Monopoly — The Unfair Game
By Pavan Joshi on The Capital
Legendary investor and author Robert Kiyosaki’s classic “ Rich Dad, Poor Dad” book starts with a conversation between two best friends. The poor friend who returned from the war, saved a few thousand dollars, meets his childhood friend in the lavish home. Father of the rich friend was an uneducated person who used to rely on various small transactions to make up his living whereas his father was a well-educated government employee.
The poor friend asks his rich friend to invest all his savings into whatever his investments are so that he can get rich by following the rich friend. The rich friend tries to explain to him that it is not possible due to the rules of the government and he has to explore other options. Poor friend gets very upset with the response and later the Rich dad starts teaching him the “rules of the game.”
“To invest in your rich friend’s investment you need to be wealthy. You need to be an Accredited Investor” ( net worth of at least 1 million $ or 200k annual income for the last two years ). To get there you need to start investing slow and steady, he added. Accredited Investors are big players and venture capitalists like ‘Benchmark Capital’ who invested in Uber $11 million in 2010 (~0.06 cent per share )to turn it into $7 billion (650+ times ) before permitting an average Joe like the poor friend to purchase each stock at 45$ in 2019.
Robert Kiyosaki continues to teach many interesting lessons to understand tax rules, balance sheet, evaluating potential, real estate, Gold, education, experience, excess cash, cash flow quadrants that needs to be taught from the childhood including the game “MONOPOLY.”
Monopoly or The Business Game is one of the most popular games played and enjoyed by probably every child to adult. It is great fun to buy lands, hotels, homes, railways, etc and charge money to other players passing by to get rich and rich every round. Rules of the game are described on a paper and called out and Banker is the most powerful person.
This game teaches us many lessons that can be carried out in real life. Listing a few below to recall memory:
- Banker is the boss. He can control the money supply, provide loans by keeping collateral. The banker can flood money and “never goes bankrupt.”
- Players who have Airlines and Railways industries earn huge amounts like corporates.
- Player with Hotels, Houses, Lands make decent amount like Small Business.
- The rest of the people keep paying the money to the above players and banks like a common man with the hope of fortune.
- Whenever a game is in crisis, the bank keeps distributing new money to keep the game going .What happens when the money is exhausted???
Read the rule below :
This is a clear depiction of the real economy with one change that there are 2 autonomous players in the economy. They collaborate with each other.
- Government: It takes care of people’s welfare by providing employment, health care, education, security, unemployment benefits, and most importantly “collecting taxes.”
- Reserve bank or Central bank: Its responsibility is keep economy in healthy state by controlling interest rates ( controlling money flow/borrowing ) and printing currency (replace / new money ). It moves money to other banks to enable banking services.
Who are the other players from the Monopoly?
Corporates, Small Business and Retailers, or the common man.
The government tries to provide all possible facilities and ease borrowing to corporates so that they can invest their huge money like Accredited Investors and create great employment.
To some extent, benefits are provided to small scale businesses and protected from whales to survive and keep the homegrown goods and services running.
Common Man: There are 2 types of the common man:
One who works hard and his 10 -35% income is “axed” for the welfare of the nation by Government in the name of Income Tax.
Second, who can not feed himself and rely on government aid to make his living. One who borrows some money from banks to make his living. As this group gets bigger, in order to win/retain the power, the government keeps increasing loan waivers , increase benefits, etc to attract votes, ultimately increasing expenditure of the government.
Whenever there is a crisis situation in the economy due to cycles of economy, global recession, poor governance, etc … all these entities react differently to the situation.
Corporates pressurize the government to provide bailout packages so that they can continue to be in the business and provide employment to thousands of people.
Small Businesses request government to provide aids (free), loans (with low or no interest rates)to keep their employees, and run the business.
Type 2 common man who doesn’t get work and has voting power, automatically gets attention from the government for financial help.
Type 1 common man, taxpayer, keep praying the God for his job, continue to pay taxes, and also start providing charity to Type2 common man.
However, everyone has their budget planned. Income and expenses are already planned at the beginning of the year. This applies to the government too and it has no more additional money to share.
Corporate needs loans, small business needs loans. They get it from the government or banks. When type 2 common man or taxpayer needs a loan, he has to show some collateral /asset to get a loan against. To provide loans to all these entities, government needs money and its pockets are already empty.
Here comes the most powerful entity “Reserve Bank,” which has the power to print currency on any trash paper by using their printer. Media talks about Quantitative Easing /Bailouts for economy to recover. The government doesn’t have any assets to take a loan against in this situation, unlike the common man’s home/land papers. So government issues a bond ( a letter signed by cabinet ) on a trash paper that “we promise to pay back x trillions to you along with interest.” The country is in crisis, please show mercy. Please treat this trash paper as the collateral and release us lacs of crores of rupees (ex: 20 lac crores to Indian govt in May 2020 to fight COVID-19). This money will be distributed to Type2 common man and other needy (corporates and small businesses). When you have a strong Reserve Bank governor( good for nation) this is a huge fight and difficult game for the government. When you have a weak Reserve bank Governor, it becomes an easy task for the government. Remember the rule “ Bank/Government never goes broke till their trash paper and printer are running.”
Newly created money is distributed initially to Type2 common man ( like 1500 rupees per person /home), tiny checks given to small businesses, and rest is donated to the corporates. Corporates use this money to buy back their own company shares at a cheap price ( for ABC airline can buy back their stock at 90% discount with aid money during recession) and as the time passes, economy recovers, sell back stocks with 10 times profit to the Type1 common man who is waiting for the economy to recover before investing.
Overnight, when the government can print twice its annual collections of Income-tax from the people, why does it haunt people to pay their hard-earned money as tax? On the paper, we overcome each crisis however with each crisis newly printed money makes the economy more risk-prone for the next crisis and more painful as the government doubles its credit while halves its assets.
What are the impacts of this money printing? There is unlimited trash paper and unlimited printing power with the Reserve Bank. However, they cannot create more real assets or goods. For example, no new gold is created by the bank, no new food is created by the government, no crude oil or company stocks can be generated by cabinet. Ultimately newly printed money will make these limited resources more valuable in terms of currency. When essentials get dearer, cost of labor, service, and ultimately cost of living spikes and is also known as Inflation. Inflation is experienced by everyone. On the paper, everyone feels rich and on the ground, everyone is poor. This slowly leads to hyperinflation.
Ultimate examples of Hyperinflation are Zimbabwe &Venezuela. The purchasing power of money is lost so fast that within no time you realize the country will go bankrupt, people will get poor and the price of food supplies skyrockets.
For example, in 12 years Venezuela currency lost its value by 2000 times. It means if you can get your one meal for 100 rupees 10 years back it costs you no less than 2 lac rupees. Hyperinflation of Zimbabwe is more pathetic. During the days when Olanga was bowling to Tendulkar, 10 rupees was sufficient to get a meal in India or Zimbabwe in respective local currency. While Olanga and Tendulkar are still super fit, Zimbabwe has become so weak that it takes 100 lac crores ( 100 trillions )local currency to equal 35 rupees INR or a small meal.
To conclude every citizen must start developing awareness of country’s and global economy beyond geopolitical opinions. Autonomous bodies (Reserve Bank, Supreme Courts, etc…) and common man must question the expenditure of the government. Printing more money is nothing but devaluing our hard-earned savings. Bailing out corporates that have no financial discipline, waiving off loans to seek power should be treated as serious crimes. Similar to the Monopoly game, only certain players in the economy get special treatment and have special rules that make the game unfair for the sincere and hard-working common man.
