Money Mind Meld


Money Mind Meld

Being financially independent in today’s age is becoming more about personal gain than social welfare. It has turned out to be an effective tool in boosting one’s ego and retaining superiority in whatever communal sphere a person belongs to. Observe it for yourself; you will notice whether it’s a household or an office, money gives you a comparative advantage above all. People literally consider you as a torch bearer of wisdom, based on your financial status. The ironic aspect is that the more you earn, the more virtuous you are considered to be. To add insult to injury, the sad part is that monetary strength has overshadowed character with startling ease. And by character, I imply love, kindness, empathy, character, morality, respect -you name it.

“Money, like any other force such as electricity, is amoral and can be used for either good or evil”

Martin Luther King

How can money in its anthropomorphic form be so parochial and judgmental? No pun intended, but haven’t we, as humans, been observed to behave that way? I wonder how money has adapted to the characteristics of a Homosapien. Well, technically speaking, that cannot be the case as science has no evidence of such unique phenomena till date. I believe it’s we humans who treat money so ruthlessly. Somehow, we are really good at defining the purpose and fate of those around us, be it inanimate objects – money for example -or our fellow beings. To be more precise, we extend this behavior to almost everything we are sharing this God’s green earth with. A true shame to bear the brunt of such injustice, right?

However, justification can be birthed through a logic; we drive money insane just to keep ourselves sane. Ego, by default reacts to any and all threats and hence moves to safeguard the sanity of human mind. This treatment of money gives us confidence, authority and freedom as a byproduct; ultimately ensuring mental soundness. To put it aptly, we manipulate money as ‘means’ to achieve safety as an ‘end’. Not a bad bargain especially when we are engaged in interaction with an entity devoid of any feeling and emotions. Irony strikes yet again. We lose exactly what we pursue, along the way. Yes, we do gain Confidence, Authority and Freedom but at the trade off of our peace, love, kindness, empathy, character, morality and respect. We ended up compromising our “Humanity” & “Human relationships “for the sake of mental security and safety.

In short, we -rational beings in the end -compromised our mental health knowingly or unknowingly, by choosing a wrong way towards a right end. We rightfully deserve to be studied as a case for striking the worst bargain in the entire natural order. If nothing else, this observation will add up to the piles of the countless theories of Sociology and Psychology explaining human behavior. However, instead of building confidence, financial insecurity has led to the bouts of desperation and anxiety. Instead of excitement to pursue future endeavors, it has nurtured feelings of hopelessness, screaming to our senses that the hurdles of life are insurmountable. Financial Independence has hence translated into more of a mental health issue We are under a certain illusion that happiness is synonymous with paychecks. But, when reality strikes, we come to terms with the fact that it is in fact we, who have made a fool out of ourselves. One of the unique curses of money is uncertainty of its future status and as humans, uncertainty has always made us anxious. Be it of our existence in the universe or the validity of our everyday relationships.

 Instead of slaving away in finding the path to our unique purpose and identity, we are stuck slaving away in an office somewhere to make ends meet -concomitant with an incentive to satisfy our narcissistic tendencies. This money mind meld has forced us to live a life of necessity rather than of purpose & joy. It takes courage to break out of these generational curses and encourage each other to live a happy life instead of a successful one. Because in the end, all we have is our sanity.

Linked below is the short video lesson by Sir Asad Zaman on the topic ” Value of Money”.

A Campaign for the First Thousand Days

The first one thousand days of a child’s life (from conception to second birthday) are very critical from nutrition point of view. Unfortunately, child malnutrition is a big issue of Pakistan. Pakistan is among the countries where malnutrion is one of the highest. Since children are the future of our country so we should put all of our efforts to meet this challenge. Everyone among us should think what he/she can do to solve this problem. Hospitals and doctors should design special awareness campaigns and media should cooperate with them. Organizations like   restaurants, NGOs, universities and businesses should come forward and provide their services according their expertise. And government should function as an enabler and facilitator to everyone participating in the project. This will enable babies to smile and babies’ smile will make us forget our other worries.

The right nutrition between pregnancy and the second birthday has a dramatic effect on a child’s ability to grow, learn and thrive. Failure to provide adequately for the baby’s needs during this critical window can never be compensated for later. With one of the largest population of young people in the world, Pakistan faces a unique challenge. How can we ensure that all babies conceived and born in Pakistan receive the best care that we as a nation can provide? Our future literally depends on how well we can meet this challenge. At a rough guess, about 10 million children in Pakistan would lie in this critical target range. The challenge of providing adequately for all of them is too large for any organisation, including the government to meet. It would be entirely correct to call this situation a silent mega crisis, a problem bigger than the earthquakes and floods which received far more publicity and attention. Meeting the challenge requires all of us to work together on an out-of-the-box campaign, which could provide all the children of Pakistan with a brighter future. If approximately 100 million adults work together for a common goal, we can easily solve the problem which would be impossibly difficult to tackle by any other method.

The first step in this campaign is to take responsibility. We must not ask what other people or organisations are doing to address this crisis. We must ask ourselves what I can do to solve a tiny part of the problem that is within my reach. Ownership and responsibility have magical powers to create solutions. When it comes to my own children, I do everything in my power to ensure that they receive the best possible care. We must take collective ownership of all the children in Pakistan, and strive hard to do everything in our power to serve the needs of those children that fall within our circle of capabilities. The goal of our campaign is to create a million drivers of change — every driver takes creative responsibility for thinking about, and executing, what he or she, or the institution within which they work, can do about the mega crisis that faces our children. The possibilities are endless, and no one person can even conceive of all the projects that could be undertaken by one million drivers of change. Nonetheless, for the sake of illustration, let me list a few major areas which require attention.

Starting from the beginning, we need to take better nutritional care of pregnant women. Doctors and hospitals could design awareness campaigns about their dietary requirements, including micronutrients. The media could play their role by creating shows and news items which highlight the importance of providing the right kind of nutrition to pregnant and lactating women. Different institutions, like shops, restaurants, small scale business enterprises could offer to provide resources to women and children in their neighborhoods, according to their capabilities. Food manufactures should introduce special lines of nutritious foods, to provide delicious and healthy alternatives to junk food. Larger organisations like universities, big business, NGOs, etc., should participate on a grander scale. They should provide thought leadership in design and execution of appropriate strategies, as well as providing research input on the effectiveness on different types of interventions. If every individual and institution can take responsibility for changing a few lives, this would create the desired mega-response required to solve the mega crisis. But the key to this campaign is that we should not wait for someone to tell us what needs to be done. Just as we take responsibility for our own children, making plans without expecting other to help us in bringing them up, so we need to take ownership of all children that we can reach. As Gandhi said, “Be the change that you wish to see in the world.” We need to change our mindsets from being a spectator of events taking place in Pakistan to a game player and a game changer, who creates the events that others talk about.

The government should play the role of enabler and facilitator, cutting through bureaucratic red tape for the sake of our children. The First Thousand Days campaign must rise above political, racial, ethnic geographic, linguistic, religious and sectarian divides. There are many government programmes already in existence which deal with issues related to mothers and infants. Inefficiencies in these programmes exist because dying, malnourished and stunted babies do not figure prominently on our priority list of problems to be solved. Political obstacles could be removed if all relevant parties agreed to put our children first, ahead of all other concerns. Anxieties of Malthusians concerned about population growth should be relieved by research which shows that the poor have excessive children as old-age life insurance. When health and prospects for children improve, the birthrate goes down.

Babies come into the world as a bundle of joy, trusting and trustworthy, full of love for all, and with the capability to spread sunshine and happiness. If this campaign achieves nothing more than increasing our own personal interactions with the children of Pakistan, this will contribute tremendously to our own personal happiness in our daily lives. Just the memory of a baby’s smile full of love and trust is enough to bring warmth and happiness into our lives, and refresh our confidence in the future. To solve the great problems of the world — wars, terrorism, greed, violence, intolerance, hatred, etc., — we need to learn the qualities of innocent babies. As the Bible states, “Truly I tell you, unless you change and become like little children, you will never enter the kingdom of heaven.” Ancient wisdom, which we have neglected or forgotten, tells us that if we take good care of our children, they will take good care of us. Let us pledge ourselves to take better care of our children in Pakistan, and to personally ensure that at least a few children receive adequate nutrition through our own efforts. Amazingly, children thrive on love, developing stronger immunity, and better cognitive skills. Perhaps we don’t have enough material resources for all, but surely we can provide enough love to make our children feel that they are most beloved people on the planet.

Published in The Express Tribune, March 16th, 2017.

Michel Foucault: Power and Knowledge

Think beyond the horizon and deeper into the surface

Power is knowledge or Knowledge is power?

I have always wondered I am unable to see demonstration of knowledge being a tool to give us power. putting it in simple words, that if something is true, it must be evident to everyone else as an object and need not be interpreted and it must not have different meaning for any one else. But this is not how things work out there in the real world. For instance, if everyone agreed that when the sun is out there, it would be called “NIGHT” and when the moon spreads out its light we would call it a bright “DAY”, Then? definitely it would by the rule of the day. But how it would happen? What is needed to do so? If there is a supreme body with absolute power, that may announce it, it would surely be admitted at once. So the question is, does knowledge give birth to power or the power is a source of knowledge? On similar notes, it may be called that the power is the source which shapes the knowledge.

We cannot understand the world around us without a sophisticated understanding of the complex but intimate relationship between knowledge and power. One of the most influential philosophers of the twentieth century, Michel Foucault, crafted a radically different understanding of this relationship. Instead of seeing power in brute force, he saw power as being the ability to shape knowledge. To understand Foucault, we must let go of our comfortable and conventional understanding of Truth as an objective and factual entity which exists outside time and history, and which cannot be manipulated by ordinary mortals. Instead, we must learn to see Truth as a social product, which is created and shaped by politics and power. As Foucault said, “My job is making windows, where there were once walls.” Absorbing Foucauldian insights opens windows onto entirely new ways of seeing the world. This is demonstrated by Michel Foucault in his work “Power and Knowledge”. The core objective of his work is reflected in the following passage.

Instead of the simplistic binary understanding of ideas — as being either true or false — Foucault offers us a dramatically different perspective: “We have to be there at the birth of ideas, the bursting outward of their force: not in books expressing them, but in events manifesting this force, in struggles carried on around ideas, for or against them.” The concept of Power/Knowledge is best understood by illustrating how it is used with concrete and specific examples.

Consider the question of how we can achieve good governance in Pakistan. Using the orthodox and conventional understanding of knowledge, we would take it for granted that “good governance” is desirable, and the discussion would be confined to current failings in this dimension, and measures we could take to improve governance. However, someone who has absorbed Foucault’s message about the Power-Knowledge nexus would approach this question differently. Instead of being trapped by the framework created by the question, we can turn the tables by asking why this question is under discussion. Foucault invites us to study the “archaeology of knowledge”: search the historical archives to ask about the birth of the idea. Doing so, we find that the question gained prominence in global discourse only after the 1989 World Bank (WB) report: Sub-Saharan Africa: From Crisis to Sustainable Growth. The report announces the discovery of a fundamental flaw in the prevailing development paradigm, and states the need for “not just less government, but better government.” We must dig into history to find out why the need arose for this about-face, which contradicts several precepts of neo-liberal thought. Among the established precepts of free market thought is the idea that governments are inherently corrupt and inefficient, and so privatisation is always a good policy. The idea that good governance is possible, and indeed, necessary, contradicts this; if good governance is possible, then there can be well-governed, productive and efficient public enterprises. Similarly, free market thought asserts that private enterprise is the key to rapid growth, and the best a government can do is to keep out of the way. But now we are saying that good governance is required for development. Once this is admitted, the door is open to understanding that free markets by themselves do not suffice, and that governments play a crucial role in development.

What desperation made it necessary for the World Bank, guardian of the temple of free-market thought, to admit this wild horse into the premises? Digging deeper into the historical archives, we find that Structural Adjustment Programs (SAPs), enforced all over the globe by the WB & the IMF, had become immensely unpopular. As just one among many witnesses to their failure, a senior adviser to the WB, William Easterly, described the WB as “a bloated, unaccountable foreign aid bureaucracy out of touch with sound economics that is running amok.” Among the thousands of tragedies, great and small, created by the SAPs all over the world, David Graeber mentions his experience on the island of Madagascar. Forcibly imposed austerity led the government to shut down an effective and essential anti-Malaria programme, leading to the death of 10,000 citizens. Many researchers, both inside and outside the WB, produced compelling evidence that by demanding reductions in government spending on social welfare, the SAPs were a major cause of poverty all over the globe.

It became essential for the WB to find a scapegoat, some other factor to blame for the failure of the SAPs. Thus, following its launch in the 1989 report, a virtual avalanche of reports from a wide variety of global organisations started to focus on governance, democracy, institutions and other ideal forms. The official story line became that SAPs were well-designed policies which would have worked wonders IF the governments had been less corrupt, and a strong institutional framework to implement policies had existed. This campaign was highly successful in shifting the blame from the WB onto the governments which had been forced to implement WB policies. No one asked the obvious question about why the WB took several decades to realise that the SAPs would work only in a Utopian world with perfect democracies and efficient institutions, where they would be unnecessary. Instead, developing economies all over the world accepted their guilt, and began soul-searching conferences to improve governance and eliminate corruption. The East Asian Crisis in 1997 saw an instant replay of this successful strategy. While the crisis was obviously and directly caused by enforced financial liberalisation, post-crisis the blame was shifted to corruption in the form of “crony capitalism” and many other weaknesses supposedly specific to East Asian economies.

This analysis of governance is meant to illustrate the Foucauldian method, not to argue that we should ignore governance. We must distinguish between the “narrow” and “broad” interpretations of governance. No one could object to the narrow version, focusing on improving efficiency of public administration and building good institutions. But the broader interpretation uses ideal forms of democracy, human rights, social development, and other intangibles to create impossible goals which must be met as a pre-requisite for development. We would be well advised to ignore this counsel of despair, and to set our own agenda and priorities, focusing on realistic targets suitable for our particular circumstances.

Published in The Express Tribune, October 12th, 2016 by Dr. Asad Zaman: author page on LinkedIn. Links to Other Works: Index. More material on Power/Knowledge.

Michel Foucault Power and knowledge

Between Free Trade and Over-Protection

For making economic policy, the historical context of economic theories in which they were formulated and the group interests they represented should be understand.  The theory of free trade and theory of trade protection are the most striking example of this.  A strategic planning is needed for development whose main goal is development of local capabilities. An effective strategy should be a middle course, avoiding both extremes – protection and free trade- and should be adjusted according to the particular circumstances of the industry. It leads to increase efficiency, improves quality and reduce costs.

In economic policy making, every policy hurts some groups and helps others. All advice is automatically biased in favor of some group or the other. Economic theories cannot be understood without understanding the historical context in which they were formulated, and the group interests which they served. The most striking example of this is the theory of free trade. This theory emerged in England, after England had acquired a fifty year lead over other European countries via the industrial revolution. Thus England was a small country which had acquired capabilities of manufacturing vast amounts of surplus.  What was to be done with this surplus? This was the historical context for the famous Say’s Law which says that supply creates its own demand.  Treating theories as universal laws valid everywhere creates enormous barriers to understanding. Students struggle to grasp difficult mathematical formulae without any clue as to the meaning or relevance of the formula.

Say’s law suggested that increased domestic incomes created by the production of surplus would increase the domestic demand for the excess production. The doctrine of free trade was designed to lower ideological barriers and thus create foreign demand for the surplus production of England. According to this doctrine, free trade is always helpful to both traders. This is based on a very simple idea. If both parties agree to the trade then both must benefit, otherwise they would not agree. Even for individuals, we can easily visualize situations where this is not true. Advertisers can make products appear attractive and seduce people into buying unnecessary products at outrageous prices. At the level of nations, this principle is extremely misleading.  European nations were deceived by the free trade theories into allowing English products to penetrate their markets. This adversely affected local producers and led to a recession in the European economies. At this point the great German economist Friedrich List understood the game and rose to the defense of Germany. He created the “infant industry” argument, saying that German industry could never develop in free competition with the English who were so far ahead. They must be protected and nurtured until they could stand on their feet. He argued that the free trade theories work well if the two parties are equals, but not in situations where one has a dominant advantage over the other. His theories were applied with great success. Protection led to the development of German Industry, until they were able to compete on equal terms with the English. At this point, it became possible and advantageous to remove the trade barriers.

In general, all cases of successful industrialization in the twentieth century have been achieved by protection, together with government leadership and support. Nonetheless, protection is not always beneficial. In the USA, Japanese competition was causing immense damage to the US auto industry, who asked for protection. While this was against the free trade ideology of the USA, the automakers were sufficiently influential and succeed in imposing VER – Voluntary Export Restrictions on Japan. The automobile industry promptly forgot their promises to improve efficiency, and instead made use of the respite from competition to jack up prices and make huge profits from the USA Consumers. At the same time, the Japanese cleverly moved up the value chain, shifting exports to high end luxury cars so that they would make more profits on the same volume of trade limits under the quota. Consumer prices for cars almost doubled within two years.  This a common pattern seen in protected industries. Instead using the protection as a breathing space to prepare for the challenge of competition, to acquire strength and grow, protected industries grow fat, lazy and inefficient.

Simple minded arguments for protection and for free trade are both wrong. Development requires intelligent planning, not adherence to platitudes and ideological principles. The goal of overriding importance is the development of local capabilities. It is a general principle that development occurs in response to the right level of challenge. The level of challenge should be just enough to stimulate growth, but not so much as to cause collapse. The challenge should also be increased dynamically in response to the growth of capabilities.

The East Asian countries were well aware of the dilemmas of protection and used a very clever strategy to steer a middle course, avoiding both extremes. They provided a clear time-table along the following lines, adjusted according to the particular circumstances of the industry. The first year could be one of full protection, with a barrier on imports. This was the preparation year. The second year, export oriented industries would have to export 10% of their products to ensure that they were able to compete in the foreign market. In addition, the tariff barriers against foreigners would also be reduced, on a schedule designed to increase the level of challenge facing the industry. Faced with this clear cut schedule to achieve competitiveness, Industries worked to improve efficiency. It was a matter of survival. They learned how to manufacture for exports, and how to cut costs, increase efficiency and create quality. In all this process, they also did receive the help of the government. The successful transition from agrarian to industrial economy bears witness to the success of their strategy.

Successful Development Strategies

If an alien species were to descend on Earth today hoping to learn about economic development from the human species, what would they take away from us? If they were rational, they would sift through history and take the bits that were the most successful in producing results. It follows that we should be doing the same thing to develop our own strategies for development going forward but for reasons that we explain in this article, we are not doing that. We continue to try and implement economic theories that have repeatedly failed and ignore the ones that have produced provable results. Why?

History is the conquest song of the victors. Since ancient times, these songs have glorified victors and grossly exaggerated their virtues, while denigrating and vilifying the losers. From them, the defeated learn an extremely biased picture of the world which prevents access to the truths necessary for liberation.

In graduate school, we learnt about Rostow’s theory of the stages of economic development. This theory places all existing non-European civilisations at ground zero and argues that development will require them to imitate the path taken by England in the 18th century in the course of its rise to global world power. This idea is patently absurd. Current global conditions bear no resemblance to those faced earlier by European countries. Contrary to the idea of ground zero, India had advanced shipbuilding, glass, and textiles industries. De-industrialisation took place as many of these industries were deliberately destroyed during the process of colonisation. Economic theory was used as a weapon to argue that India’s comparative advantage lay in supplying raw materials to British industry.

Another reason the comparison is flawed is political realities; European countries enjoyed a degree of sovereignty not available to current developing countries. Weak and corrupt governments and massive debt burdens allow rich countries to set policy. How can one make effective development policy while paying billions in interest on non-productive loans? Rostow’s prescriptions for growth do not take current political circumstances into account and are uninformed by history.

Despite numerous flaws, Rostow’s ideas undergird modern economic growth theories. This is a testimonial to the power of victors to dominate discourse. The spectacular accomplishments of the losers of World War 2, Japan and Germany – who went on to become economic superpowers – receive no mention in economics courses. Similarly, very little attention has been paid to the experience of the East Asian tiger economies, which accomplished something unprecedented in history: sustained rates of growth of seven per cent per annum. The famous Industrial Revolution that we struggle to replicate à la Rostow had growth rates of only 1.5 per cent, tripling the previous historical average of 0.5 per cent. This seven per cent growth rate has been justly labelled the East Asian Miracle. Their experience is far more relevant to modern development strategies than the 18th century experiences of England.

Not a single Nobel Prize has been awarded to an East Asian economist. Instead, it is deeply ironic that Milton Friedman, the prophet of the free market, received the Nobel Prize. Policies designed and supported by him were implemented to the last detail over a period of 20 years by a group of economists known as the ‘Chicago boys’, under General Pinochet in Chile. Despite Friedman’s repeated assurances that these would bring about an economic miracle, Chile experienced high unemployment, a sharp increase in income inequalities and poverty and a highly erratic economic performance. The Economist, a magazine which ardently supports free market policies, had to confess that the “hair of the Chicago boys has gone grey, waiting for the free market to give results.” Pinochet eventually fired the Chicago boys.

A similar disaster occurred in Russia, as a result of the implementation of Friedman’s ideas. After the collapse of communism, there was widespread agreement on the need for a transition to free market policies. The debate was only between the gradualists and those in favor of a rapid transition. Supported by the IMF, the ‘shock treatment’ party implemented a sudden shift to free market policies. As a result, production in Russia fell by 50 per cent in one year. In an economy previously able to feed its population, extreme poverty and starvation occurred on a large scale, accompanied by the creation of a new small group of billionaires.

Instead of looking to those responsible for numerous crises, including the recent global financial crisis, wouldn’t we be better advised to consult those few countries, including China, that have been success stories of development over the past few decades?

Speculative Financial Attacks

Current financial structure of the world is dominated by the excessive money creation not only by the central banks but by the shadow banking system that create massive credit. Financial practices such as buying at margin and speculating in foreign exchange have enabled super-rich to make tremendous profits at the cost of many currencies. These speculations are self fulfilling that result in actual devaluation of the currencies by means of multiple equilibrium in the foreign exchange markets. Many real incidents have established that the economic theories in textbooks are insufficient to understand such modern world economy. Following note provides the highlights of this phenomena.

We live in a world awash with money. Not only can the banks create 20 times more money than the amount they receive as deposits, but an enormous shadow banking system has come into existence which creates massive amounts of credit without any regulatory restrictions. At a time of the global financial crisis, the value of financial instruments was more than 10 times the world GDP. Daily trade in foreign exchange is around $4 trillion, while actual merchandise trade is only $50 billion. This huge excess clearly represents speculation and gambling, rather than currency exchange for the needs of trade.

The ways of the super-rich Lords of Finance are far beyond the ken of ordinary mortals like you and I. Winning and losing bets in millions of dollars daily are just a small part of the thrill of living. One of the important tools they use is buying on margin. This means that you can buy $50 worth of stocks or foreign currency by paying just $1. In effect, the dealer loans you the remaining $49 by using your stocks as collateral. If the stock goes up to $51, you can sell and get out with a quick 100 per cent profit on your investment. If the stock declines to $49, you again sell and get out of the market, losing your marginal payment of $1.

In the 1970s, the dollar was de-linked from gold officially by former US president Nixon. Distrusting the unbacked dollar, the Hunt brothers decided to buy up all the silver in the world. By 1979, they had nearly cornered the global market, taking possession of nearly three million kilograms, about a third of the entire world supply. In the process, they drove up the price of silver from $6 to $50 an ounce, and became richer than the fabled King Croesus. The eight-fold price increase created a dire situation for jewellers around the world. Tiffany’s took out a full page ad in The New York Times, condemning the Hunt Brothers and stating “We think it is unconscionable for anyone to hoard several billion dollars worth of silver and thus drive the price up so high.”

The fates intervened to prevent the Hunt brothers from becoming the kings of silver. The Hunt brothers angered the Reagan Administration in the US, which played dirty to bring them down. COMEX, the regulatory body for commodity exchange, suddenly changed the rules for trading in silver, doubling the margin requirements. This required the Hunt brothers to put up about double the cash for the silver they had purchased on the margin. At the same time, the FDIC changed the rules to prevent banks from lending to purchase commodities. The bear trap closed around the Hunt brothers, who watched helplessly as silver prices started sliding and crashed on “Silver Thursday” on March 27, 1980. Although they lost billions, and eventually had to declare bankruptcy, we need not feel pity for the Hunt brothers. Their rich daddy had foreseen this possibility and created protected trust funds for both brothers amounting to $100 million each, more money than common folks see in a lifetime of earning.

One of the favourite games played by the super-rich is speculating in foreign exchange. Buying on margin provides enormous leverage; one can buy a billion dollars worth of currency for a paltry $20 million. This allows you to attack weak currencies and take them down, making an enormous profit in the process. George Soros created the Quantum Fund to attack the British Pound, speculating on its devaluation. The Bank of England tried to protect the pound with all the means at its disposal, but was eventually forced to yield, creating billions in profits for Soros. Similarly, big money forced open the doors of the East Asian Miracle economies to foreign investors, and crashed these economies while yielding tremendous profits to the investors.

The use of leveraging, derivatives and other complex financial tricks within the unregulated shadow banking system creates a huge amount of excessive credit, which actually changes the rules of game. As the Global Financial Crisis of 2007 demonstrated dramatically, the conventional textbook theories currently being taught in universities throughout the world, do not apply to the modern economy. The most radical change has been the failure of the quantity theory of money. Professional economists were very surprised when huge increases in the money supply did not result in proportional increase in prices, in violation of the quantity theory. The US printed trillions of dollars for the Iraq War and for bailouts and quantitative easing following the Global Financial Crisis, but there was no corresponding increase in consumer prices. Similar phenomena were observed throughout the world. In Pakistan, there has been a 350 per cent increase in the money supply, but only a 250 per cent increase in prices over the past decade.  Professor Richard Werner has solved the mystery by showing that the excess money goes into creating price bubbles in land, housing, stocks and other speculative financial assets. Prices of these assets do rise, but these do not enter the consumer price index, and hence do not cause inflation. Interestingly, Werner’s theories are not well known among economists.

Another serious consequence of excessive money supply being held in the form of inflated assets is that the concept of an equilibrium exchange rate is no longer well defined. Previously, the equilibrium was defined by matching supply and demand for currency, which was based on the real trade balance between exports and imports. Now the speculative transactions, being done at whims of the super-rich, overwhelm the real economy. What controls the exchange rate is largely expectations. The topic of self-fulfilling expectations has gained prominence in the recent literature on monetary theory. If rumours are spread that a currency will decline, people will sell the currency and cause it to decline. Equilibrium theories do not show any significant misalignment of the Pakistan rupee exchange rate, as current popular accounts would have it. The ultimate test today rests on Central Bank interventions. If the State Bank is intervening in the markets by selling dollars to prevent a fall in the price of the rupee, then the rupee is overvalued. However, State Bank Reserves are steadily growing, showing that the rupee is actually undervalued, contradicting the views of leading economic pundits in Pakistan. 

This is originally published in The Express Tribune, June 8th, 2015 and available here:

Life Lessons 3

Life Lesson 3 of Maria Popova is directly and clearly an Islamic teaching:

Be generous. Be generous with your time and your resources and with giving credit and, especially, with your words. It’s so much easier to be a critic than a celebrator. Always remember there is a human being on the other end of every exchange and behind every cultural artifact being critiqued. To understand and be understood, those are among life’s greatest gifts, and every interaction is an opportunity to exchange them.

The Quran is full of verses exhorting people to spend for the sake of Allah. There are many more verses on this topic than on the famous five pillars of Islam. A few are cited below:
16:90 BEHOLD, God enjoins justice, and the doing of good, and generosity towards [one’s] fellow-men
2:274 Those who (in charity) spend of their goods by night and by day, in secret and in public, have their reward with their Lord: on them shall be no fear, nor shall they grieve.
Muslims are commanded to spend money in excess of our needs for the sake of Allah.
Q2: 219 They ask thee how much they are to spend; Say: “What is beyond your needs.
The generosity of our Prophet Mohammad S.A.W., who is the perfect role
model for us, is well known. He never turned away anyone who sought his help.
After observing how much he gave out of the wealth that accrued to the
Muslims after the conquest of Mecca, Safwan bin Umayyah remarked that “(the
prophet) was as generous as the rain.”  [The above passage is taken from “Crisis in Islamic Economics“, a paper which argues that Western economic theories are based on competition and greed, while Islamic Economics is based on cooperation and generosity.]

Today, because we Muslims have been listening to words like these all our lives, we have become immune to them.  Advice goes into one ear and out the other, without having any effect on our thoughts and behavior. Learning to care for others, to give instead of taking, generosity instead of selfishness, is hard on our Nafs, but it is extremely rewarding. All our lives, we have practiced feeding our Nafs, doing whatever we desire, and feeling frustrated when we cannot get what we want.

There is a new way of life which Islam opens for us — we focus on serving God to the best of our abilities, and let Allah T’aala take care of all our personal problems. (Q6:162) Say: Lo! my worship and my sacrifice and my living and my dying are for Allah, Lord of the Worlds. Give EVERYTHING you have to the service of Allah – hold nothing back, keep nothing for yourself. It is living in this way which develops Tawakkul – trust in Allah. When we see, from personal experience, that Allah T’aala does not fail to provide for us, then we become confident in His guarantees. Also, this way of life is enormously satisfying. Giving to others, for the love of Allah, is the best way to create happiness, while selfishly trying to grab things for ourselves, without concern for others is the formula for unhappiness and loneliness. Economic theory teaches us that rational behavior involves trying to maximize the pleasure the I get from a lifetime of consumption.  I would invite my readers to do an experiment with the OPPOSITE way of living. Forget about your own personal desires. Live only to serve all of mankind, in the best possible way, with your maximum energy and capabilities, for the sake of the love of God. Seek NOTHING for yourself. This seems a bit scary — What will happen to my food and to my basic necessities if I stop worrying about them? Allah T’aala re-assures us that if we seek to serve Him, and make that service our only concern, then He will take care of all of our needs. Experiment – try it for yourself and see. Take small steps to start, in order to build confidence.

Postscript: For previous lessons see, Life Lesson 1 On Unlearning and Life Lesson 2 on Intentions. For a discussion of how Islamic Economics is based on principles of generosity, and how this is radically different from Western Economics, see Radio Islam Interview on Islamic Economics.