Processing Knowledge

John Maynard Keynes used to quote, “For every shilling you save, you put a man out of work for a day”. Further, in Keynes’s theory, some micro-level actions of individuals and firms can lead to aggregate macroeconomic outcomes in which the economy operates below its potential output and growth.

Save in a Bank or Spend?

These words by Keynes might be correlated to the trends observed by financial researchers and KPOs which motivated my previous blog post on markets and chaos theory. However, one observation that should not miss the eye is the conflict between saving and growth. Can savings in banks, and government bonds chop the wings of growth? In India, savings was given a higher priority from ages and during this period the growth rate of around 3.5%, commonly known as the Hindu Growth rate,  was observed. The insecurity arising due to the droughts, the wars fought with its aggressive neighbors and lethargy in the guise of socialism were some of the reasons why savings were encouraged by the intellectuals. The intellectuals have morals which are in a different league and their ideology has withstood the test of time. However, many criticise these very morals when economists chalk strategies which are high in morals as they are considered to hamper growth. A classical example of this is the lost decades of Japan. A classical example of the other side of the spectrum was observed in India from the late 90′s where the habit of savings was being  replaced with the credit card mentality of the west. Financial analysts and researchers have also observed that this time period seen a massive growth in virtually all sectors. The careless spending and current financial chaos has left many with a huge financial burden in the form of housing loans, car loans and unpaid credit card bills. Somehow a feeling that utopia exists somewhere between the spectrum of savings and growth but zooming into this spectrum is going to be a non trivial task which could be similar to zooming into the Manderbolt Set. This might need the help of mathematicians who are not blinded by the past strategies of the economist whose failure has affected virtually every life in this planet. However, they can achieve their goals only if “We the People” start using our “Buddhi“.