Common Sense Macroeconomics

377 Pages·2020·17.533 MB·English

by  Ravi Batra

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Published by
World Scientific Publishing Europe Ltd.
57 Shelton Street, Covent Garden, London WC2H 9HE
Head office: 5 Toh Tuck Link, Singapore 596224
USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601
Library of Congress Cataloging-in-Publication Data
Names: Batra, Ravi N., author.
Title: Common sense macroeconomics / Ravi Batra, Southern Methodist University, USA.
Description: USA : World Scientific, 2020. | Includes bibliographical references and index.
Identifiers: LCCN 2020001795 | ISBN 9781786348395 (hardcover) |
ISBN 9781786348456 (paperback) | ISBN 9781786348401 (ebook) |
ISBN 9781786348418 (ebook other)
Subjects: LCSH: Economics.
Classification: LCC HB171 .B315 2020 | DDC 339--dc23
LC record available at https://lccn.loc.gov/2020001795
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library.
Copyright © 2020 by World Scientific Publishing Europe Ltd.
All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means,
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For any available supplementary material, please visit
https://www.worldscientific.com/worldscibooks/10.1142/Q0248#t=suppl
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Preface
John Maynard Keynes, perhaps the most celebrated economist in history,
must be agonizing in his grave to see a world relying on negative interest
rates for the sake of reviving the global economy and reducing the pov-
erty of millions of people across our planet. Even in the middle of the
Great Depression that he sought to end with his economic advice,
Keynes could not imagine a future where nations would routinely run
trillion dollar budget deficits just to grow their economies, or call upon
their central banks to keep printing money to stimulate consumer
demand. His analysis assumed that at most the interest fee could sink
to zero.
After Keynes passed away in 1946, there have been several reces-
sions, but never a depression. The worst slump occurred in 1981 and
1982, when the U.S. unemployment rate approached 11 percent, com-
pared to 25 percent in 1933. Other areas such as Europe and Japan also
experienced significant contractions in GDP in the early 1980s. Nations
tried Keynesian polices of monetary and fiscal expansion, and always
managed to avert a depression. No matter how bad the recession was,
interest rates never fell below zero. But then came the Great Recession
starting in December 2007, and soon global economies began to
unravel.
Housing markets collapsed, banks were bailed out, share markets
crashed, and the world feared the onslaught of a depression. Central bank-
ers panicked and went on a money-printing spree. They even coined a new
v
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vi Common Sense Macroeconomics
phrase — “Quantitative Easing (QE).” After several bouts of QEs from
QE1 to QE2 and then finally to QE3, interest rates moved into negative
territory. The world would never be the same.
Conventional macroeconomics now teeters on the brink of insanity.
We need to inject common sense into macroeconomics, and that is where
this book comes in. The book can be used as a text in macroeconomic
principles as well as for advanced courses. Its focus is not on math and
complexity of models but on simplicity. Equations are used only when
they cannot be avoided, as in a nation’s accounting system. It is a student-
friendly work that explains complex economic problems through numeri-
cal examples, which are easy to comprehend. Specifically, the book
innovates in the following ways:
(1) The purpose of studying macroeconomics is to raise the living stan-
dard of all, not just a privileged few.
(2) Contrary to popular belief, relentless monetary expansion to finance
budget deficits actually makes the rich richer and the poor poorer,
which is happening all over the world.
(3) Ethics and efficiency go together. For instance, lowering tax rates for
affluent individuals and corporations while raising them for the poor
and the middle class are unethical policies that hurt economic growth
and generate poverty. Hence, such measures are inefficient, as they do
not raise the living standard across the board.
(4) In order to raise everyone’s living standard, government policies
should generate competition and outlaw mergers among large and
profitable firms.
(5) Inequality arises from monopoly capitalism, because then wages
increasingly lag behind productivity and generate a rising wage–
productivity gap. This rise in the wage gap is the ultimate source of
almost all economic troubles and imbalances. While it is inherently
unfair, it also leads to vast income disparity and wealth concentration,
stock market bubbles and crashes, recessions and eventually depres-
sions. It is the rise in the wage gap that preceded the Great Depression
of the 1930s and more recently the Great Recession of 2008.
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Preface vii
Hence, governments should not stifle competition and vigorously
enforce anti-trust laws.
These are some of the ways in which this book is different from other
texts. In short, Common Sense Macroeconomics relies on common sense
and rationality, not on complexity of models designed to distract from the
truth and hide reality.
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About the Author
Dr. Ravi Batra, a professor of economics at
Southern Methodist University, Dallas, is the author
of five international best sellers. He was the chair-
person of his department from 1977 to 1980. In
October 1978, as a result of having dozens of pub-
lications in top journals such as the American
Economic Review, Journal of Political Economy,
Econometrica, Journal of Economic Theory, Review
of Economic Studies, among others, Dr. Batra was
ranked third in a group of 46 “superstar economists,” selected from all the
American and Canadian universities by an article in the leading journal,
Economic Enquiry. In 1990, the Italian prime minister awarded him a
Medal of the Italian Senate for writing a book that correctly predicted the
downfall of Soviet communism, 15 years before it happened.
Dr. Batra has been written about in major newspapers and magazines,
such as the New York Times, Washington Post, USA Today, Time,
Newsweek, the U.S. News and World Report, and has appeared on all
major networks, including CBS, NBC, CNN, ABC, and CNBC, among
others. In 2009, Batra received the Pratima and Navin Doshi Award for his
contributions to economic analysis.
In June 2015, the President of Iceland invited him to share his views
about the eradication of poverty. His latest book is End Unemployment
Now: How to Eliminate Joblessness, Debt and Poverty Despite Congress.
ix
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