Archive for June 4th, 2019

Indian macro policy’s 2-4-6-8 framework..

June 4, 2019

Niranjan Rajadhyaksha continues to educate us this time via a working paper.

He gives this brilliant insight that Indian economy operates under a 2-4-6-8 framework. These are acceptable targets for current account deficit, retail inflation, consolidated fiscal deficit and growth rates:

Indian macro policy has been operating under an implicit 2-4-6-8 framework, which are the targets for the sustainable current account deficit, the desired level of retail inflation, the consolidated fiscal deficit target embedded in law and the aspirational rate of economic growth. There is a need to take a fresh look at this macro policy playbook for two reasons. First, the individual targets have been decided at different points of time by different parts of the economic policy ecosystem rather than emerging from a common analytical project. Two, there are reasons to doubt its internal coherence given that India has rarely been able to meet all four targets simultaneously over the past decade.

The tricky political economy decision for the new government elected in May 2019 is whether to ease some of the economic stability constraints such as the fiscal deficit, the current account deficit and retail inflation in a bid to maintain economic growth at 8 percent; or continue to prioritise hard-won economic stability while facing the risk of social unrest as lower economic growth fails to provide the adequate number of jobs in formal enterprises; or put in place policy reforms that can help raise potential growth without creating periodic bouts of macroeconomic instability. This working paper argues in favour of the third option with five sets of policy recommendations, so that economic growth accelerates without putting economic stability at risk.

 

60th foundation day of India’s Swatantra Party

June 4, 2019

Kumar Anand alerts to the 60th anniversary of India’s Swatantra Party.

Today marks the 60th foundation day of Swatantra Party — independent India’s first and only major liberal political party. It remains the only party in Indian history to pursue ‘the principle of maximum freedom for the individual and minimum interference by the state’.

Founded by Mr C. Rajagopalachari, popularly known as Rajaji, the party stood ‘to oppose socialism of the communist kind’. The threat of communism may have been thwarted, but the socialism is alive and well.

Today, when the role and scope of government grows in all aspects of our lives curtailing individual choice and ignoring institutional accountability, let’s resolve to put the individual at the center of our policy making.

A brief history of the Swatantra party and the principles it stood for – https://youtu.be/yHRwzulx6dY

Statement of Principles of the Swatantra Party – http://indianliberals.in/~_admin/pdflanguage?id=499691696.pdf

Archive of Indian Liberal works – http://indianliberals.in/

 

The Populist Paradox: Why are they reelected despite not fulfilling promises?

June 4, 2019

Simon Johnson in this important piece looks at the question of re-election of populists despite failing to fulfill any of the promises:

Powerful structural economic factors in recent decades – including automation, trade, and financial crisis – have left many people feeling neglected or ill-treated by those, on the right and the left, who have had control over economic policy. When anti-establishment populists come to power, however, they implement a range of policies that create uncertainty and discourage investment. And less investment means lower economic growth and fewer good jobs.

Ordinarily, this would lead to a feedback mechanism in which the responsible government would be held accountable, ultimately at the ballot box. But populists are effectively circumventing this mechanism by encouraging the belief that the media are biased, the experts are always wrong, and the facts are not the facts. The angrier people become, the easier it is to persuade them to accept this narrative.

Brexit is a good example. If you ignore or disbelieve the economic data (as well as what any credible analyst has to say), then your personal experience in the United Kingdom over the next 12 months may be this: The new Conservative government withdraws from the European Union without an agreement, which disrupts trade and discourages firms from investing in the UK. Either unemployment will go up, or there will be fewer good jobs – or both.

But will the electorate blame the government? Possibly not, as anger levels will increase – a direct result of the spike in economic and financial volatility. The government will therefore find it easier to blame the EU, experts, academics, the press, and immigrants. The politicians most responsible for the Brexit disaster could actually benefit at the polls.

So true!

How to break the paradox?

The only way to break this cycle is with policies that go to the heart of the issue – creating more good jobs where they are needed. In the case of the US, Jon Gruber and I, in our book Jump-Starting America, propose boosting public funding of research and development, and creating new innovation hubs around the country. R&D creates new ideas and products, and such innovation consistently supports economic growth.

Sarfaraz Ahmed can turn around world economy!

June 4, 2019

Being supporter of Pakistan cricket team is not for faint hearted. It requires strong hearts as one is never sure what the team can do and not do. It can lose easiest of matches from a winnable position and win the toughest of them against mightier oppositions.

Yesterday’s WC match was no different as Pakistan defeated the English cricket team, which is not just the No.1  team but also tournament favorites. Givent eh tournament is being played in England, the case for home team is even stronger. Moreover, the previous match Pakistan lost to West Indies was like club cricket with all batters falling miserably to short pitch bowling.

The win got interesting comments but one by Ian Bishop, former WI fast bowler caught my eye:

Sarfraz Ahmed could turn around the World economy of you allow him, surely. What confidence, character and inner strength he must possess.

Haha. Interesting to see cricketers following world economy trends.

Given how quickly the turnaround has been, Sarfaraz surely makes a case for leading world economy. But then, we all know Pakistan’s next match (against Sri Lanka) could be just the reverse.

Infact, one may not go to world economy stage. How about reviving Pakistan’s economy to begin with which is doing even worse than world economy? They already have former Pakistan cricket captain, Imran Khan who as Prime Minister is trying to resolve the crisis.


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