Economics of Bahuka and Greenspan

Rejecting the advice of Milton Friedman decades ago, the US opted to follow the economics of Greenspan, making half of American families state-dependent and dysfunctional.

Any discussion on contemporary US economy will remain incomplete without reference to Alan Greenspan, who headed the US Fed for 19 years till 2006, and was revered as the ‘Money God’. In 2007, he wrote a book, The Age of Turbulence, in which he theorised that people in developing economies needed to save, but, not those in advanced economies, because they enjoy state-provided social security.

He wrote: “Despite their lower incomes, households and businesses in developing countries save a greater share of their income than do households and businesses in developed countries. Developed countries have vast financial networks that lend to consumers and businesses, most often backed collateral, enabling a significant fraction to spend beyond their current incomes. Far fewer such financial networks exist in developing nations to entice people to spend beyond their current incomes. Moreover, most developing nations are still so close to bare subsistence that households need to secure against future contingencies. They seek buffer against feared destitution, and since few of these countries have government safety nets adequate to protect against adversity, the only way for the households to do so is to set money aside. People are forced to save for a rainy day and retirement.”

Note to the Reader: This article originally appeared in Thuglak Tamil Weekly Magazine. It was translated in English by Shri Venkateshwaran from Thuglak Digital for www.gurumurthy.net.