Wednesday, January 19, 2011

How much money?

Recently, things have been very depressing on national television with all the talk about corruption in every sphere of life in India. And, the fact that Indians have stashed more black money in offshore accounts than the nationals of the next three countries combined! After watching such stories, if you cross a busy intersection in any big city in India, and watch three year old kids begging, you wonder why people steal and what they hope to achieve from it.

So, I decided to do some simple math, because, that is how engineers do their thinking. Let us say that you want to spend a  pretty decent lifestyle in India, or any country for that matter. And you have a family of four. Let us say that you spend a lakh rupees (about two and a half thousand dollars) per day on each person in your family. And, everyone lives to be hundred. Then, the amount of money you really need, to lead this extremely lavish lifestyle, would be,  about three hundred and twenty five million US dollars (about 1463 crore rupees), at today's exchange rate. And mind you, that would lead to an extremely lavish lifestyle, that most of us cannot even dream of. I doubt if you would be able to spend all that money, even if you wanted to. So, what do most black billionaires do with their money?  Is it merely kleptomania all these people are suffering from?

One argument is that the money gives them power over other people. If you are spending a lakh rupees on yourself every day, you would have a lot of power. So, why would you need more than that? The other argument is that you want to save for your descendants. Then, we have to get into generations and how many generations do you really expect your dynasty to last. Even the mighty Moghuls did not cross ten! So, what use is something that does not serve you any purpose, and does not serve any purpose for the people you really care about? So, such individuals are probably like squirrels, they find a nut, steal it, then hide it somewhere, never to find it again.

That brought me to another interesting line of thought. What happens to the money that someone stashes, say in a Swiss bank account. What does the bank do with it? Well, it probably invests it in some place where it gets a good return on investment. In today's global economy, the rage is to invest in countries like India and China. So, some Indian's black money is probably getting invested back in India in building roads, resorts, hospitals and the like. Not bad, really. Except that now, the roads and the hospitals are owned by that individual, who is extremely rich. But, he probably cannot step out on the roads without an army of bodyguards, cannot  go to the resort and enjoy it like everyone else, but uses the hospital pretty often because of all the health problems that come from constantly dodging a lot of bullets. That sounds like a pretty miserable life. After spending a lakh a day on yourself, every single day of your life.

So, I console myself by thinking that corruption will probably get fixed in the long term by itself. Money, does not mean anything when it is sitting in a bank account. Only when it is translated into a real asset, does it mean anything. And so, there is no point in tracking all the people that stole money and stashed it in foreign accounts. The trick is in encouraging them to bring it back and invest it in India, even if it gives them the ownership rights to all the roads, bridges and hospitals in the country. It will generate a lot of employment, and make people prosperous.

Babur once owned all of Hindustan. Well, almost. Do we even know where his family is today? So, let us get the new Moghuls to invest in India. I think it will work out in the end.


  1. You have raised a wonderful question. And I am particularly happy to see an engineer show some responsibilty in this regard (Since I am usually of the view that engineers are absolute fools who can't say anything more than ****). I do have some answers for the question: "What do people do with all that money?"... People amass wealth not so that they can put it to use. Infact, as your calculations show, it is hardly feasible to consume so much. A businessman makes a lot of black money through tax evasion, questionable allocations of mining contracts and spectrum, etc. etc. He does so not in order to spend money, but simply to make money. It is a well known fact that the proportion of income saved by capitalists exceeds the proportion of income saved by salaried classes. There is something called "commodity fetishism" that charecterizes our society (consumerism is a variant of this). This is simply the drive to amass more and more wealth. This arises due to competition from other rich people in displaying "richness", or grabbing the other's position: both social and economic. So people invest in fancy man-made islands in UAE, instead of in India!Further, a capitalist's ability to raise resorces for investment depends on his credit-worthiness. The more cash or assets they have, the easier it is for them to get a loan or to raise equity in the stock markets for new projects. Thus, more money implies even more money implies still more and more and more money!!! I have tried to present a snapshot of what we economists call the M-C-M' cycle (Money-Commodity-More Money).Here, both the means and the end is money, commodities or consumption is not that important.
    And about channelising investment into India... yes, it can work wonders. "Let us get the Moghuls to invest in India"... wow... you are actually advocating directing investment in the economy... steps towards socialism... steps towards progress! I loved your post, primarily for ideological reasons. You've got it absolutely right! Will be back for more....

  2. Thanks Ruhi. I appreciate your candid remarks.

    I am an engineer by training, and so, I guess I will always remain an engineer at heart. Right now, I like to think of myself as a teacher, though my profile probably describes my occupation quite accurately :-)

    Hope to see more such comments from you. Thanks for stopping by!