Why did Former Indian PM Manmohan Singh Quote "In the Long Run we are all Dead" by John Keynes

Former Indian PM Manmohan Singh who was hailed as one of the Nation's Best Economic Architect in the 1990s, has conveyed in the Parliamentary sessions recently that those who advocated the current demonetization reforms reminded him of John Keynes who said "In the Long Run we are all Dead". This begs the question as to who is John Keynes and does our death in the long economic run really mean something.

Who is John Keynes?

The Keynesian Philosophy named after John Maynard Keynes in the early 20th Century, propounded that Government Stimulation based on consumption is necessary to ensure the economy stays healthy.

This is to say that when the economy slows down or crashed, people with lower income tend to spend money immediately on daily needs like food, transportation and shelter compared to the higher income group who tend to save and invest less thereby causing the economy to slow down even further. To circumvent these issues, Keynes proposed that government should intervene and spend on public work programmes to stir up the economy to its previous levels.

Going by Keynesian philosophy, when an economy slows down and stock markets wane, governments who are custodians of Fiscal Policy need to infuse money into the economy. But this begs the question as to where would the money come from if a nation (like US, EU and Japan) is already in debt. The answer is simple.. “Print More Money!!”

The downside to printing more paper currency is that it decreases currency value and reduces purchasing power thereby causing us to spend more to buy commodities; which goes by the name “inflation”

Why Keynesian Philosophy puts our Future in Distress

Essentially with the Keynesian model, we create an economy of debt.

It's like living on somebody else's hard work / money and asking the next generation to work harder to repay the debt

The modus operandi of the Keynesian theory appears to ensure that we go on spending and when our pockets are empty, all that is needed is to print more money. But there is a hitch, when a nation prints too much money so does its debt increase because the definition of money is the debt that we owe to each other for the goods and services exchanged and not really paper money which is just a stash of paper

Printing Money means Creating Debt and not Wealth

As long as the economy can be kept running in the money printing cycle and delay in honouring the debt we owe to each other, we continue to grow old and die one day. This theory of John Keynes was confirmed by Ex Indian PM Manmohan Singh, that "In the Long Run We are all Dead" implying lets enjoy for today and pass on the debt to the folks who are yet to be born.

India is Safe because our Bankers are wary of the Disasters of John Keynes's Theory

The situation is quite different in India compared to other nations. India's external debt is USD ~480 Billion dollars which is a pittance compared to US public debt alone standing at USD ~20 trillion. The massive debt created was due to the introduction of Quantitative Easing (QE) that went by the name "bailout package" since the 2008 recession in most parts of the world.

The Bail Out Package can be simply explained as - Since 2008, the Central Banks of US, European Union and Japan kept printing money and infused it into their financial system. Whenever they ran out of money, the central banks printed more money thereby creating a massive debt to each other

The Ex-RBI Governor, Dr. Rajan was one of the few to predict the impending 2008 financial crisis and received flak from many academic corners for his paper titled “Has Financial Development Made the World Riskier?”. But in the end, Dr. Rajan had the last laugh when the 2008 recession hit most parts of the world who listened to John Keynes. Dr. Raghuram Rajan was quite wary of turning the Indian economy into a spending machine and the danger of India ending up like the US, EU and Japan whereby we would owe a massive debt to the rest of the world for the goods and services bought with borrowed money.

Dr. Rajan just went by Common sense Economics of keeping interest rates sensibly high enough to bring down inflation and prevent reckless borrowers from scrounging. This was bitter medicine but the Doctor brought down the fever. For a Nation's GDP to stay ahead of fiscal spending, monetary savings must increase in the banks and not under our pillows and mattresses.

In addition to Dr. Raghuram Rajan's firm grip on the interest rates, the demonetization move by current Indian PM Narendra Modi, aided in further curtailing the financial leaks in the economy.

The current demonetization scheme also saves the country from stretching out its hands to the World Bank or the International Monetary Fund (IMF) for funds in the future.

It is a golden opportunity for India to show the rest of the world that she does not need anyone else's money, rather, there exists the possibility in the future that Staunch Keynesian followers might have to stretch their hands in front of India

However to see this day, the nation needs to clench its fists and teeth and be willing to face the short term difficulties.

PM Modi's demonetization drive actually benefits the Nation by changing our spending habits, increase our savings, making the nation tax compliant, reduce hoarding and prevents us from printing too much currency that creates inflation

The benefits are already visible with news sources reporting that property prices are set to fall (maybe even up to ~30%) in the coming months, lower commodity prices, lower interest rates on loans because banks are healthier with less liability after recovering wealth that has been lying around with no circulation.

Thanks to the current reforms, We don't have to die leaving a debt to our next Generation

Real Wealth is not paper currency but the goods and services that can be brought by exchanging other goods and services of equivalent value for which a stable currency is needed. For this to happen, India has to become a "Debt Free" Nation and is exactly moving in this direction thanks to PM Modi's reforms.

The current set of reforms can now be rephrased as "In the Long Run, We are all Debt-Free and not dead"