toward home ownership 'totaled $8.8 billion' from the 1977 to 1991, but that 'from 1992 through the first half of 2007, the enormous sum of $4.5 trillion was committed – an increase of more than 51,000!' This, and much more from their book, would be Gramm and Boudreaux's evidence that a lack of markets informed what was happening in housing in the 2000s. That's true, but it if anything supports my point that the crisis was one of bailouts, not the federal government's surely errant subsidization of home ownership. That's because markets are once again a look ahead. They never price in the present. And with government meddling in housing in all manner of ways, U.S. equities continued to reach new highs. They did this despite markets existing to price all known information. There's my disagreement with the authors, or at least part of it. There's no arguing with them that errors were made by government, banks, and people who were borrowing what they couldn't afford to pay back. At the same time, these errors were all the time being priced, yet without markets collapsing. Unless markets are stupid, and the authors would agree they're the opposite of stupid, there's little to support their case for a crisis being an effect of what had been priced all along. The financial crack-up is what followed. It was intervention. It was George W. Bush concluding that 'the market is not functioning properly,' only for Bush, Bernanke, Henry Paulson, and others to act. And in acting, they substituted their narrow knowledge for that of the marketplace. It all speaks to another quibble with Chapter Five. Agreeing yet again that deregulation, and specifically legislation (Gramm-Leach-Bliley) tied to Gramm had nothing to do with the 'crisis,' it's just the same hard to agree with numerous mentions of Bill Clinton and Barack Obama and their errors, but no mentions of George W. Bush?! Actually, there's one mention of Bush in Chapter Five, but it was a defense of the 43rd president, that his alleged 'deregulation' didn't cause the so-called 'financial crisis.' Even if the authors disagree with this review, that Bush's bailouts weren't in fact the crisis, the view here is that Bush rates prominent mention in any story about the rush to housing in the 2000s. And very little of it good. He followed Clinton into the White House with calls for an 'ownership society.' As readers can probably imagine, the vision included increased home ownership care of the taxpayer. In Bush's words, 'We want everybody in America to own their own home.' In 2003, Bush giddily signed the American Dream Downpayment Act, which would subsidize first-time homebuyers primarily from low-income groups. The rhetorically free-market Bush administration backed up the legislation by leaning on lenders to make sure they weren't overly intrusive when it came to asking subprime borrowers for full documentation when it came to securing loans. After which the Bush HUD, much like the Clinton HUD, pressured Fannie Mae and Freddie Mac to support subprime lending. Meet the new boss, same as the old boss…? Don't worry, it gets worse. In a speech about his Blueprint for the American Dream, Bush oddly tied home ownership to the warring in the Middle East. In his own words, 'Let me first talk about how to make sure America is secure from a group of killers. You know what they hate? They hate that somebody can go buy a home.' Yes, you read that right. It's all in a book I co-authored with Jack Ryan called Bringing Adam Smith Into the American Home: A Case Against Home Ownership. Having made a jejune case that it was 'in our national interest that more people own their home,' Bush ultimately defended tax credits and grants as a necessary part of the War on Terror. There was more disagreement with the authors' analysis, including their assertion that the Fed's low rates were a driver of home ownership. The view ignores how housing well outperformed the stock market in the 1970s when the Fed was aggressively raising its funds rate. But the main disagreement with them is not in their correct dismissal of deregulation as the cause of the carnage, but in their ongoing support of government intervention, including bailouts. They write on p. 133 that 'the subprime bailout occurred because the U.S. financial sector was – and always will be – too important to be allowed to fail.' If that's not an explicit statement in favor of government bailouts every time problems arise in the financial sector, it's hard to know what would be. And it's not just bailouts. Comparing 2008's aftermath to the 1982 recession, they write that 'by way of comparison, the financial crisis recovery has benefited from the most expansionary monetary policy to that point in the peacetime history of the United States.' It implies that governments can stimulate economic growth. No! Gramm and Boudreaux end the chapter with a knock on Barack Obama, that 'the Obama program represented the most dramatic change in U.S. economic policy in over three quarters of a century.' No fan of Obama, the analysis implied that Obama was the post-2008 problem, yet no mentions of George W. Bush and his many errors? This will be chalked up to a presumption of ties between Gramm and Bush, which had me thinking the omission of Bush in Chapter Five was agony for Boudreaux. The chapter on inequality opens with a great quote from Will and Ariel Durant that 'Freedom and equality are sworn and everlasting enemies, and when one prevails the other dies.' They couldn't have put it better, but the quote explains disappointment with the chapter. Inequality is a feature of a free society, not a bug. The more inequality, the greater the freedom. Paraphrasing my review (not found on Google, unfortunately) of Boudreaux's 2007 book, Globalization, 'rising wealth inequality signals shrinking lifestyle inequality.' As wealth inequality grows, life is getting better and better. There's quite simply no need to apologize for inequality. And to some degree the authors don't. Toward chapter's end, they acknowledge the meaning of Bill Gates, Warren Buffett, FedEx founder Fred Smith, and others to progress. Despite that, they largely made their inequality chapter not about rising inequality signaling soaring living standards, and instead focused on statistics. They wrote of how 'the Census Bureau does not count two-thirds of all transfer payments as income,' the explicit point being that when we factor in the federal government's role in shrinking economic freedom through excessive taxes and subsequent redistribution of taxes collected, inequality isn't nearly as bad as the statistics show. To prove my own analysis in the previous sentence isn't imagined, the authors add that 'the Census Bureau neither reduces household income by the amount of taxes paid nor increases household income by the amount of refundable tax credits received.' Again, the Census Bureau's measure of what's not bad in the first place is allegedly mitigated by taxation and wealth redistribution that the Bureau fails to report. The view here is that the statistics weakened what should have been a much more uplifting chapter. The penultimate chapter is about poverty as a failure of American capitalism, and why that's a myth. There's no disagreement here, but there is disagreement with the presentation a la Chapter Six. As an example, they write that '74 percent of the ownership of Corporate America is held by pension funds, 401(k)s, IRAs, and life insurance companies that fund death benefits and annuities.' It read as another attempt to reveal how much more equal the U.S. is than it actually is. As the authors likely know, the top 10 percent of earners own over 85% of public equities. And this is a good thing. It's something that must be advertised. If so, maybe progress can be made in reducing the tax burden on the rich. There are no companies and no jobs without investment, and the rich provide most of it. Reduce their burden. The more unequal that society is in a wealth sense, the more money that can be put to work improving it. Inequality is poverty's foremost enemy, not statistics and Census figures. As Gramm and Boudreaux write toward book's end, poverty in the U.S. is continually being redefined in ways that support their contention that capitalism isn't the enemy of the poor. It's so true! In their words, 'the ends today's Americans are trying to make meet are significantly larger than the ends people were trying to make meet in the 1960s.' Yes! And this is an effect of fortunes made by democratizing access to so much that was formerly out of reach for most Americans. Life without inequality would be so cruel. Let's celebrate it, not shrink it with statistics. Phil Gramm and Donald Boudreaux surely don't need me to say that they are rightly revered as economists, and much more importantly, as economists uniquely capable of bringing the ideas of economic liberty to a wider audience. Which speaks to the good, but also the disappointing in the book. They're so right about the genius of economic freedom, so why bury it in so many numbers? And why diminish the genius of economic freedom with the routine assertion that government must always be nearby to centrally plan so-called 'money supply,' fund bank bailouts, plus goose individual bank accounts so that prices don't decline? The calls for government intervention along with critiques of an alleged lack of government intervention once again didn't read right, and will have this reviewer wondering if substantial parts of the genius of Gramm and Boudreaux's book was lost in their collaboration. They assert in the book's Acknowledgements that 'along the way, there naturally arose a handful of minor disagreements,' but that they arose on 'inessential matters.' Not privy to the book's creation, the near total lack of disagreement between the authors was hard to believe given the book's occasional embrace of government's muscular role in the economy, along with a parallel belief that a muscular government role is necessary every time government errors bring on economic decline.
Daily Maverick
17-06-2025
- Business
- Daily Maverick
Foreign transfers are now flowing mostly North to South via remittances — World Inequality Lab report
A new study from the World Inequality Lab covers a lot of ground but one of the things that sticks out is that financial transfers are now moving mostly in a North-South direction – because of remittances. This is a striking contrast to the colonial era that defined the 19th century. The World Inequality Lab, a think-tank fronted by the economic historian Thomas Piketty, has produced a new study that looks at the unequal North-South wealth exchange through the prism of global trade flows and balance of payments over the longue durée from 1800 to 2025. Piketty is a prolific author and public intellectual whose work is focused broadly in readable and insightful ways on the history of inequality. Piketty's latest effort is typically trailblazing and is erected from the foundations of a vast new database on global trade flows and the world balance of payments from 1800 to the present. The study, co-authored by Gastón Nievas, covers a lot of ground but one of the many things that stands out is how financial transfers are now moving in a North-South direction – largely because of remittances. This is a striking contrast to the colonial era that defined the 19th century. 'No country or world region has ever received foreign income inflows approaching the magnitude of Europe's in the 19th century,' the study says. This accumulation of foreign wealth to the European colonial powers – an extractive process – had many taps: France imposed a large debt in Haiti in 1825 to compensate former French slave owners for the loss of their property(!), Britain saddled China with a debt from the Opium War, and there were also massive transfers of tax revenues from colonies to the metropolis. 'Today, financial transfers mostly flow from North to South, particularly through private remittances, rather than from South to North, via colonial transfers. For instance, sub-Saharan Africa received very large cumulated net transfer inflows between 1970 and 2025 (the equivalent of +64% of its 2025 GDP), approximately as much as the cumulated foreign income outflows (-55%),' the authors write. So one of the many trends the study has unearthed is that Africa's inflow of financial transfers since 1970 has exceeded its outflows, and this is mostly explained by wage and salary earners from the continent working abroad and sending part of their income home – and in a big way. These findings come against the backdrop of a rising tide of xenophobia and racism in Europe and North America, fuelled on the far right by the 'Great Replacement' conspiracy theory which holds that white folks up North are being 'replaced' by a tsunami of dark-skinned migrants from the South. Of course, there has been significant migration in recent decades from South to North, not least because of the labour market needs in advanced economies with ageing populations. Far-right shrills in the US and France who want to shut down such migration will shut down their own economies in the process. The findings also underscore the importance of remittances to regions such as Africa. For families these can be literal lifelines of income support, and multiplied many, many times they amount to vast inflows of capital which are at odds with perceptions of capital flight. Remittances, of course, can also create a dangerous economic dependency for the countries on the receiving end that can evaporate if the needs of the labour market change or an isolationist regime builds a wall. Lesotho offers an arresting example on this front. As this correspondent has previously reported, during the peak of South Africa's gold production under apartheid – which relied on a ruthlessly exploited pool of migrant, rural labour – remittances from the wages of Basotho working underground here amounted in 1987 to an astonishing 236% of the mountain kingdom's GDP. They now equal 21% of GDP, according to World Bank data – a 'remittance shock' without parallel in modern global economic history. South Africa's mines once employed almost 500,000 foreign workers. That number, according to the last available data, stood at 35,000 in 2022. This explains why so many Basotho are now 'zama zamas' at the bottom of the exploitative and transnational criminal pyramid of illicit gold mining. Lesotho's economy has not developed or industrialised in meaningful ways to provide jobs and domestic economic opportunities for its labour force. Exploited by the legal gold industry in the past, many of its young men are now exploited by the illicit sector in the precious metal. Does that stand as a warning for Africa more widely? Certainly there is a lot of talk these days about industrialisation and the 'beneficiation' of minerals and stuff like that. And remittance inflows to Africa are clearly important and at a scale larger than many have perhaps assumed. Africa notably between 1970 and 2025 had a cumulated trade surplus from primary commodities that equalled close to 200% of its GDP, but a trade deficit in manufactured goods equal to 169% of its GDP. It is surely no bad thing to develop your economy and raise the living standards for most of your population through processes such as industrialisation, and not just as a precaution if the remittance flows are suddenly staunched. But for now, remittances are flowing one way, and that in itself speaks to enduring global disparities in economic opportunity. DM
The Hill
12-06-2025
- Business
- The Hill
Top earners to receive lion's share of income boost from GOP bill: CBO
The top tenth of the U.S. income spectrum is set to receive the biggest annual boost to their wealth as a result of the House-passed Republican tax-and-spending cut bill, according to a new analysis from the Congressional Budget Office (CBO), while the bottom three tenths are set to lose wealth and the fourth will break even. CBO's distributional analysis of House-passed tax perks released Thursday sweeps dramatically upward, showing that the wealth benefits of the bill increase as you move up the income scale. Households making up to $107,000 a year will get an average of $1,200 in tax benefits a year through 2034. Those making up to $138,000 will get $1,750 a year; those making up to $178,000 will get $2,400 a year; those making up to $242,000 will get $3,650 a year, and households in the top tenth, making up to $682,000 a year, will get $13,500 in average annual tax benefits. The average annual tax perks for the top tenth, or decile, of earners are larger than the tax perks for the rest of the income spectrum combined, which sum to about $10,800 per year, compared to the $13,500 for the top slice. Income in the U.S. is not distributed evenly, so while there are about 33 million people in each decile, most Americans make something closer to the median national income around $80,000 a year. Tax perks for that group are about $850 a year, though they'll lose the equivalent of about half of that in transfer reductions for social programs. Tax perks in the House-passed bill are offset through the income spectrum by a reduction to federal and in-state transfers.. The net effect of those reductions means people in the bottom three tenths will be financially worse off than they were while people in the fourth income decile will roughly break even. Previous analyses by CBO and other budget modelers have also shown that the House bill would transfer resources from lower deciles to upper ones, effectively taking from the poor to give to the rich. The distributional effects of the bill — which still has to make it through the Senate, where it could undergo significant changes — are likely to add to longer term trends of wealth inequality in the U.S., which has skyrocketed since around 1980. The top decile of the U.S. income spectrum made between 45 and 50 percent of the total income in the U.S. in 2010, and the top 1 percent made 20 percent of all the income, according to data compiled by economist Thomas Piketty. That includes both salaries and income from capital. While those shares dipped between 1940 and 1980, they're now back to levels not seen since the 1920s. Historical trends also suggest that any economic growth coming from the legislation – which is expected to be minimal at around 0.03 percent, according to the Joint Committee on Taxation – will also be enjoyed primarily by top earners. 'If we consider the total growth of the U.S. economy in the thirty years prior to the [2007 to 2008] crisis, that is, from 1977 to 2007, we find that the richest ten percent appropriated three-quarters of the growth,' Piketty wrote in 2013. The House-passed GOP legislation includes some specific tax breaks geared toward working class Americans, such as canceling taxes on tips and overtime pay and boosting credits for seniors along with the standard deduction. Most of them expire at the end of 2028. In a separate analysis put out Thursday, CBO found those cuts would increase deficits by $1.4 trillion over the next nine years. If they were kept permanent, they would add $4.5 trillion to the deficit.
Mint
06-06-2025
- Business
- Mint
Retirement unease: Is it getting better or worse?
In India, employees who are not on government payrolls have long been familiar with retirement unease. Recently, though, a new benchmark popped into view. The Centre's Unified Pension Scheme (UPS) option, which was thrown open to central workers on 1 April, offers half of one's average basic salary drawn in the last year of work as pension (if one puts in 25 years of service). The very mention of half one's last pay prompts a basic question: Are those with no UPS access putting enough away for their silver years? Maybe not. A survey of pension planning by Grant Thornton Bharat (GTB), a professional services firm, has flagged a big gap between the money people expect they'll have to live on as they age and the reality of their financial situation. Also Read: Pension alert: Even the unified scheme could acquire a sell-by date over time This is among a significant slice of our workforce. Folks employed by the private sector made up nearly nine-tenths of the survey's sample, with 30% earning above ₹40 lakh annually and the vast bulk taking home more than twice of India's GDP per head. As the GTB study puts it, over 55% of respondents expect monthly pensions exceeding ₹1 lakh, 'but only 11% are confident in their current savings." The survey was done over August and September 2024. The UPS, which was approved by New Delhi in the midst of that span, may or may not have inflected responses. But the survey also points to low satisfaction with the National Pension System (NPS) that's open to all Indian 18-70-year-olds. Have retiral back-ups like NPS begun to look pale in contrast with the UPS deal? Plausibly. If this isn't a source of unease, it should be—since so many of us seem to be falling short on stuffing our nest eggs. Either way, the point is not to interpret the worldly context of a survey finding, but to explore viable avenues of relief. According to the GTB report, future needs and means being out of whack 'signals a pressing need for realistic retirement planning and financial education." Also Read: Unified Pension Scheme: Is good psychology also sound economics? Indeed. Even in this age of agentic AI bots headed our way to help out, with 'Fire' calculators at the disposal of youth in pursuit of 'financial independence' to 'retire early,' lifelong plans remain sketchy. Clearly, many of us need to get our act together. This is also the market pitch made by various investment vehicles. The 'Mutual fund sahi hai' (it's right) campaign, for example, has played an undeniable role in drawing money into long-held mutual funds. That equity has been a big draw is no surprise, given the appeal of its returns. Some of our retail rush for shares could be explained by how capitalism has caught on. As Thomas Piketty said, if the rate of return on capital exceeds the rate of economic growth, wealth will enlarge faster than income. To amass the money needed for a cushy life, every salaried person has the risky but rewarding option of buying into the country's capital pie. Also Read: EPFO reforms: Getting PF dues shouldn't require special services Of course, advice to invest wisely usually assumes that if one needs a helping hand with old-age security, it's best to look for one at the end of one's arm. In a market economy with a weak welfare net for all but the poor, the onus is on us to take charge of our financial lives. However, there is a favour that the Reserve Bank of India (RBI) can do us that must not escape notice. No multi-decade plan can be firmed up without clarity on the rupee's path of purchasing power into one's old age. But if RBI shows both the will and ability to keep inflation capped at 4% over the long haul, it'll enable truly realistic plans. In assuring us retirement relief, RBI has a major role to play.
