Where All Ends Meet… Time Value of Option on Growth is Current Account and Fiscal Spending...

In the first two articles we discussed how a nation’s currency can cause boom or bust in its economy. In this article we shall go a step further and discuss how in the current world order the currency, fiscal deficits and the current account deficits are playing out on the economic growth and how the only hope for this world to prolong the inevitable is for the US to have a continued fiscal and current account deficit.

I would start with the most basic equation taught to everyone in Eco 101 i.e. Y = C + I + (G-T) + (X-M) i.e. the GDP of any nation is the sum of consumption, investment, net government expenditure i.e. subtract the taxes and current account balance i.e. exports – imports. I would be focusing on the government expenditure and the current account part in this article. Ofcourse the consumption is what drives the current account deficit and investments. So here we go………

Thanks to reduced tariffs and free global trade treaties the investment needed to serve the US consumption is largely happening outside as the factors of production are much cheaper there. It’s important to note that even the trade today is not free or relaxed even though it may seem that way. The exporting nations of Asia hold their currencies pegged against the USD and try to implicitly keep the labour costs and material costs down which means that only US ends up keeping its end of the bargain, in any case the lower interest rate regime of the US since mid 80s has also ensured that the society moves on to become a society of mega spenders as saving at every point of time is reprimanded by Fed by printing more money. So a lower interest rate in US drives the consumer to spend and the investment to support that spending instead of happening in US happens in Asia or Latin America as the factors of production are much cheaper or artificially kept much cheaper there. This in essence means the US ends up having very high current account deficit which implies as the dollars move abroad the Asian producers have the option of

- Either let their exchange rate appreciate and let the automatic mechanism of trade balancing come into play. However this is precisely what these nations are guilty of not doing.

- So this brings us to the second option which is to let this money flow into the domestic economy which can actually be highly inflationary

- Hence the final option is to export these dollars back to US and the world and buy other assets.

This third option is the option that is not only practiced in today’s economic order but has also become so lucrative because now the US need not pay the Chinese for its goods with money but rather with “debt” – vendor finance.

So essentially this means that consumers of the US can buy goods they can’t afford and more importantly the government can maintain a military and fight the wars it can’t really afford!!! So essentially this US runs a CAD (current account deficit) and in return Asia funds the fiscal deficit of US. Now there are four combinations that can happen with these two variables and let’s see how it would impact the world. So the (CAD can go up and down) *(Fiscal Deficit of US can go up and down) = 4 combinations:

Case 1: The Current Account Deficit goes down and the Fiscal Deficit goes up: Well clearly an unsustainable and an instant Armageddon situation for the world as the growth in the developing world slows, the increasing fiscal deficit would be hard to finance by the US and what’s worse is the fact that the slowing of growth would lead to the emerging world selling US assets and the Fed ending up monetizing debt thus driving the whole world into a cataclysmic collapse while the commodity prices shooting the roof. Not an unrealistic scenario though if the consumer in US doesn’t pick up (the CAD goes down as import reduces) and the US government would end up spending more to substitute for the consumer contraction thus increasing the fiscal deficit.

Case 2: The Current Account Deficit goes down and the Fiscal Deficit goes down: Well this can happen in situations; one if the US again enters into recession which as government spending contracts and the Consumer also contracts obviously not a good situation for the world. However the other situation is bloomier which is the US discovers some export industry to bank upon and the investment cycle kicks in because of that followed by the consumer buying US goods and thus the government pulling back. Clearly this is the only situation in which the world would blossom again but as of today looks unlikely. To make it happen in my opinion the US should invest in industries of tomorrow i.e. Clean Energy and high tech (more on this a little later)

Case 3: The Current Account Deficit goes up and the Fiscal Deficit goes down: Well not a scenario that goes hand in hand. This simply implies that American consumer buys more but that clearly shows that the American economy is still structurally weak this would imply that the fiscal deficit can’t really come down. So I would simply strike off this case.

Case 4: The Current Account Deficit goes up and the Fiscal Deficit goes up: Well this is one scenario which can either prolong this problem and can indeed make it even graver or if played out well can even solve this crisis!!! This combination would continue what is happening in the world that is the emerging markets growing, US getting into more debt which would be bought by Fed and by Asia but here is what this strategy can buy “Time” this strategy buy us time and like any option this also has it’s time value. If US does invest during this time in technologies of the next generation that can really shoot up the productivity i.e. green energy, high tech like maybe high tech agriculture, nanotechnology, nuclear technology etc. then it would get rid of it’s structural deficiencies and can move gradually from a case of high CAD and Fiscal deficit to a low CAD and Fiscal Deficit and thus sustained growth, however if nothing changes it would mean that US ends up into a bigger debt spiral and this would mean that someday someone would realize that would they are holding is a complete junk that they would end up selling and thus inducing even more selling bringing this world to a complete financial breakdown.

So to conclude I would say that Ironically US running Current Account and Fiscal Deficits is the only hope for this world. Spending on Current Account and Fiscal Deficit is what I call the "Time Value" of the option on "Growth",.

I believe we are just a few year away from witnessing which turn this world takes, will this debt spiral and money printing lead us to a financial collapse and a new world order emerging out of it or will the US invest in these new technologies and seal another US decade or perhaps even a century for itself. Till that happens as I say that there be chaos before the pattern emerges……………..

Where All Ends Meet… Why a continued US Fiscal & Current Account Deficit are essential

This article is a continuation of my previous thoughts; probably this title suited it more. In the first article I tried to argue how the value of the currency is linked to the nation’s productivity. In this article we would explore the currency issue further and link it with the basic economic framework of today.

Let’s first explore as to how the credit is created and how money supply can lead to growth or bust and finally how we are sitting on a pile of trash. A borrower deposits 100 rupees with a bank, the bank is expected to maintain a cash reserve ratio of 10% which essentially means that he can keep 10 rupees and lend out the 90. This 90 again finds its way into the banking system and again 9 rupees is held back and 81 rupees are lent out (ofcourse assuming there is sufficient demand for that liquidity) and as this process goes on the 100 rupees of deposit becomes 1000 rupees in credit. This is called magic in common banter and money multiplier in economic talk. Now if the demand for credit is greater than this credit of 1000 rupees the Central Bank follows an accommodative monetary policy and supplies some more cash into the banking system. Had the country been following a gold standard the Central Bank would have been restricted in the amount of cash it could infuse thus restricting this growth. However since the human demand is infinitum, the key to success of this “Non Collateralized Monetary Policy” and I will come back on this term is for the Central Bank to pull out the liquidity if the demands are unjustified, which brings me to the second point… What does one means by unjustified demand….

The term unjustified demand in my opinion is any demand which would lead to investments that end up generating insufficient cash flows. Ofcourse in a capitalistic economy where risk taking is at the core and failures are part of life there are bound to be unprofitable investments and so that is why the “interest rates should be what they should be”, the cost of money should correspond to the risk in the investment but in any case if the overall risk of non-profitable investments increase in a certain sector the Central Bank has the tools i.e. adjusted risk weightages of loans given in that sector to deal with it and if this risk increases on an overall macro level the Central Bank should stop providing that extra liquidity or should even pull it out by adjusting the interest rates or changing SLR or CRR ratios. High interest rates act as a deterrent for risky investments as the cost of failure is higher and so my first issue with the current setup is that the interest rates have been so low for so long that it has inevitably turned the whole world into a casino.

Before I link this with the fiscal and Current account aspects let me quickly explain what I meant by “Non Collateralized Monetary Policy”…. Now when the bank issues loans against the deposits it basically issues cheques. So let’s say it has 100 rupees in it’s vaults, the bank can issue a cheque worth 90 rupees and give it to someone in form of loan. The collateral for that 90 rupees is the 100 rupees kept in the bank vaults. In a similar way the currency note or the cash number in your bank account that you are holding is a cheque that the “Great Central Bank” is issued you, but considering the amount of money supply in the economy what is the collateral held by these Central Banks…. Well China holds over 1 trillion dollar resevers in form of dollars so let’s see what reserves the US central bank holds whose dollars China is holding as collateral….

Ready……….. Nothing!!! The world is holding cheques issued by a bank that has no collateral to back it…… Blind following the Blind, well maybe not in every case and this we would explore a little later but anyways as the countries start realizing this more they would move towards hard assets from paper assets and so the commodity bull market of last 10 years has still some distance to go.

I just realized the article would probably become huge if I bring in the next point which is linking today’s monetary policy with the 2 critical components in economics Fiscal spending and Current Account. So with this thought till next time……………. Maybe in this case I should have changed the title :)

The Currency Conundrum…What’s the real worth -1

“He who tampers with the currency robs labor of its bread.” ~ Daniel Webster

The brashness with which the Central Banks across the globe, well really in the States (openly) and in Japan and the Euro area (covertly) are printing money raises the questions as to the real worth of the currency or rather more fundamentally from where does the currency attains its value. I would be less opinioned in this part of the article and would just talk about one most the most fundamental tenet of economy “The Currency”.

I would like to divide this topic into two parts, in this part I would talk about the fundamentals and basics of currency and as I said by being less opinionated (although would be hard….) and in the second my opinion on the endgame of the current situation. Nevertheless it is critical that the readers must understand that there is difference between working for money (that’s what most people end up doing) and working for wealth. Working for money is a complete fallacy as money can be printed in as much quantity by the Central Banks and thus keeping money in cash is the biggest mistake that working class people fall for. Ok more on it in the next article let’s discuss about currency now……..

Some four decades back Milton Friedman came up with a simple but an epic equation PQ=MV, not only it produced déjà vu with another great work of E=mc² but following the monetarist approach of Friedman the world came out of the stagflation era by early 1980s. However please remember that like any economic variable growth (represented by Q in the equation) also responds to the relationship of marginal utility of money i.e. growth may increase as an increasing function of money growth followed by relationship of equality and finally as a decreasing function of monetary growth i.e. the relationship is linear only for certain period.

So after a sufficient history lesson let’s check the variables… (P – Price, Q-Growth, M-Money Supply and V-Velocity of money) the velocity of the money is generally a constant over the short and medium term except in cases of hyperinflation or severe deflation when it spikes and infact is the most important determinant of these two situations. Now the first question to answer is if returning to something like a gold standard would work. Well the answer to that is an affirmative ‘No’ because it is simply too restrictive. Let’s see how does the monetary policy accommodates for growth. Assume an economy X produces 100 units of goods/unit of asset, each costing 1 $ and let there be 100 $ in circulation (assume velocity of money to be 1) owing to some discovery or investment (IT, better production knowledge, education, roads etc.) to an increased productivity and this causes the economy to produce 150 units of goods/unit of asset. To support this if the currency under circulation is not increased then this could have a serious deflationary impact (since velocity of money remains constant over short and medium term period) and this could hamper growth. So the Central bank should increase money supply. Having a gold standard can cramp up this growth as that would mean that the currency supply can increase only marginally.

What this means is that the value of the currency actually maps the productivity. Let’s take a hypothetical example of two countries X and Y a labour in country X produces 2 units while in country Y produces 1 unit and let’s assume there is just one unit of labour available. Now if the value of currency is same in both the countries then it would imply that a citizen of country Y can buy 2 units while the citizen of country X can buy just 1 unit. Well not really all this would do is that the citizens of country X would not be ready to sell anything to country Y at that price and this would lead to a devaluation of the currency of country Y.

Now there are certain ways of bringing about this devaluation and this is what I am going to discuss next

- Market demand and supply: In a floating rate regime the currency would automatically adjust under market forces
- A Sovereign Decree: In a fixed rate regime a decree can be issued changing the rate of the peg.
- Printing more money: A weakened currency can have several consequences:
- It will no doubt make your goods attractive by bringing a nations currency more inline with its productivity
- It can reduce the value of the internal liabilities
- It may increase the value of external liabilities
- It may increase notional value of assets (not real value) atleast temporarily and may lead to internal inflation and in some cases global inflation
- More importantly it can have severe effects on the critical component called ‘Velocity of Money’ and if that happens it simply means that the Central Bank basically has lost control over its monetary policy.

Let me emphasize that ultimately the foreign currency must find its way to the issuer in exchange for some goods or services. If the productivity is of that country is less, then its currency has to depreciate to make it a fair exchange and infact market forces generally ensure this to be the case at most times in a floating rate regime.

I have tried to set the context in this article about currency and monetary policy, in the next part I would explore the critical relationship between Money Supply and Velocity of Money and comment upon the current monetary policies.

The final bubble....... And the empire falls

Man has come a long way since the epoch of modern day history but even today if one views the world from the heights of the Acropolis or from the shallows, it becomes amply clear that not much has changed, humanity is still slave to the natural laws of cyclicality and creative destruction, which means that no strong how strong the global power is it paves way for another global player to rise to supremacy. If anything that has changed is that the time at ascendancy has become smaller. What's more the reasons of fall are similar and the fluttering attempts to maintain supremacy exactly the same.

Let me emphasize that the rise of any empire is governed by economics of wealth and albeit that also becomes the reason of it's fall. As by now you must have gauzed about which nation I am going to talk about in this article so let me take you back in time to relive some other great powers in medieval-modern human history. It should be interesting to note that the fall from divinity is swift contrary to the popular perception of a gradual decline. Let's start with the mighty Great Britain, not so long ago it controlled an Empire that was greater than the dream of the great Macedonian Emperor and the scourge of that Fascist Dictator and it all fell apart in the blink of an eye. After the end of the WW II Britain was burdened under that same four letter word that broke the back of every empire "Debt"; wonder why are they all four lettered. The cost of managing it's empire became unbearable and it all began to fell apart starting with India. More interesting is the fact that the harbingers of this was omnipresent as they are today, as the debt burden of Britain started increasing in the midst of 1930s due to the Great Depression, it's military expenditure started declining and then there came a tipping point when the cost of servicing it's debt exceeded it's military expenditure and I think that was the end game for Britain although the chapter was filmed at a later date. This relationship is not a freaky statistic correlation but a part of a well thought out analysis. What this indicated is that the empire has overstretched the limits of expansion and the Marginal gains from any further expansion is negative and hence it can only go down from here.

It's similar to any war wherein when the marginal cost of servicing an overstretched army becomes negative, the army can go no further and the whole thing trips over. In the real world everything acts at the margin, for a period of time nothing seems to happen and then suddenly something shakes the world. The realty is that the world is a mixture of Newtonian and Quantum laws, just as an electron is excited to the next higher level only when a certain amount of energy is given to it in a similar way actions of market participants keep on fueling an event till that slight marginal input makes it to explodes.

Today the current power is moving on a path that has been traversed by every known superpower in the history ever since Nero. Some two centuries back Rome faced a similar dilemma wherein it had stretched it's forces beyond their marginal peripheries and soon suffered with ever increasing Trade and Fiscal deficit; sounds familiar!! read more......

Ofcourse to fund this twin deficit the empire was soon engulfed under a quantum of debt, coupled with deflation due to the bullion hoarding..... and then came the final blow; to get out of this debt and deflation trap the currency was debased and so was the empire...... Today the characters remain the same, what has changed is only the face and the writing is on the wall, all it requires is a stamp of time.

False Prophets and False Profits

In the year 2006 one of the most celebrated economists of our times and my own once demigod, Milton Friedman said that Ben Bernanke is a very good choice for the chair of the Fed, sad that he didn't live through the period to watch the Melodrama turn to Horror, but another one of my ex- Heroes probably would "Paul Krugman".

Because what's happening is nothing short of horror and really seems unfathomable to understand as to how such smart people can make such stupid mistakes or were they really smart enough to start with. Is it really possible that I have been adulating these false prophets over the years and their prophecies are now leading this world to realise that for all this while what they have earned are really false profits. The upcoming QE-2 is not just socialism of rich, it takes the world one step closer to absolute economic disaster. Why can't they realise that if someone lives over and above his means for a prolonged period of time an economic impoverishment for some period is inevitable, it is certainly better than a complete armageddon that one is heading for.

Around 50% of US debt is owned by foreigners, by doing what fed plans has already led to another round of asset price inflation specially in the emerging economies both stock and real estate, as well as commodities have shot up. Probably after a pause this would continue to fuel further coupled with a currency devaluation of the developed world. With lots more supply of US paper coming into the market, the 30 year bull market in US treasuries is as good as over and it would not be long before countries like China, Japan and India realise that they are holding a ticking bomb in their hands and start dumping it.

China's currency is pegged to the dollar, it simply means that it would end up importing inflation either in the form of higher commodity prices or if it finally chooses to open it's currency - in form of huge capital inflows, either ways coupled with slow growth in western world it would lead to significant decline in export revenues, a severe slowdown or stagflation, which would force it to dump the US paper in the market to bring about some semblance to tame the inflation monster.

Japan already is facing the critical inflexion point wherein it's finding it hard to service it's existing debt and how can it be expected to buy the US debt. Infact even it may be compelled into forced liquidation triggered probably by China and a realisation that the US paper and currency are worth little.

The reality is that the strength of any currency is derived from the fact that a country has a sound monetary policy wherein it's Central Bank can be trusted to preserve it's value as well as the nation exhibits a constant increase in its productivity. This is what imparted the status of a reserve currency to the US Dollar. Sadly the party is over and the privileges of producing nothing and spending it all is fast going away. For last 30 year enormous wealth and Profits has been created across the World following the prophecies of some people propelled to the level of prophets, now with them falling from grace it's time for the wealth to go where the prophets have gone.................

Well it's not all gloom, this is an inevitable cycle that the world follows, following this cycle in the 1930s lead to major upheaval and Fascism was destroyed, another cycle in 1970s led to the collapse the Socialism and now this one, but the odd thing about this cycle is that the Nation that prophesies of Capitalism is going the Socialist way to save itself, unfortunately it's really engaging itself into crony capitalism or socialism for the rich..... my point is even if US economy fails, it would not be the failure of Capitalism as all it would mean is that extreme Capitalism is not good in a similar way as was true for extreme Socialism.

Ricardo's Hypothesis of Comparative Advantage - Imperialist Poison or Modern Panacea

During my time at B School I took up the course of International Economics. I still remember the first day when I was enthralled by that one theory that not only forms the bedrock of all Modern Trade theories and Mulitlateral trade treaties across the world but was also instrumental in pulling economics from the status of Social Science to a path more closer to Physics. It's the David Ricardo's "Theory of Comparative Advantage", it is one of those thoughts that had a lasting effect to the lives of mankind. I would not be exagerating if I say that in Economics it holds the same pedestal as perhaps the Einstein's relativity does.

A few days back on my flight back to Delhi I was sitting with a small time businessman engaged in the business of engineering goods. Our discussions moved to International Trade and as expected he was opposed to the idea of opening up of borders for goods. While his arguments were obviously centered around his concern of facing lot of competition but I started having second thoughts about this whole notion of Free Trade and if it is Good for the World. The main problem with textbook education is that it doesn't give you a chance to critique existing norms. Most of the theories taught to us are set in the Western World, the same place which developed by imposing heavy restrictions on the flow of goods.

As I thought deeper into the Ricardo's theory I found it to be surmounted with imperialist flavour, very similar to our archaic caste system in which a person of lower caste/work was not allowed to leave his/her profession. In essence both had the sole motto - "The poor should remain poor".

Ricardo theory only works if the productivity across sectors in a country is the similar, otherwise it's nothing more than a tool to create disparity in society. Think about it if a person has a comaparitve advantage in cobbling shoes while another in writing software then and according to the theory they both specialise in their fields of comparative advantage, wonder what would happen..... the gap between the cobbler and the software engineer would increase many folds in some years (Sounds familiar !!!)......

Let's take a numerical example. Please note that I believe that the explanation is intutive enough to understand, however since Ricardo's theory gains it's strength from numerical presentation, I feel it's appropriate to give a counter in the same way. The examples are simplified. Incase someone is interested in any detailed analysis, they can contact me through mail or this blog.

Let's assume the same simplified case of two countries, two products and single factor of production (labour).

In the example above the productivity of B in producing product X and Y is the same and so if the two nations specialise in their areas of comparative advantage the worlds output would expand. Country A would be richer than country B, however that has more to do with the fact that the labour in country A in both the sectors is far better than country B. Ricardo's theory fits in perfectly here.


However is it practicle to assume that the productivity in both sectors would be the same. I mean in the above case 1 unit of labour would produce $150 worth of X or Y, but in most cases this is not true. Usually productivity of skilled and educated labour is higher than the labour that is unskilled and illiterate. In most cases richer countries would always have a comparative advantage over the developing world in the work that involves skilled labour. This is because highly skilled jobs means that labour input involved for every unit of output is less.

Hence (x1 + ∆x)/ x1 > (x2 + ∆x)/ x2 ; x1 would lead to far higher labour productivity, so does that mean that the developing world should specialise in non-skilled work!!! Absolutely Not. Let's look at it numerically:

Here there are huge productivity differences between the two products. If Country B produces in the area of comparative advantage it's output would be worth just $60, however if it produces the more productive good (even though it's not in the area of it's comparative advantage) it's output would increase to $100. However the flip side is that the global output would reduce from $260 to $250.

So in essence

- Ricardo Hypothesis makes sense only when we deal with products from similar industry or sector and doesn't hold across sectors or industries.

- If the country produces a good in which it has higher productivity but not a comparative advantage, the country would benefit but the global growth would reduce as there is going to be some "Dead Weight Loss".

Economics is not just about growth and efficiency but rather about inclusive growth and if this introduces some redundancy then it's worth it as otherwise we risk social unrest. The focus on efficient growth equations with no redundancy that emanates from Ricardo's hypothesis has created a pseudo science within economics with is dangerous for our future (the classic example is the recent debt meltdown), focus on efficient growth with minimal redundancy not only widens gap between rich and poor but is also counter to nature. Think about it, what would happen if gmail, yahoo don't take backup of your data, or if you have to live with one kidney or lung. While free trade and specialisation has advantages but for a country to grow it's imperative that it increases it's productivity specially in products that have higher value.

Since large parts of our economic textbooks are written during imperialist or Cold War times, it's important that we critique every notion of conventional growth theories. Remember unlike Physics Economics is not a pure science and no matter what people say a Ricardo, Keynes or Friedman can never match up to Einstein, Feynman or Newton. So next time you read any economic article I would suggest you doubt; even this one..........

Debt - "A Productivity Arbitrage"

So it's been a little over an year and the same question comes to haunt us all over again only this time it is much more bigger and treacherous. The issue is the same - "The World is just too leveraged"

The first question to ask is what really is debt? In my opinion it is basically a mechanism to exploit productivity arbitrage or a way by which a lazy buffoon with lots of capital can gather even more capital. Let me explain.........

If I find a person who has an ability to do good business and I have the capital but short on ability then I would lend him the money; sit home and watch Fashion TV while that man toil to reap rewards for my capital - This is what I call "Productivity Arbitrage". The reason that the Western World was able to gather so much Debt was because it had much higher levels of productivity and so the people were to willing to lend them.

Post the IT revolution of 90s this productivity has come to a plateau, infact because of their ageing demographics, especially for Europe means that productivity is actually declining.

But true to the Human Nature of extrapolating the past to the future meant that the trend of Western World getting more and more debt didn't stop. What was worse was that this money instead going into asset creation went to fund the current consumption. Any growth achieved in this way today directly means slow growth later. A question that comes to mind is why did this start to happen, why this world started spending rather than investing?

If I give you some money today you can either start your own business and may make a future or end up with nothing or else consume it on the usual human vices. With the productivity levels declining, the Western world would rather spend that money as with falling productivity the chances to achieve success in investing also starts to decline. However the lazy buffoon conglomerate of some countries and banks were lost in their Cinderella world. What is worse is that the government is actually protecting them as was apparent in the Greece crisis. This has set a wrong precedent of Moral Hazard. What it tells the world is to LEND! LEND! LEND!!!. Take the hard earned money of a small man and lend it to countries & businesses who fliters it away, make pennies on the deposit/lending spread and sip your martini. When these countries and businesses would not be able to pay you back these banks would be protected again by money of the poor citizens who would end up paying for the continuation of their lavish lifestyles and for their stupid fallacies.

This game is now coming to an end. All it would take is a failed auction of any of the Western country or Japan and then all hell would break loose. The world would see a catastrophe never seen before.

Debt which started as a genuine productivity arbitrage instrument with the onset of this century has become the wildest instrument to speculate in the hands of well attired but ill advised banks who are protected by even more ill advised governments but their capacity to save them is reducing ever moment. The best thing would have been to take a few years of recession, however to save a few Capitalist Cronies the world is heading towards a disaster. I am afraid I can't be bullish anymore though one thing is for sure that when we come out of this the Wheels of Fortune would have changed and the countries who are in good shape would benefit from it.

I would continue to explore this issue much more in my later articles and how one can make money in this environment. Next article would probably be on the 4 pins of this square garden - The US, Europe, China and Japan. I always say "Let there be chaos before the pattern emerges", However today all I would say is that "Don't find pattern in this chaos". Till Next time...........

Economic Prosperity and Human Development Index.. Means determines the End

There are three ways to wealth, You are born rich, You become rich with toil and some luck or You Marry rich......... The way you acquire wealth determines an individuals personal development and consequently of the society as a whole because ultimately Economic and Social development go hand in hand provided you have toiled for it.

There are countries that have struck wealth merely by the grace of divine factors. Middle East Nations of Saudi Arabia, Iran and many more.... because they got this wealth accidentally (by discovery of oil) their societies never got time to develop into modern civilized ethos. The result these countries even with the highest per capita incomes have among the lowest level of human freedom equivalent to that of the medieval periods. There laws are archaic and inhumane, their way of living highly conservative and violent so much so that these nations could be termed as "Band of Terror", so much so that this phenomena can be termed as "Black Gold Curse" for the entire world.

Let's move West, here the people have acquired wealth over a period of time. True, they were archaic as well... their ways of colonising nations and slave trade is very much questionable but my point is that these nations have evolved from that period. As they gained wealth and because they gained it from toil they advanced on the human development index as well. The paradise of Europe as we know it today had seen extreme dark periods which culminated in the form of WW-II in which the extreme form of inhuman barbarism was at display. However learning from it's mistakes inline with their economic prosperity so has moved the society, whereas this was not possible in the first case as the Gulf Nations got it easy and never did any such mistakes upon themselves from which they can learn and hence now the world suffers.

Coming Home... India never had any such gold struck opportunity falling it's way, so it has to toil itself hard and in the process I am sure the society would get better. From what I have experienced not only do we have to develop economically but culturally and socially as well, but this quite normal as economic and social development go hand in hand.

Cases like China would also be interesting to see, how they develop where the economic model of growth followed is somewhat different than it is followed in India, though the toil of the people in improving their lives is apparent in both cases. So the next time the actions and behaviour of a person can also give an insight into not just his social and economic background but also of his nation. So the Means determine the Ends...with this thought, till next time..........