Sunday Times ( 01
Oct ) carried following QUORA question
:
“ If I start destroying currency , how
will that affect economy ? “
Alex Tabarrok ( Professor , George Mason University )
replied as follows :
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“ Amazingly, burning
your cash would make everyone else a little bit richer.
Suppose that you get a job and earn $100 that you use to buy a pair
of jeans. You created $100 worth of value and you consumed $100 worth of value.
Now suppose you give the $100 to charity. You created $100 worth of value and
someone else consumed $100 worth of value.
Now suppose you work and burn the $100. This is the same as the
charity case! You created $100 worth of value but didn't consume anything. But
the value you created doesn't disappear. You did the work and society is richer
because you did the work. So who does the extra consuming? Everyone else.
How does this work?
When you
burn your cash you reduce prices just a tiny, tiny, bit. The fall in prices
means that other people can buy more. How much more ?
Exactly $100 in value more ( $100, divided by the population who
participates in that economy, so not very much per person ! ).
So the upshot is that those fat cats lighting their cigars with $100 bills are really benefitting all the rest of us !
* I am assuming a normal, well-functioning market economy. In a recession with sticky prices there could be short-term Keynesian considerations which I have ignored as these don't seem to be at the heart of the question as asked. “
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Theoretically , Professor is right
But practically , you cannot expect anyone to work for the society
, without expecting anything in return !
No doubt , some
rich / well-to-do , individuals do join NGOs / Charitable Organizations and
work for “ Free “ . But they are exceptions and in minority
But , can we get millions to , “ Give more to the Society in
relation to what they receive from the Society “ ?
Can we get
them to sacrifice a “ little bit “ , in order to enrich the lives of other poor
people ?
Can such “ small sacrifice “ on part of millions , make India , a “
Low Cost Economy “ and set in motion a “ VIRTUOUS CIRCLE “, making us
globally competitive ?
Yes , it is
possible as described in my following blogs :
Automationis Inescapable [ 30
Nov 2016 ]
Gist :
Reduce " Cost of Inflation " by limiting
" Annual Wages-Salaries Increases " to 75 % of
the preceding year's GDP number (
ie: if GDP for 2015, is 8 % , maximum salary /
wage increase that can be granted on 01 April 2016 , will be
6 % ) .
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