NEW DELHI, TUESDAY 26 DECEMBER 2017 09

Christmas gift that will

growth by reducing demand, and 100 YEARS AGO
reflects low productivity growth -
considered reasons for the sluggish
underlying global growth of recent OCCASIONAL NOTE

take long to pay for

decades, especially in the US and
other rich countries.
Inequality also breeds the wide-
spread populist disaffection with glob-
alisation, immigration and corporate
elites which brought the world the
Brexit vote, the Trump election, and
LINDA LIM tion, or mergers and acquisitions of (slowly and marginally) begun to rising ethno-nationalism that threat-
existing firms, which may reduce enact protectionist measures that will ens the unparalleled peace and pros-
One of the greatest debts owed by Indi-
ans to the British raj has been the appli-
cation of Western ideas to the improve-
ment of the old-time facilities for reach-
ing the great pilgrim centres. No one
who reads the Resolution of the United
Provinces Government can doubt that
they should, if they do not, appreciate

T
he recently passed US tax Bill
has elicited very different reac-
tions from the markets
(investors and the business
community) and from (most) econo-
mists. While the stock market has
boomed all year in anticipation, econ-
omists have been notably sceptical. Why
is this so?
First, financial markets have a
short-term horizon focused on
immediate returns to individuals and
businesses, whereas economists are
more concerned with longer-term
impacts on society as a whole.
Thus what markets care about is
that lower taxes for corporations and
most (not all) taxpayers will mean
higher after-tax profits and wages.
They believe that these higher earn-
ings will find their way into higher
consumption and investment, thus
stimulating GDP growth and boost-
ing stock returns.
Economists, however, note sev-
eral reasons why these impacts will
be limited, if not negated.
Most of the tax cut benefits flow
to corporations and the wealthy. But
for years, corporations have been sit-
ting on record profits and cash
hoards, while interest rates have been
very low. This suggests that invest-
ment has not been held back by the
cost or availability of capital, and
explains why few CEOs at a recent
Wall Street conference said the tax cut
would cause them to increase invest-
ment in the US.
According to surveys of CEOs,
and their practice in the recent past,
the bulk of corporate tax savings will
be passed on to shareholders (only
about half of all Americans), in higher
dividends and share buybacks which
increase share prices (and hence also
CEO and executive compensation
which is heavily based on stock per-
formance). Investment is likely to go
into automation of current produc-
rather than increase employment.
Meanwhile, wealthy sharehold-
ers will save rather than spend their
tax Bill windfall, thus boosting asset
prices (good for the markets) but
doing little to boost consumption and
growth (the economy).
This may be just as well, since
the US economy is already at or
below full employment, so any addi-
tional spending on consumption or
investment will simply push up wages
(good) and prices (not so good).
CEOs already complain that their
US business plans are being held
back by serious labour and skills
shortages, aggravated by the Trump
administration’s tightened immigra-
tion - which make automation and
overseas investment more attractive.
If the fiscal stimulus delivered by
the Republican tax Bill does raise
growth (which economists doubt,
given the above-mentioned supply-
side constraints and corporate inter-
ests), it will also increase inflation.
This will result in higher interest rates
from market forces (creditors will
demand higher nominal loan rates)
and Fed action (especially if President
Trump appoints more hawkish gov-
ernors to the current Fed board
vacancies).
Even without inflation, increased
government borrowing to fund the
tax cut will raise interest rates. Higher
interest rates in turn will cut off
growth, while saddling US consumers
with heavier debt burdens that will
curb future consumption and growth.
Already the recent boom in con-
sumption has been fuelled by declin-
ing household savings rather than by
higher income.
The Republican argument that
the tax cut “will pay for itself”, as
lower rates lead to higher revenues
derived from higher GDP growth, is
pure fantasy. Both the 1981 Ronald
Reagan and 2001/2003 George W.
Bush tax cuts caused tax revenues to
fall while government spending
increased (mostly on defence, and for
Mr Bush, also farm subsidies and
Medicare drug benefits). This
widened the federal budget deficit,
requiring (in the Reagan case) subse-
quent tax increases, and increasing
the national debt (now at just over
100 per cent of GDP).
With their longer-term and soci-
etal perspective, economists are con-
cerned about the additional $1.7 tril-
lion budget deficit that the Congres-
sional Budget Office estimates will
result from the tax cut over the next
10 years.
First, the large deficit and debt
will reduce the government’s ability
to apply fiscal stimulus (further tax
cuts), just as zero interest rates limit
the prospects for monetary stimulus
(interest rate cuts), in the next reces-
sion, making future recovery more
difficult and uncertain.
Second, increased government
borrowing to cover the deficit risks
“crowding out” private investment,
especially as interest rates rise over
the next decade, and ageing popula-
tions in the rich world and China
reduce the “global savings glut” that
has thus far enabled the US govern-
ment to borrow at home and abroad
at reasonable rates.
Third, mathematically, an
increased budget deficit means a larg-
er US trade deficit, which is a concern
largely because it is an obsession of
President Trump and his trade policy
team, who have threatened and
reduce US and world GDP growth, as
protectionism always does.
Fourth, economists consider
costs as well as benefits. Revenue loss
from the tax cut will curtail govern-
ment spending - including the “mas-
sive” increased spending on infra-
structure and defence that Mr Trump
has promised. As much as 62 per cent
of the US$4 trillion 2018 budget is
mandatory or entitlement spending
(on Social Security and Medicare,
which the tax Bill does nothing to curb,
though Republicans have proposed
cutting only the much smaller expen-
ditures on Medicaid for the poor and
Medicare for the disabled), another 8
per cent is interest on the national
debt, and defence accounts for over
half the remaining 30 per cent .
Thus less than 15 per cent of fed-
eral spending goes to all other gov-
ernment functions combined, includ-
ing Health and Human Services, Edu-
cation, Homeland Security, Energy,
Transportation, Agriculture, Justice,
State (foreign affairs), Housing and
Urban Development. Most of these
departments have already suffered
spending cuts in past administra-
tions, such that further cuts “to the
bone” will undermine the efficiency
of public services that contribute to,
or avoid drags on, economic growth.
For example, expenditures on
research, education and infrastruc-
ture represent investments in future
growth and productivity, not to men-
tion quality of life, while expenditures
on public housing and healthcare
help minimise social costs, and more
investment in security is required to
meet growing threats from terrorism
and cyber-attacks.
Finally, economists (unlike mar-
kets) are concerned not only with
growth, but also with inequality,
which will increase with the Republi-
can tax Bill.
Rising inequality undermines
perity of the post-World War II era.
But the same inequality also feeds
the markets, elated at how the tax Bill
gives much more to those who have a
lot than to those who have little. The
latter may even see what little they
have taken away by collateral mea-
sures such as the erosion of the Afford-
able Care Act (rising premiums and
under-insurance from the tax Bill’s
removal of the ACA mandate), rising
interest rates from deficit financing
(which benefit creditors but hurt
debtors), the planned expiry of the
individual (but not the corporate) tax
cuts, and likely reduced government
spending on non-entitlement pro-
grammes like health and education.
There are aspects of the tax Bill
that economists approve, notably the
reduction in the corporate tax rate
from 35 per cent (the highest among
major economies) to 21 per cent,
which will reduce the inefficient and
inequitable practice of “beggar-my-
neighbour” “tax arbitrage” (diversion
of corporate profits to low-tax juris-
dictions), though most would have
preferred a smaller cut (and a smaller
deficit).
Overall, economists’ consensus
is that the fiscal stimulus provided by
the Republican tax Bill is unnecessary
at this point of the business cycle, and
likely to be ineffective and to have
negative medium-and long-term
consequences. In the short term,
however - say, next year - the markets’
ebullience is likely to be sustained
despite the US recovery being in its
ninth year (and thus likely to run out
of steam), not because of the tax Bill,
but because more recent recoveries
in the rest of the global economy still
have some way to go.
The writer is Professor Emerita of Corporate
Strategy and International Business at the
Stephen M. Ross School of Business,
University of Michigan.
The Straits Times/ANN.
the vast improvements made on the
ancient road through Garhwal to the
mountain shrines of Badrinath and
Kedarnath. Since 1900 the Local Gov-
ernment have taken over the route as a
provincial road, and the Imperial Gov-
ernment have assisted in its mainte-
nance and improvement by a contribu-
tion of six lakhs to non-recurring expen-
diture and a recurring annual grant of
Rs 20,000. Along the whole of the 338
miles of the road a general width of not
less than eight feet and a gradient of not
more than one in eight have now been
assured. The narrow, steep and danger-
ous places which for centuries entailed
loss of life have been cut out; the old
and dangerous rope bridges have been
replaced by modern steel girder and
other works; and twenty-one inspection
bungalows have been built. As regards
sanitation the staff now employed on
the road consists of some 250 sweepers,
inspectors, etc. This last improvement
has been due to the reinforcement of
the old Sadabart fund by an annual Gov-
ernment grant of Rs 25,500 and efficient
management. Only thirty-nine pilgrims
died of cholera in 1915-16. A few years
back the filth on the road beggared
description and returning pilgrims scat-
tered diseases broadcast through India.
NEWS ITEMS
THE FIGHTING IN
PALESTINE
The Pioneer’s Cairo correspondent gives
the following details of operations since
the capture of Rafa: The Gaza-el-She-
ria-Bersheba line was stormed in the
face of murderous machinegun fire, and
at numerous points garrisons were dri-
ven out after suffering very heavy losses.
Australian, New Zealand and British
mounted troops, the Camel Corps and a
number of R.H.A. batteries had crossed
the Wadi Ghuzze five miles west of

Forces must communicate better

CROSSWORD Gaza. During the night, while our
NO 27090
infantry attack was in progress, strong
enemy forces were observed moving up
from the Huj area in the north-east, and
from the Hareira area in the east, while
HARSHA KAKAR a large body of cavalry was on the
march from Bersheba. In the violent

I
n recent times, there have been struggle which ensued, all our troops
numerous contentious issues dom- displayed coolness, resource and
inating social media concerning dogged heroism worthy of their hard
armed forces personnel, both serving fighting comrades on the Western front.
and retired, where the top hierarchy is Some of our detachments actually pen-
blamed for inaction. Some issues being etrated into the city of Gaza, but,
discussed include non-grant of Non- becoming isolated from the main body
Functional Upgradation (NFU), with- and in some instances surrounded, they
drawal of entitled rations, degrading mil- had to fight their way back to their
itary ranks as compared to civilian coun- units. But for the loss of five hours’ day-
terparts, denying them status of Group A light owing to fog the whole of the Gaza
services and non-implementation of position with its garrison would have
OROP. These have also impacted morale fallen into our hands.
of the serving soldier, who has felt that his
bosses responsible for his welfare, since
he has no union to project his grievance, GERMAN PEACE
have let him down.
The reality may be different. Actions
undertaken by the top hierarchy on
TERMS
resolving contentious issues fail to reach The latest German peace terms, which
the soldier and the mass of veterans, have been circulating among Washing-
who have taken it upon themselves to ton diplomats for the past fortnight are
stand by the soldier. An example is the now published. They are not regarded
YESTERDAY’S SOLUTION differing opinion on NFU. Most serving seriously, especially as different sets of
that student group
wraps (9)
officers and veterans, including me, feel The top hierarchy having under- Similar actions would be on hand terms have been apparently distributed,
3 God is love? That’s that non-implementation of NFU is a stood the game which would be played in multiple other cases which affect the but a common feature of all is the sug-
a racket! (4) major factor in degrading the status of by the bureaucracy if it demands equa- soldier and his working conditions. gestion that Germany is willing to
4 American’s Xmas the armed forces. Simultaneously, there tion with Group A has taken up a case for Recent inputs on lack of equality restore Belgium and Northern France if
drink finished up?
Turned out Greg is a strong feeling that the armed forces a separate NFU, based on similar para- between the Siachen allowance for the Britain defrays the cost of the restora-
tucked into it! (6) must be considered a Group A service. meters, specifically for the armed forces army and allowances of other central tion by purchasing the German
5 Nurse with bad Historically after the commission- as it is a commissioned service, above agencies has also begun being highlight- Colonies. Other items are the indepen-
acne hospital ing of disciples of Jesus Christ, only offi- Group A. This battle is progressing slowly. ed. As these inputs flow, the hierarchy dence of Alsace-Lorraine and the
department initially
made better (8) cers of the armed forces are commis- It has also insisted on the govern- would be involved in taking it up. restoration of Serbia and Rumania, Tri-
6 State of severe sioned. They are therefore logically a ment to issue a direction that NFU allo- Whether every case is taken up by the este to be a free port, disarmament and
cold affected one’s step above Group A services and due to cated to civilian employees will not be armed forces HQs or the MoD acts on international police, and freedom of the
ferns, head of zoo their nature of service, including willing- considered towards enhanced status and its own is a moot question. seas, with Britain controlling the Chan-
held (10)
7 Queen has browned ness to sacrifice their lives for the nation, grade and there would be no change in Based on lack of inputs, the rank and nel until the Channel tunnel is built.
bread with no would remain a cut above. Thus the per- the reporting chain, thus maintaining file and the mass of veterans, including The chief motive for the publication
topping for Xmas petual battle seeking to evolve a means status quo in working relations. This me, had begun feeling that rights of the of these terms is believed to be Germany’s
dinner? (5)
8 Abandon hope
of comparison to establish working rela- would resolve the pending status degra- soldier are being ignored for personal fear of America’s war preparations, the
ACROSS 19 No substance in (especially after tionships with civilian counterparts. If dation to some extent. It has been gains of the top hierarchy. This is simply vastness of which she now realises. The
pious charity songs daughter gets gas) they were equal to any group service, reported that such a letter has been because the hierarchy has failed to con- phrase “sunk without leaving a trace” in
1 Go steadily or make (7)
your Xmas worker
like Millennium this issue would never have arisen. The issued, however, official verification is nect with the mass they represent. This Count Luxburg’s telegram is giving zest to
Prayer? (6) 13 Having saved one
walk up and down?
22 After losing head, grand, relished battle is perpetuated more by the pre- not available. If issued, the service HQs needs urgent correction. Actions being these preparations and promises to rival “a
(4,7) travelling for Xmas sent Group A services, as they feel should make it public. undertaken should be conveyed employ- scrap of paper” as emblematic of German
Catholic MP drunk-
7 Flipping costly to jaunt? (6,4) hemmed in by the presence of the mili- The hierarchy refused to accept ing channels of social media in an unob- mind and methods.
enly wins hearts of
lose article like 16 They make shots
viewers (10) tary in any common gathering. degrading circulars and directions of the trusive manner, thus setting aside
Santa’s suit (3) bigger in flipping
24 Three Republicans
Group A services comprise of two ministry on equating armed forces offi- rumours and correcting perceptions.
WAR WORK FOR
9 How Carol says Tyneside (and
put on first side of
snow settles in beers with drop of parts, All India Services and Allied Ser- cers with their civilian counterparts. In the present environment inability
Baby, It’s Cold
Freiburg finally
Outside! (4) rye in there!) (9) vices. The all India services comprise of While more panels may continue being to convey welfare actions in progress
around 6pm? (7)
10 After snarfing food
endlessly, husband
26 Heaving pub exp-
ends its last gallon
17 Xmas illumination
not well-ventilated?
the IAS, IPS and the IFS (Indian Forest
Service). All other central services are
established anything which degrades the
rank structure would never be accepted.
causes more harm than good. Even a sol-
dier deployed in remote areas has com-
WOMEN
after large Latin A knight should
beams and cheers open that window termed as allied services and are consid- After all, individuals who head the munication networks available. To The latest development of the Women’s
men returned (7)
(7) (8)
11 Worries escalate
27 Scene in story ered below the all India services in sta- armed forces today have come to that ensure his morale is always high he Branch of the War and Relief Fund is the
about Balthazar 18 Sheepish complaint
after turkey’s climbing hill and
tus. The difference is on the logic that level after battling their way up the lad- needs to be regularly assured that issues opening of an Employment Bureau for
originally taking
served for starters
gold (7) also peak of fells the IAS, IPS and the forest service are der and are aware of its consequences. which affect him are being addressed. Women. The idea of the Bureau is to
(4) (4,3) allocated to states and serve both the Similarly, it was the refusal of service While for service chiefs blowing prevent any waste of energy and good-
28 Lad loses head
12 Bloomer associated 20 Bit of rust in jet on
with Xmas in Thai-
after the opening states and Centre. chiefs to sign the 7th Pay Commission their trumpets is not the norm, positive will which women in India have at their
of this! (3) small wind
land misbehaving
29 Endeavours to go generators this The allied services, comprising the notification which led to intervention by actions impacting morale should be dis- disposal. A certain number of women
with opiates (10) time of year? (7) Indian Foreign Service, multiple revenue the PMO. seminated. Whether the Public Informa- have degrees or training and experience
in for things one
14 In this way son left 21 Victor half- and railway services and a host of others Similar action has been adopted on tion Directorate of the three services of various kinds and these are easiest
might win on radio
Boxing Day party at heartedly bears
(11) (almost forty-four) are employed only by another painful issue, withdrawal of release such inputs through social media to place, but the Bureau attempts to
the end? On the temperature in the
contrary! (6) DOWN cold season (6) the Centre and can be posted anywhere entitled rations for officers. The hierar- or they are clarified in addresses by meet the needs of all women willing to
15 Hot duke chasing based on vacancies. There is always fric- chy has taken a decision to re-imple- senior serving members, the choice is do emergency war work. The Bureau
soldiers? Always a 1 Give out something 23 Xmas decoration
few on the pull at you might want to completely lacking tion between the allied and all India ser- ment the same as it existed within the that of the military. Ignoring conveying made known its existence to all the
Xmas! (8) receive this Xmas in width (5) vices as the latter dominates in status. In financial constraints laid down by the positive messages is detrimental to mili- banks, big firms, colleges, and schools
18 Around four, cook (7) 25 Transportation
large feast for 2 Xmas food box company over in case the armed forces seek equation to government, as its supply chain pur- tary morale and leads to spread of mali- less than a month ago, and sent notices
Christmas Day? (8) with bit of tuck Germany (4) Group A service, they would be consid- chases in bulk and this is feasible. It cious rumours. to clubs, hotels, and all places where
ered at par with Group A allied services, would commence shortly. Hence issues women were likely to see them. The
NOTE: Figures in parentheses denote the number of letters in the words required.
(By arrangement with The Independent, London) based on the nature of their serving all are being addressed, but fail to circulate The writer is a retired Major-General of the response from both sides has been
of India, as against an all India service. down in the correct perspective. Indian Army. unexpectedly good.