More money creates more poverty

Published on 29th June, Edition 26, 2015

 

It is mandatory, to survive under capitalistic system, to record economic growth every year. This growth is predominantly expressed by a single macro indicator – GDP. The prevailing prices of the factors of production and market prices of goods and services consumed during the year form the basis of GDP calculation. Controlled increase in prices on a sustained basis is the key to the survival off the system.
Situations when incomes and prices tend to remain at standstill or when they start declining are system’s areas of serious concern. The system wouldn’t have survived had the prices of precious metals – and for that matter the prices of other commodities including the necessaries of life — not gone up 500 to 600 times during the last five or six decades. Prices progressing the smart geometric way, not the lousy arithmetic way, augur well for the system. Unfortunately, the system has been blown to the full in a shorter period of time. A few more decades, and the system will be due for a hurtful explosion (or implosion).

It’s time about for the designers, creators and proponents of the system to realize that they can’t survive the current century unless they radically alter this system of economic foibles. The mantra of blind, farcical growth is set to become totally ineffective.

The global poverty is the inevitable byproduct of capitalism that relies on unequal distribution of incomes to ensure creation of two social classes that are not only miles apart in monetary terms but also extremely disparate by numbers – 10% elite class with access to 90% national resources and the 90% “skunks” (as mentioned by James Patterson in his noel Toys) with access to the rest 10% national resources. The elite, noble class takes to the noble profession of governance to formulate policies that would keep the skunks eternally busy looking for the ways to survive. These well thought out policies centre around water and energy crises, public sector corruption, and never-subsiding inflation. Special attention is given to policies that guarantee systematic decline in educational standards and healthcare facilities. The capitalistic system takes care of the rest by consistently widening the income gap between the rich and the poor.

 

An article by Vijay Prashad To End Global Poverty, We Have to End Global Capitalism, amply exposes the farcical stance taken by the World Bank to reduce global poverty. Here are a few excerpts from the article:

The obscenity increases when the current world order’s approach to poverty is considered. The World Bank sets the terms for the language of poverty alleviation. It offers the following three elements: promote private property, use government money to build large infrastructure, and push for high growth rates…What produces poverty? Not the lack of property titles, or the lack of high growth rates, or the lack of twenty-first century infrastructure. What produces poverty is a system of social production for private gain – in other words, capitalism…Capitalism – terrifying in its long-term social effects – is imperiled by its own contradictions. Crises emerge, and then get sorted out before the next crisis comes. But these crises do not bring capitalism to its knees, do not inaugurate a new order.

The real dimensions of 2007-09 crisis are hardly known to the world. Though quickly controlled with the help of a lethargic monetary policy measure of Quantitative Easing which saw an unprecedented quantity of newly printed dollars entering the world economic system, the long-term effects of this boardroom-luxury-initiative are yet to be faced by the world. We know that by now the fresh tangible dollar stock would have been at least quadrupled after entering the global banking system. As newly created wealth is always unequally distributed between the two social classes – the lions of the society getting the lion’s share – the global poverty levels are going to be much higher than those measured by the dubious World Bank standards. A portion, however small, of the new wealth thus created has certainly gone to the poor classes in the shape of increased wages or salaries. To measure extreme poverty on a scale of $1.25 a day is now a farce.

TABLE SHOWING NEW-MONEY CREATION IN PAKISTAN DURING 2008-14 (BILLION RUPEES; YEAR END JUNE)
PARTICULARS	2008	2009	2010	2011	2012	2013	Mar-2014
1.Currency issued	1,054.2	1,231.9	1,385.6	1,608.6	1,785.8	2,050.2	2,254.8
2.Currency held by SBP	2.9	2.7	2.5	2.4	2.0	1.1	0.8
3.Currency in Sch. Banks tills	69.0	77.0	87.7	104.9	110.1	110.9	137.1
4. Other deposits with SBP	4.3	4.7	6.7	10.1	8.9	10.5	10.7
5.Currency in circulation	982.3	1,152.2	1,295.4	1,501.4	1,673.7	1,938.2	2,116.9
6.Sch. Banks’ total deposits	3,702.6	3,980.4	4,475.2	5,183.6	5,959.2	6,909.1	7,256.8
Monetary Assets (4+5+6)	4,689.1	5,137.2	5,777.2	6,695.2	7,641.8	8,857.8	9,384.4
Source: Pakistan Economic Survey 2013-14

Lax SBP control over government ambitions to borrow more and spend little on development projects resulted in a 114% increase in the volume of issued currency. With the help of this spate of new currency, Pakistan’s scheduled banks managed to almost double their deposits during the period. Government’s use of the borrowed money for extra-development purposes – mostly for transfer overseas — put pressure on domestic currency which depreciated from PKR62 a dollar to PKR112 a dollar.

The banks put their shutters down on the private sector and shifted their stance from business and industrial loaning to investment in zero-risk government papers. Combining together, all these factors brought misery to the poor classes who found themselves crushed under rampant inflation.

Thoughtlessly increasing the stock of money always fuels poverty as the newly created wealth is seldom equitably distributed between the elite and the poor classes. A slight increase in wages and salaries of the poor class fails to cope with the inflation wrought by the new spending of the elite class. There is a clamor going on about the reduction of poverty in Pakistan during recent years. This is misleading, consigning the $1.25 a day measure to the basket of irrelevance, one should understand the implications of more than 60% population of Pakistan living below the poverty line.