Thread by @ShivajiLokam

1. As the daily hysteria about the decline of Indian economic growth continues , I'll share few unorthodox theories and interesting data trends about everything economic development and...
theprint.in/national-inter…

2...and some of the many fixes—some straightforward and obvious to everyone and some not so much—India can pull to prevent going down the road of low growth rates and start imitating the growth pattern of China, South Korea and Taiwan. #indianeconomy #economicdevelopment #india

3. Most economists earn their living working in sectors that are free of market forces and end user criticism. So time to time we have to dunk on the economists worldwide for being so inept at what they do and for making the subject crude, out-of-touch with reality and...

4...breathtakingly uninteresting, and generally dumb. Much of what I post here comes from years of research that helped write THE GENERAL THEORY OF RAPID ECONOMIC DEVELOPMENT book which will come out in a few months in India and elsewhere.

5. Feel free to discuss and engage on this thread. Also be sure to spread around which ever content you find interesting. Time to bring some sanity into the world of insanity that is the mainstream economics which has an unmistakable record of total & complete failure. #economy

6. Let's begin by reviewing where India & other low-income countries stand relative to the wealthy ones. See the chart attached showing PERCENTAGE share of GLOBAL WEALTH held by the industrialized countries at the end of each year from 2000 to 2015.

7. Wealth data, sourced from Credit Suisse Global Wealth Databook 2017, shows 85% of all global wealth is held by the industrialized nations. These include the Early Industrializers: USA, Western Europe, Aus, Canada, & the Late Industrializers: Japan, China, Taiwan & South Korea.

10. From the chart it is clear that the Rest of the World, which includes oil and gas revenue dependent nations such as Saudi Arabia, Qatar, and mixed economies like Russia, and also India, Indonesia and so many other low-income, lower middle income countries, having population

11...so many times larger than the population of the industrialised world, holds a small portion of the global wealth. For perspective, let's review population figures of these regions.

12 . Industrialized nations USA, Western Europe, Aus, Canada, & the Late industrializers Japan, China, Taiwan & South Korea together constituted about one third of global population while holding 85% of global wealth stock.

13. If we exclude China which holds about 9% of global wealth, the wealthy industrialised nations with just 13% share of global population hold 75% of all global wealth.

14. Also, the US and Western Europe each have just 4.5% and 5% of world population but holds 35% and 27% of global wealth.

15. Because the development of the subject of economics over the last two centuries has been pretty bad, it is now up to us to clarify and clearly define vital terms crucial to discussion. As an example, it is not an exaggeration to say that terms...

16...such as economic development, modernization, industrialization and the inter-linkages are not properly understood & defined. As a result, economists have been susceptible to get mired in misconceptions. Led to astray all the way!!

17. Simply, economic development through industrialization involves the process of both industrialization and modernization. And economic development through non-industrial route involves modernization alone. Modernization of a country through non-industrial route...

18...is achieved on the back of industrialization (and therefore the heavy industry) of foreign countries; heavy industry output is imported in this kind of development route.

19. The above idea boils down to this..

Economic development = industrialization + modernization

For a developing country requiring rapid increment in wealth & income...

Rapid economic development = rapid industrialization + (rapid) modernization

20. Before we explore the interlink between the two terms: industrialization & modernization, let's understand the nature of the many economic activities we know (such as mining, manufacturing, construction, services), its classification into various sub-industries, sectors, etc.

21. There are many ways to classify the number of activities that make up the modern economy. One useful way is to classify and group them along the lines of technology. All industries known to us in our modern economy can be grouped...

22...into these two activities:

1. Traditional economic activities, and

2. Heavy industry activities.

23. In retrospect I feel the above classification, simple as it seem, is one of the most crucial basic concepts developed in the book laying the groundwork for bigger things. An early utility of it can be seen in due course. A snap of the same from the book is attached. #economy

24. But what does "heavy industry activities" mean? What industries is it comprised of?

Heavy industry activities comprise of those industries whose activity involves the transformation of crude material such as mineral ore into useful forms & types such as rods & sheets.

25. Heavy industry activities also comprise of those industries whose activity involves the transformation of rods & sheets into useful final or semi-final products whose design & operation is based on scientific principle (s).

Ex: Airplane, CNC Machine tool, Tractor, AC, TV

26. The industries described above are UPSTREAM INDUSTRY (ore to metal) & FINAL GOODS HEAVY INDUSTRY (metal to machine) respectively.

The latter is usually called downstream industry, but the new name serves a better purpose in our quest to understanding the modern economy.

27. Broadly, the key capital held in their facilities to conduct the above mentioned activities include:

Furnaces & industrial ovens in the case of UPSTREAM INDUSTRY &

Machines tools in the case of FINAL GOODS HEAVY INDUSTRY

28. In sum,

UPSTREAM INDUSTRY

Manufacturing Assets : industrial ovens, furnaces, burners, etc.

Output: metal sheets, rods, bearings, etc.
.
.
.
FINAL GOODS HEAVY INDUSTRY

Assets: machine tools, lifting equipment

Output: airplanes, ACs, motors, trains, machine tools, etc.

29. You might wonder what's so unique about heavy industry activities.

Why are they grouped under a whole different class of activity separate from traditional economic activities?

30. At the core of classification, all heavy industry activities involve the application of one or more scientific principles to the process in upstream industry, ex.

Haber-Bosch synthesis of Ammonia,

Bessemer steel-making process,

Hall-Heroult aluminum-making process, etc.

31. and also involve the application of scientific principles in the design & operation of product output (what we usually call technology) of final goods heavy industry, ex.

steam turbines,
water turbines,
gas turbines,
internal combustion piston engines,...

32...electric motor, electric transformer, jet engines, etc. all have either

Faraday’s Induction law, or
Thermodynamic laws, or
The Law of conservation of energy

as scientific principles at the core of their design and operation

33. As you can see, it is clear that Heavy industry activities—both UPSTREAM INDUSTRY, and FINAL GOODS HEAVY INDUSTRY—would not have existed if not for the advent of the Industrial Revolution.

34. Most of these were invented sometime between 1870 and 1913, that is, during the Industrial Revolution, in Great Britain, the United States, Germany, Italy, and France, etc. The products up there in practice operate independently or are enclosed within a larger...

35...final goods heavy industry product, as an example, engines and gas turbines being the prime movers of transportation systems such as automobiles, ships, boats, airplanes, and railways.

36. To see the big picture, raw material such as iron ore is procured by upstream industry, which then transforms it into steel in various usable forms of sheets and rods, to be then used by final goods heavy industry to make: cars, tankers, airplanes, bulldozers, excavators, etc

37. All heavy industry products in the final form incorporate a workable product design that has scientific principles at the heart of its operation and allows for mass-production.

38. Most of the output produced by upstream industry is purchased & utilized, as we saw, by final goods heavy industry to make final products.

But who utilizes that output (machine tools, cars, trucks, motors, engines, ships, tankers, planes) of final goods heavy industry?

39. Before we do that, we have to classify final goods heavy industry into two sectors, namely,

CAPITAL MACHINERY INDUSTRY, &

CAPITAL EQUIPMENT INDUSTRY

40. Well, the difference?

Final goods heavy industry products are machines designed to power & run things, move & build things, pick & harvest things, make & work things, equip & service things, etc.

41. The industries whose output is product machines that

power & run things,
move & build things,
pick & harvest things,
make & work things

--typically yielding an outcome which we can SEE, TOUCH & FEEL, belong to CAPITAL MACHINERY INDUSTRY.

42. The industries whose output is product machines that

service things,

--typically yielding an outcome which is INTANGIBLE, belong to CAPITAL EQUIPMENT INDUSTRY.

43. Full list of a variety of machines CAPITAL MACHINERY INDUSTRY produces

1) Power generation & transmission machinery

2) Prime mover machinery

3) Construction & mining machinery

4) Farm & forestry machinery

5) Food manufacture machinery

6) Paper & printing machinery
.
.

44.

7) Textile & apparel manufacturing machinery

8) Final goods heavy industry manufacturing machinery (such as Lathe, drilling, milling, boring machines)

9) Other machinery

45. Full list of a variety of machines CAPITAL EQUIPMENT INDUSTRY produces

1) Electronics

2) Electro-mechanical appliances (Washing machine, AC, Refrigerator etc.)

3) Railways

4) Vehicles

5) Airplanes

6) Ships & boats

7) Optical and precision instruments (healthcare, film)

46. We can now see the answer to the question posed here:

Who purchases, & utilizes the output of final goods heavy industry?

https://twitter.com/ShivajiLokam/status/1179381724003872769?s=20

47. UPSTREAM INDUSTRY supplies its output (metal sheets & tubes, rubber) to FINAL GOODS HEAVY INDUSTRY to be used to produce machinery & equipment, which is then bought & utilized by every industry in the modern #economy including itself.

48. That is,

Power generation & transmission machinery serves ---> utilities industry

Machinery includes:

industrial boiler,
steam turbine,
water turbine,
gas turbine,
electric transformer

49.

Primemover machinery serves ---> all final goods heavy industries

Machinery includes:

diesel engine,
petrol engine,
electric motor,
electric generator

50.

Construction & mining machinery serves ---> construction industry & mining industry

Machinery includes

a) Earth moving machines:

bulldozers,
excavators,

b) Lifting machines:

hoists,
winches,
cranes,
cable cranes,
elevator,
conveyor,
moving & scraping machines

51.

Farm & Forestry machinery serves ---> Agriculture industry

Machinery includes

tractor
combine harvestor
cotton picker
machine implements

52.

Similarly,

Paper & printing machinery serves ---> Paper making & packaging industry

Textile & apparel machinery serves ---> Textiles industry

53.

Also,

Food manufacture machinery serves ---> Light manufacturing industry

54.

Final goods heavy industry manufacturing machinery serves ---> All Final goods heavy industries

Machinery includes

Lathe,
Drilling machine,
Milling machine,
Shaping, planing, slotting machine,
Boring machine,
Broaching machine

55. Lathe is called the mother of all machine tools because the invention of its modern form led to the invention of all other metal working tools. Also,

A Lathe helps make many other lathes which help make many other machines which help produce all other goods & services.

56. Now, moving to CAPITAL EQUIPMENT INDUSTRY, which produces machines that in their operation produce an outcome that is intangible--a service.

https://twitter.com/ShivajiLokam/status/1179421097403584514?s=20

57.

Electronics industry serves ---> Services industry,
especially within services,

Financial & insurance services,
Professional, scientific & technical,
Administrative & support service services,
Education

58.

Electro-mechanical appliances serves ---> Services industry

Products include,

ovens,
hair dryers,
toasters,
shavers,
food grinders & mixers,
washing machines,
dish washing machines,
refrigerators, ACs

59.

Railways, Vehicles, Airplanes, Ships & boats serve ---> Services industry,

specifically, Transportation & shipping industry

60.

Optical & precision measuring instruments serves ---> Services industry, specifically,

Healthcare, research, tourism, arts, media & broadcasting, etc.

Products are,

Optical measuring & testing instruments
Exploration & navigation instruments
Medical & therapy appliances

61. We have come to see how FINAL GOODS HEAVY INDUSTRY, with standard inputs sourced from UPSTREAM INDUSTRY, manufactures machines that enable the production of products & services across all industries including the production of its own (heavy industry).

62. Not just that. UPSTREAM INDUSTRY supplies inputs such as

fertilizers to AGRICULTURE,
sand, cement to CONSTRUCTION,
refined oils & chemicals to SERVICES & LIGHT MANUFACTURING

63. Based on material nature, we can classify UPSTREAM INDUSTRY into three sectors,

1. UPSTREAM CHEMICAL INDUSTRY: chemicals, allied products

2. UPSTREAM EARTH INDUSTRY: processed earth products

3. UPSTREAM METAL INDUSTRY: processed metals

64. UPSTREAM CHEMICAL INDUSTRY

Produces a wide variety of final chemical products in processed form:

pharmaceuticals, fertilizers, paints and dyes, oils & perfumes, soaps, glues, explosives, photographic material, plastics and plastic articles & rubber and rubber articles

65. UPSTREAM EARTH INDUSTRY

Produces processed material primarily for use in construction industry.

cement, ceramics, stone, and glass, & articles thereof,

ceramics products, and glass & glassware,

66. UPSTREAM METALS INDUSTRY

It is the metals sector from where final goods heavy industry draws in its supplies, processed raw metal:

iron & steel bars & rolls,
copper wire, nickel, & aluminum rolls,
articles of iron & steel (frames, nuts, bolts, rods),
lead, zinc rods.

67. The tweets about upstream industry above are condensed to fit twitter. For those who want to read the entirety, I attached the relevant pages.

#EconomicDevelopment #India #IndianEconomy #Growth

68. Having reviewed HEAVY INDUSTRY in some detail, we deduce two things:

1. All machines utilized by every industry in modern economy is supplied by FINAL GOODS HEAVY INDUSTRY

2. All processed input material utilized by every industry is supplied by UPSTREAM INDUSTRY

69. What is so special about these two industries—UPSTREAM INDUSTRY, & FINAL GOODS HEAVY INDUSTRY—is that their existence in the modern world owes to the advent of INDUSTRIAL REVOLUTION, which was conceived by engaging in these two activities—breakthroughs based on...

70...the application of science & scientific principles and methods.

DISCOVERY: of a material (ex. aluminum by Hans Christian Ørsted), or a process (steel-making by Bessemer process)

INVENTION: of a machine (internal combustion engine by Karl Benz)

71. That is why the grouping of all modern economic activities into these two is a big starting point:

https://twitter.com/ShivajiLokam/status/1177893009024663552?s=20

72. We label all economic activities in the modern world that are not heavy industry as TRADITIONAL precisely because they have been part of civilization in one form or another since time immemorial, unlike heavy industry which traces its roots to the recent INDUSTRIAL REVOLUTION

73. Whether it is mining or construction activity, services such as education, healthcare, transportation, or light industry manufacturing of goods such as textile, home furnishings, or farming, fishing, or finance, arts, entertainment & recreation—all existed for a long time...

74...but are performed by extracting skill from hands alone, or with the aid of hand tools (not designed based on technology, i.e. without the aid of an electric motor, or engine, or modern turbine), & energy drawn from humans or animals.

75. The modern #economy is complex, we know that. But with the help of discussion so far here we have come to understand the interlinks among many industries—old or new.

I have waited till now to introduce to you the FLOWCHART-01 that shows the same. Download to zoom in.

76. With the understanding of the interlinks among the industries of modern economy, and the concept of traditional & heavy industrial activities, we can now see the meaning of & the relationship between these two terms: INDUSTRIALIZATION & MODERNIZATION

https://twitter.com/ShivajiLokam/status/1177881104511983618?s=20

77. SIMPLY,

Industrialization is the process of building HEAVY INDUSTRIAL ACTIVITIES—both, UPSTREAM INDUSTRY & FINAL GOODS HEAVY INDUSTRY—from scratch.

Modernization is the development of already existing TRADITIONAL ECONOMIC ACTIVITIES using resources from HEAVY INDUSTRY.

78. More specifically,

INDUSTRIALIZATION is the process of building up from scratch businesses engaged in the activity of manufacturing MATERIALS & MACHINES in bulk using scientific methods, advanced design & manufacturing processes, and technology know-how under large plants.

79. Whereas,

Modernization is transforming the make up of the space, skill, look, & operation of all traditional economic activities by switching away from scarce material & bare hands (& hand tools) for work to bulk material & machines run by motors & engines.
In Pics: Seoul

80. We can see, all traditional economic activities—in existence since time immemorial, but barely made progress until the 1800s—are a making of the intricate relationship between Man & Nature.

81.

Mining activity because the earth has all resources

Farming because the fertile land is where food can be grown

Long distance transportation services because Man is incapable of rapid movement for long on any surface.

Education & healthcare services because ..obviously

82. The tweet above can be mundane but we need to appreciate just how new & unique HEAVY INDUSTRY is to civilization.

IMPORTANT point:

HEAVY INDUSTRY is useless in itself.

HEAVY INDUSTRY has come to exist & only exists to serve TRADITIONAL ACTIVITIES through its output.

83. With the understanding of some terms like economic development clear, let's move to something that actually makes the difference for a developing nation: WEALTH.

Below, earlier we saw that much of Global wealth is held by industrialized nations.

https://twitter.com/ShivajiLokam/status/1177173360763031552?s=20

84. But what is wealth & what does the 100% of global wealth actually look like?

To be sure, we are talking about net wealth, or the total physical capital together owned by the citizens in a country.

For our purposes, we go with

NATIONAL WEALTH = TOTAL PHYSICAL CAPITAL

85. In the normal course of economic activity, there are only two WEALTH CREATING INDUSTRIES:

1. FINAL GOODS HEAVY INDUSTRY

2. CONSTRUCTION INDUSTRY

with the support of UPSTREAM INDUSTRY.

In terms of existence & operation, all three rely on each other...

86.

FINAL GOODS HEAVY INDUSTRY supplies machines to run the operations of the other two—CONSTRUCTION INDUSTRY, & UPSTREAM INDUSTRY and itself, besides other industries.

87.

CONSTRUCTION INDUSTRY supplies requisite warehouses, plants, buildings & office space to house the operations of the other two—FINAL GOODS HEAVY INDUSTRY, & UPSTREAM INDUSTRY and itself, beside other industries.

88.

UPSTREAM INDUSTRY supplies processed material-steel, cement, glass, aluminum, ceramic, sand, etc. to enable the operations of the other two—FINAL GOODS HEAVY INDUSTRY, & CONSTRUCTION INDUSTRY and itself, beside other industries.

89. But the goods that make up the CAPITAL STOCK of a nation—MACHINERY & EQUIPMENT, WAREHOUSES, OFFICE BUILDINGS, HOUSES, ROADS, BRIDGES, PUBLIC BUILDINGS—comes out in the final form from the activities of FINAL GOODS HEAVY INDUSTRY, & CONSTRUCTION INDUSTRY—just as stated earlier

90. Two quick points:

*Land being a gift of nature is available freely. Barren land when developed for economic activity turns into physical capital.

*Durable goods: a segment of FINAL GOODS HEAVY INDUSTRY output that found utility in residences besides the business setting.

91. We define CAPITAL GOODS as all output except durable goods coming out of both CONSTRUCTION & FINAL GOODS HEAVY INDUSTRY

Capital goods whether in primary form (ores) or processed form (steel) or final form (structures, machines) that ultimately become part of NATIONAL CAPITAL

92. All goods that are not capital goods and irrespective of whether they are in primary form (milk) or processed form (cheese) or final form (pizza at a restaurant) that ultimately go into consumption and together with all services comprise CONSUMER GOODS.

93. Within a country, ownership of most of the national capital stock is held directly or indirectly by private individuals & non-profit entities.

But we are interested in a particular line of classification of WEALTH that allows us to study industrialization & modernization.

94. That brings us to the CLASSIFICATION OF NATIONAL WEALTH, or CAPITAL

National capital, for our purposes, is classified into these four types:

1) Housing capital,

2) Public infrastructure capital,

3) Non-Industrial business capital, &

4) Heavy industry business capital

95. The first two—Housing capital, & Public infrastructure capital—are self-explanatory.

But it is to the last two—Non-Industrial business capital, & Heavy industry business capital—we turn our focus.

96. A portion of the output produced by upstream industry—such as glass, cement, steel, ceramics, sand, etc.—when acquired for construction activity becomes CAPITAL, which is either housing or public infrastructure in type.

97. The output of final goods heavy industry is product machinery & equipment purchased by businesses of all stripes.

When bought & installed, & put to work, the product machine becomes CAPITAL, which is either non- Industrial business or Heavy Industry business in type.

98. Simply,

the CAPITAL STOCK owned by businesses of both UPSTREAM INDUSTRY & FINAL GOODS HEAVY INDUSTRY—which include machine tools, lifting & moving machinery, industrial burners & ovens, plant structures, warehouses, offices, etc. constitute HEAVY INDUSTRY BUSINESS CAPITAL.

99.

the CAPITAL STOCK owned by businesses of ALL INDUSTRIES except heavy industry—which include steam turbines, food making, textile, mining, construction machines, airplanes, airports, trains, ships, plants, warehouses, offices, etc. constitute NON-INDUSTRIAL BUSINESS CAPITAL.

100.

The nexus between NATIONAL ECONOMIC ACTIVITY & NATIONAL WEALTH STOCK,

Flow of annual Investment in NEW CAPITAL sourced from the two WEALTH CREATING INDUSTRIES, funded by savings from the income generated from production can be seen in FLOWCHART-02.

Download to zoom in

101. We all know, Depreciation expenditure, seen in FLOWCHART-02, is the amount businesses utilize from their annual revenue to replace the old, worn-n-torn physical asset (capital) such as an airplane, bulldozer, crane from their capital stock with a brand new one.

102. If a business does not replace its aging capital stock—such as 2 of its oldest machines in the plant—with 2 brand new ones using a portion of its annual revenue, then CAPITAL is lost.

103. To nail the concept of four types of wealth as classified above, especially to appreciate the distinction between NON-INDUSTRIAL BUSINESS CAPITAL & HEAVY INDUSTRY BUSINESS CAPITAL, I have attached for your interest a screenshot of the relevant section in the book

#CAPITAL

104. At this stage, it can appear we are treading in the shallow waters of the river discussing concepts & terms, but I'll show you how poor a job the economists have done developing the discipline of #economics that they commit errors in basics of economics leading them astray.

105. At various stages in this thread, we'll come around to see how the economists have no idea what they are talking about.

No surprise there! Their understanding of the real world is abysmal.

106.

EXHIBIT A,

With our understanding so far we'll see how the Chicago economist #RAGHURAMRAJAN has gotten wrong on this case in point and so much else that may come up later, revealing his false understanding of the real world.

#RBI @RBI

@RBI 107. In his 2011 work, FAULT LINES: How Hidden Fractures Still Threaten the World Economy, RAJAN brings up the case of JAPAN's service sector.

He argues how export-dependent nations such as Japan, Germany, China burdened the World economy in the lead up to Financial Crisis.

@RBI 108. RAJAN argues JAPAN has an UNCOMPETITIVE SERVICE SECTOR because even in the modern times there are elevator ladies in hotels whose job is to usher in guests into the next available elevator, indicating unproductive use of labor.

@RBI 109. RAJAN moves to the case of salon services in Japan-tells how an upstart salon chain began attracting customers away from expensive barber shops whose powerful association then lobbied govt to issue an ordinance favoring them, hitting the upstart's low price strategy.

@RBI 110. Citing the high prices of non-traded goods such as haircuts, restaurant meals, & hotel rooms, RAJAN concludes that JAPAN has a superefficient MANUFACTURING sector existing side by side with a moribund SERVICES sector.

@RBI 111. HOW CAN THAT BE ?

We know that heavy industry manufacturing, a product of Industrial Revolution, exists to supply machines & material to all the industries of the economy including the services industry (which includes salons, hospitality, etc.)

https://twitter.com/ShivajiLokam/status/1180907768175157248?s=20

@RBI 112.

Traditional economic activities, which include services, were done poorly for thousands of years (imagine engine-less vehicle for transportation, or a world in which there is no lift severely restricting the size of a hotel & thereby the economies of scale of operation).

@RBI 113. Heavy industry machines & materials becoming a key part of performing traditional economic activities—MODERNIZATION—will have improved the productivity of those activities monumentally (imagine food supplies to a restaurant delivered on the same day as opposed a day later)

@RBI 114. Now imagine having a superefficient manufacturing industry, whose sole existence is to modernize & improve productivity of traditional activities including services, side by side with a MORIBUND SERVICE SECTOR-as RAJAN puts it.

HOW CAN THAT BE ? - As I put it before! 😉

@RBI 115. The answer is that #JAPAN, a manufacturing powerhouse, has a highly productive, modernized services sector powered by efficient equipment & materials sourced from heavy industry—kitchen appliances, lifts, TVs, ACs, cars, electronics, etc.

@RBI 116. But why does services cost so much as RAJAN noted?

High prices could be for any of these reasons:

- Japan's declining share of young/working population (as services require lot of people, especially in non-professional activities)

-Labor laws against easy termination

@RBI 117.

- Higher quality delivery of service, justifying higher prices (think of a product—such as laptops/phones in the market sold at many price points).

- services industry (like the salon ex.) associations being able to lobby the govt. to alter fair competition landscape

@RBI 118.

- varying tax rates re sales, business income, etc.

-distorted business entry, exit, zoning laws, etc.

The above three fall under essential functions of govt. concerning the economy.

Read below (pic extracted from THE GENERAL THEORY OF RAPID ECONOMIC DEVELOPMENT book)

@RBI 119. High prices could result from a single, or a combination of the above factors.

But what is false on its face is the idea of #JAPAN having an unproductive service sector by default, or by policy negligence as RAJAN seems to suggest in the book.

@RBI 120. RAJAN's thesis about an inefficient service sector in JAPAN is in itself a minute issue but not for its revealing of how thin his understanding of the modern/developing economy is.

@RBI 121. Underlying the reasoning, RAJAN assumes by default that the service sector & the manufacturing sector are separate, working & developing independently of each other, which we know from our understanding that that is not the case.

@RBI 122. He is not alone! Most economists also have no clue.

As an academic, RAJAN personally is very much biased against a particular growth strategy, i.e. the so-called export-based growth model, they say, JAPAN & others followed to develop & become wealthy.

@RBI 123. RAJAN has a comprehensive theory to explain how that model had many flaws, how it stilted JAPAN's economy & turned it to depend on other countries for demand in times of recession.

You can watch him explain this in this video (set to auto play).

@RBI 124. Previously we have seen the classification of ALL ECONOMIC ACTIVITIES

We know those activities result in the production of products & services for sale—both CAPITAL GOODS & CONSUMER GOODS.

But there are other GOODS available in the market for sale

https://twitter.com/ShivajiLokam/status/1180527023015358464?s=20

@RBI 125. Those other GOODS are nothing but the CAPITAL GOODS that make up the WEALTH in a country.

Thereby, we can classify all markets visible in the economy of a country into these two: (more on these two terms next)

1. ASSET MARKETS

2. ECONOMIC GOODS MARKETS

@RBI 126. FIRST,

ECONOMIC GOODS MARKETS:

On any given day, ECONOMIC GOODS MARKETS are those which sell—for first hand purchase—the brand new products & services produced by ALL ECONOMIC ACTIVITIES during the CURRENT YEAR.

NEW cars, houses, cranes, cosmetics, airplanes, etc.

@RBI 127.

ASSET MARKETS:

On any given day, ASSET MARKETS are those which sell—for second hand or higher hand purchase—all the CAPITAL GOODS produced by ALL ECONOMIC ACTIVITIES since time immemorial, including CAPITAL GOODS produced in current year but not brand new anymore...

@RBI 128.

Ex.

- A house built in the 1970s but now on sale

- shares of businesses which hold all business assets incl. all machines & buildings

- a tractor that is produced & purchased this present year but now put on market for second hand buyers.

@RBI 129.

Simply,

Economic goods market transaction relates to items on the income statements of the parties, whereas asset market transaction relates to items on the balance sheet of the parties.

The distinction between the above two markets—economic goods & assets—is vital...

@RBI 130.

...because even the economists from 18th century to the present times display WILFUL IGNORANCE when it comes capital, assets, its markets, its effects on Growth, GDP, National Income of current fiscal year, etc., thereby conjuring up absurd theories & baseless arguments.

@RBI 131.

THEIR WILFUL IGNORANCE is like a blindfold to their eyes, rendering them ineffective in understanding & figuring what exactly is the GOAL, the PROBLEM, thereby the SOLUTION, to economic development of a nation.

That brings us to the nexus of economic development!!

@RBI 132. How exactly should economic development be measured?

WHAT IS THE GOAL HERE?

(some more bashing of economists)

The blindfolded economists continue to think annual GDP GROWTH is the best indicator of economic development.

Like everything else, they are fully WRONG.

@RBI 133. You would think these highly educated economists, at least someone somewhere, would give weight to the idea that for a POOR country to actually become WEALTHY need to accumulate a lot of WEALTH, right? YOU KNOW LIKE THE USA, OR EVERY OTHER WEALTHY COUNTRY!!

NOPE, not THEM

@RBI 134. It is a good start to see & interpret things using commonsense.

ANYWAY,

Here it goes,

the BEST indicator of economic development of a nation is not GDP growth but how much STOCK of CAPITAL it has accumulated thus far of these 👇

https://twitter.com/ShivajiLokam/status/1181168104186896384?s=20

@RBI 135. Let's look at the NATIONAL WEALTH STOCK of the USA

Note: classification of wealth shown below is based on the feasibility of collecting, assessing wealth data

Our preferred type of classification remains the one seen in tweet 134.

Data Source: Piketty & Zucman, 2013

@RBI 136. How do we measure the stock of capital accumulated by a nation?

At the end of 2018, total wealth of

Singapore = USD 1.29 trillion

whereas,

India = USD 5.97 trillion.

Let's look at wealth per adult,

Singapore = USD 283,118

whereas,

India = USD 7,024 (app. 5L)

@RBI 137. We know right away that total wealth is not enough.

Wealth per adult seems to work but it is inadequate.

It is TOTAL WEALTH per TOTAL NATIONAL INCOME, or, WEALTH to INCOME ratio that best captures all metrics including both pop. growth & per capita income growth.

@RBI 138. Wealth data for US as presented in the graph is shown in CAPITAL-INCOME.

That is, we are measuring wealth of a country in terms of how many TIMES the stock of Wealth is at the end of a year relative to the country's national income of the year.

https://twitter.com/ShivajiLokam/status/1185859459739877378?s=20

@RBI 139.

India, a lower middle income country, has USD 5.972 trillion NET WEALTH at the end of 2018.

India totaled app. USD 2.499 trillion NATIONAL INCOME during 2018.

CAPTIAL-INCOME of India ratio = 5.97 / 2.47 = 2.38

or,

India's CAPITAL STOCK is 238% of its national income

@RBI 140. All income and wealth figures shown above are in current US Dollars.

SOURCE for latest wealth & income numbers for both India & Singapore: Credit Suisse Wealth Databook 2018.

@RBI 141. See the relevant pages in THE GENERAL THEORY OF RAPID ECONOMIC DEVELOPMENT discussing CAPITAL-INCOME RATIO