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May 11, 2012

The Economic Version of the Ant and Grasshopper

Arjun Parthasarathy has this interesting take on this ancient fable (ironically by Greek author Aesop) via blog post at
The European nations who have been playing while the world was working are struggling to come to terms with the issues facing them. The normal way of life with state support, low number of working hours, extended summer holidays and assured jobs is a thing of the past and the normal European is having tough time adjusting to the new environment. Jobs are scarce, government is bankrupt and people find they have to work hard for their money. It is no wonder that the Greeks and the French are rejecting austerity and it is most likely to spread to Spain, Italy and Portugal as well. However, rejecting austerity will not help the Europeans in any way and it is a long hard grind to come back to normalcy.

...India is also a part of the ant and the grasshopper story. In India the ant is the people who work hard and save money for the future. The government on the other hand is the grasshopper that lives off the savings of the hard working Indian. The government spends money when the sun is shining, read when the economy was booming and taxes were growing at a fast clip in the mid 2000’s. The government also spends money in the winter by taking away the savings of the people read fiscal stimulus post 2008 crisis. The government never learnt to save money and the people are paying the price for it.

The average Indian saver is seeing his hard work go down the drain in the form of inflation and depreciation in value of financial assets from bonds to equities. The government by merrily spending its way into and out of trouble has made sure that the hard working Indian is suffering for the sins of hard work. Inflation touched double digit levels while equities values are down while interest rates are up leaving the saver a hugely disillusioned person...The Rupee is facing the consequences of a spendthrift government and has lost over 20% in value over the last one year. Unless macro economic policies benefit the Rupee, it is unlikely that the Rupee will regain some of its luster.
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