It will be too early to draw the conclusion that the current global economic recession crisis is over. Conclusion can not be drawn until we get the final assessment of the costs/impact of recession to world economies. This becomes even more intricate for since the collapse was a global phenomenon, so, no recovery can be said to have occurred if it is not global.

Recession is a ground reality which cannot altogether be avoided. Nevertheless, it is a momentary phenomenon; however worst it may be, it will pass away. But it is that hardship which unveils numerous truths at a time. It is truly a testing time for everybody; even the human values and moral standards are in jeopardy.

One thing is sure, only economic theories do not help in predicting Recession, because sometimes many non-economic factors play lead role in inviting this bottleneck which are hardly noticed. Paul Samuelson rightly states, “What we know about the global financial crisis is that we don't know very much.” To, the economist, real life is a special case. An economist is someone who knows more about money than the people who have it. (George Bernard Shaw) And the Economics itself is the science that hangs like a gathering fog in a valley, a fog which begins nowhere and goes nowhere, an incidental, meaningless inconvenience to passers-by.

Yet, facts do not cease to exist because they are ignored. Recession unveils several such facts.

1. Recession is real and can come again. The great depression started in 1929 and naturally, most people have not seen that with their own eyes. So, the idea may have come to many people that USA is the richest country on earth and economic recession would not touch its economy. The year 2008 perhaps taught these kinds of people a crushing lesson that it can happen anytime in any country.

2. It is now fully evident that the key indicator of current recession is the greed of those who failed to anticipate the consequence of their actions which badly affected the lives of billions.

3. Credit Buying is always intoxicating. In the 1920s, the US economy expanded rapidly on the basis of cheap credit, rising money supply and an exuberance bordering on overconfidence. It led to consumers buying large quantities on credit and a booming realty and stock markets. By 1928, the US economy was heavily unbalanced with over inflated asset and share prices. Negligence to same realities allowed history to repeat itself in 2008-09. Sub-prime Mortgages caused almost unhealing ulcers to the world economy and its almost unsure amidst ongoing treatment that cure would total. The Governments should focus on real economic growth attributed by real effective demand. Steroid is not a permanent solution.

4. In any situation, Government should not allow Banks to fail in order to prevent economic earthquakes. In 1920 Depression, one of the most damaging events was the widespread failure of medium sized American banks - with the Federal Reserve unable or unwilling to act as lender of last resort. The widespread bank failure caused a decline in the money supply and loss of confidence in banking sector - investment fell drastically. Same event replicated in 2008. It not wrong, almost 124 Banks have so far gone astray.

5. The rich become richer and the poor become poorer is a cry heard throughout the whole civilized world. Secondly, Labor is prior to, and independent of, capital, in fact Capital is only the fruit of labor. But the irony is such that in tough times, the workers are first to bear the brunt of a crisis that is not of their own making. Workers are the last to benefit from an economic boom but now they are the first to be sacrificed in the midst of a global recession that was sparked by high rollers in the casino capitalism. It is now a high time to have a probe on the very idea of free markets and capitalism. People have started realizing the need of Regulated Free Economy. If there is a lesson to be learned from the present crisis, it is that it’s a time to strengthen the real economy and shutdown the casino economy. It is indeed a height of paradox that even in this distressful recession, nobody has perhaps thought so far about the Bail-outs for workers. If it had been so done, it would have been not simply a measure of social justice, but also a viable solution to the economic slowdown. To protect the human source is the major responsibility of not only the governments, but Corporations too are equally and ethically responsible to do so, not as philanthropists, but as the visionary who can see that skill and strength of human sources is the key factor to reshape future economy. In sharp contrast to this, we have locally witnessed several examples in which sector specific industrialists have marooned hundreds of thousand workers overnight and forced them to commit suicide rather genocide in one-by-one format. As if this was not enough, they shamelessly shirked their own responsibility blaming the Government for not providing bail-out for them.

6. In recession, government cares only for the big companies not poor individuals. It would be interesting to see that bailout plans to support global financial systems of the nations are nothing but a financial looting of country’s exchequer. Question arises from where bailout money comes – Answer is ‘Taxpayer’ who is liable for recession!!! Bailout of US$ 700 million is aimed to help US Fed Reserve to purchase all toxic assets, hold them for years and pay millions of dollars to those firms who would manage them, but not help even a single family to save their home which they have lost. It has been rightly criticized by an American intellectual that the Federal Reserve was not founded to bail out Bear Stearns or a few hedge funds. It was founded to keep a stable currency and maintain its value. Nations borrow billions for war; seldom for education. No nation is rich enough to pay for both war and civilization; it has to choose from one. On account of unreal liquidity pumped into financial systems, stability may again be fancied by nose-less economists, but no surprise, if it turns out to be stillness between tremors.

7. National Debt should not be allowed to increase. The effect of higher National Debt will be higher taxes in the future. The remote but potential risk is that the US government could one day default on its debt. If the US government became a bad debtor, that really would be the end of the world. The dollar would collapse, the financial system would collapse, and in 20 years we would probably be all speaking Chinese. In this context, Mark Faber has rightly regarded the Currency Printer as the most destructive weapon on this earth. Rampant Quantity Easing bangs on to erode purchasing power of currency and result is always immeasurable in terms of inflation.

8. In so far as developing countries are concerned, it is true that many countries have been caught up in this global crisis by Default as a consequence of no precipitating policy actions by their own governments other than endeavoring to participate fully in the global economy and financial system. But, they must now make Better Preparation. A country will be better off in the phase of a global crisis if its own vulnerability is limited, for example, if its fiscal affairs are reasonably stable, if its inflation rate is low, its internal and external debt position is sustainable, and if its exchange rate is flexible. Second, a country will be better off, if it has preserved the room to maneuver to respond to external shocks through the use of domestic policy instruments, primarily fiscal and monetary policies. Besides, Countries should self-insure against future crises by putting in place as best as they can, robust economic and financial policy frameworks. If these lessons are not learned, then the course of globalization could well go into reverse. The risk is that the globalization trend will be replaced with inward-focused regionalism, selfish nationalism, and disguised as well as evident protectionism. A major lesson to be leant is that, export led growth model of development will have to be re-assessed as countries that pursued this model have been hit most due to their expose to the external economies, leaving themselves in utter turmoil. Balancing of export model of development with boosting of domestic consumption is emerging as the best option, not only during this crisis, but also in the foreseeable future.

9. The Human Cost : Lasting nearly a decade, the 1920 Great Depression caused massive levels of poverty, hunger, unemployment and political unrest. The study of the human cost of unemployment reveals that a new class of poor and dependents rapidly cropped up among the ranks of young sturdy ambitious laborers, artisans, mechanics, and professionals, who till the invasion of depression time, maintained a relatively high standard of living and were the stable self-respecting citizens and taxpayers of the state. Unemployment and loss of income ravaged numerous homes. It had broken the spirit of their members, undermined their health, robbed them of self-respect, and destroyed their efficiency and employability. Many households were dissolved, little children parcelled out to friends, relatives, or charitable homes; husbands and wives, parents and children separated, temporarily or permanently……..Men young and old had taken to the road. Day after day, breadlines for food deluged on the roads. … Physical privation undermines body and heart.… Idleness destroys not only purchasing power, lowering the standards of living, but also destroys efficiency and finally breaks the spirit. Did anybody ever think about the present and future cost in terms of skill and efficiency of manpower lost by industry during recession and to be regained aftermath of recession? Those entrepreneurs relentlessly blowing the trumpet of Darwin’s principle of ‘Survival of the Fittest’ for ratifying their own dirty deeds must read - Road to Wigan Pier by George Orwell. They must stop betraying their own conscience by disfiguring the concepts of human welfare, sustainable development, human rights, CSR and such other good-to-hear terminologies. Sophisticated or rude, race of dacoits is same. History is made up of the bad actions of extraordinary people. All the most noted destroyers and deceivers of our species, all the founders of arbitrary governments and false religions have been extraordinary people; and nine tenths of the calamities that have befallen the human race had no other origin than the union of high intelligence with low desires. However, it’s time now to understand that true acumen lies only in preserving valuable scarce resources for future.

Teach a parrot the terms "supply and demand" and you've got an economist.”

SUPPLY AND DEMAND

The law of supply and demand, briefly, states that when demand is high, prices will rise, and when supply is high, prices will drop. In other words, The Law of Demand holds that other things remaining equal, as the price of a good rises, its quantity(supply) demanded will fall, and vice versa. The Law of Supply holds that other things being equal, as the price of a good rises, its quantity supplied will rise, and vice versa. Did anyone ever think why do teachers earn say Rs.3 lakh per year and a Filmy Hero earns say 100 times more (conservatively) than teachers? Isn't education more important than Movies? In the month of March, mangoes are sold at Rs.1000/- a dozen (roughly 3 kgs.) and yet people have strong urge to buy them. In contrast, perhaps better quality mangoes are available at Rs.100 per 3 kgs during May-June, yet people pay relatively less attention to them. Why?

DEMAND FACTOR AND RECESSION

Some economists are of strong view that 'what goes up must come down'. It seems that either they are not aware of the catastrophe and panic of the suspected recession/ depression or they are carelessly trying to avoid the worry. Neglecting a problem is no solution. They must try and find out the cause.

Lord Keynes applied the logic that recessions are caused by a lack of Effective Demand.

The effective demand comprises of consumption demand and investment demand. Therefore, the lack of effective demand may come about due to the lack of either the consumption demand or the investment demand or both. Hence, to increase effective demand the consumption demand or the investment demand or both should be increased. Let us see one by one how the effective demand can be increased:

TO INCREASE CONSUMPTION DEMAND

There is a functional relationship between consumption and income. People mostly increase their consumption as their income increases, but not by as much as the increase in their income.
Consumption expenditure is determined by disposable income more correctly than by total earnings.

Consumption function depends upon the nature of consumption which is again dependent upon the consumption behavior of the people throughout the variation in income. This behaviour study can be for shorter or longer term, but it must correspond actual observation and experiments. Short term is sufficient enough to experience a significant change in the parameters of the economy, especially in case of a developing economy where the entire socio-economic setup is being changed fast on account of rapid economic development through development plans.

Now, consumption behaviour solely depends upon the Marginal Propensity to consume (MPC). What this MPC mean? It is a metric that quantifies induced consumption with every increase in disposable income after taxes and transfers. If a household earns one extra dollar of disposable income, and the marginal propensity to consume is 0.65, then of that dollar, the household will spend 65 cents and save 35 cents. If person borrows money to finance his expenditure, definitely, MPC is more than 1. Also, MPC varies from individual to individual and their respective circumstances. For example, a thirsty man in the middle of desert has a very high MPC for Water than the man pillowing in his A.C. room. With this, it becomes more obvious that MPC goes on declining at higher levels of income and approaches to zero at a very high level of income where all available consumption goods are already available in list of items which gives maximum possible satisfaction to the people. If you have plenty of what you want, MPC is perhaps Minus 1. At higher level of income where you have plenty of everything, MPC corresponds to other factors like tastes, habits, fashion, traditions, technology etc. that may prevent the consumption from increasing. These factors are determined by the entire social, political and religious way of living of the people.

Today, when there is a panic and panic only the world over on account of unbearable recession, when even the developed economies are also suffering from considerable level of inequalities in income distribution, consumption demand can be increased by introducing new consumption items, improving quality of existing items and making income distribution more equal will help to increase consumption demand almost equally in both the developed and the developing economies.

TO INCREASE INVESTMENT DEMAND

How Investment Demand can be increased to enhance effective demand? Situation for induced investment differs both in Developed and Developing Economies.
Developed economies are required to only preserve the existing productive investment in the time of slow-down period. It can well be done by raising the purchasing power of the middle income group, the dominating group in the consumption goods market, through the measures for increasing consumption as discussed hereinbefore. Also, the easy consumer loans either free of interest or at an insignificant rate of interest and restriction on both commodity speculation and non-commodity speculation activities would be proved most helpful to preserve the existing productive investment.

But, in the situation of economic recession, economies of developing countries need not only to preserve the existing productive investment but also to increase it. It depends upon the excess of Marginal Efficiency of Capital (the rate of profit earning on investment) over the prevailing rate of interest' always holds good.

Therefore, the developing economies apart from increasing consumption demand have to bring interest rates significantly lower and to increase the 'Marginal Efficiency of Capital' to fight against recession. The restriction on speculation will help very much in the developing economies because they are always short of capital and the liquidity engaged in speculation not only makes a dent on the supply of capital but also makes the interest rate high. It should be noted that supply of capital (money) depends not only on physical money printed in the economy but on the Velocity of Money Circulation (turnover ratio) which declines drastically on account of recession – rising unemployment, falling investment and consumption. In such insecure time, confidence is at its lowest ebb and people tend to hoard cash rather than spending it.

Apart from this, actions should be taken to mitigate the inequalities of income distribution. A part of the flow of income from high income group (the group having insignificant MPC) should be diverted to the middle income group (the group having high MPC) whereby the consumption demand will improve by raising income, employment and induced investment.

Thus for increasing Effective Demand and thereby recovering from recession phase, the income of the middle income group and the low income group should be preserved against unemployment. The inequality of income distribution should be alleviated fast so as to divert a considerable portion of income of the high income group towards the middle income group and the low income group who actually constitute a real effective demand. A wide range of consumer loans at negligible interest rate or interest free should be floated in the market. A subsidy scheme for the consumption goods should be launched in a way that consumption goods pertaining to high income group may become under the reach of middle income group and consumption goods pertaining to middle income group may become under the reach of low income group. Speculation activities should be stopped. The flow of funds towards enhancement of trade and commerce should be restricted.

But,,,,, it may also happen……………….. Strong economy causes an increase in the demand for housing; the increased demand for housing drives real-estate prices and rentals through the roof. And then affordable housing becomes completely inaccessible. During the boom, a speculative fervor gripped homeowners, particularly in the United States, where they got hooked on cheap, gimmicky mortgages. They believed that they could buy low, sell high, and could always get out at the peak, instead of being the last player in the game to hold the old maid card. Unfortunately economists don't see this — including their voodoo economic theories and strategies that helped causing the recession, such as the belief that economic good times could go on forever. This leads to a very important cause of the present recession. There is no shortage of expert opinion, particularly from economists and financial analysts — too often, however, the wrong ones prevail.

Ultimately, Rulers are the reasons of growth and also the remedy of slow-down. In both conditions, they gain and people loose. Why? Reply is simple: They have to support money owners in both conditions for mutual benefit. Though being regulators, they are paid to deregulate and they do so! Why should a common man break his head for understanding Demand-Supply fallacy?


Many say : World Economy is on the path of recovery, Recession is Over, because statistical figures says so. Some cautiously say: Recovery is there but it would be slow. Very few attribute the improvement appearing on the screen, to the relentless increase in money supply by currency printing. How many care to study the effects of remedial measures taken in 2008-09 and make systematic economic forecast for 2015 without getting carried away by hearsays ?

Amidst all these, fact that remains universal is ," There can not be a sustainable economic recovery and growth unless there is an increase in Real Effective Demand. " Purpose of presenting this articles was to simply convey this fact.