The Global Analyst ( Commentary about economic, environmental, political and other topics )
Tuesday, April 2, 2013
Location of new articles
New articles are located at http://jayantpraharajglobal.blogspot.com/?view=classic
Thursday, March 28, 2013
Actual GDP, potential GDP and Keynesian ( or Keynesian-looking ) measures
Each economic crisis has its own characteristic features. When there is a major market correction or major market failure ( in this article, by market failure we will mean a situation where a market does not clear over an unusually large time compared to the recent historical norm in that market ), there is a possibility of spillover effects, both dynamical and psychological. The dynamical spillover effects are due to economic linkages between businesses and between sectors. They are largely unavoidable once there has been a contraction in some sector. The psychological spillover effects can be due to consumer sentiment or investment sentiment being depressed more than is warranted by the economic situation. To take an extreme example, bank failures in some banks may precipitate bank runs in many banks if paranoia takes a hold of the public, even though these bank runs do not constitute " rational behavior ". Another example is hoarding of cash by businesses because they have a sense that demand for their products will not pick up any time soon, even though there is nothing in the economic data to suggest this directly ( a case of businesses acting in a very risk-averse manner because they feel they don't have enough information to predict future demand accurately enough or to feel confident about future demand ).
It is a useful exercise to distinguish carefully between the spillover effects of a major market correction or a major market failure on banks and financial institutions on the one hand and on other businesses on the other hand. After all, banks and financial institutions play a major role ( and a different kind of role compared to other businesses ) in determining how the savings of a society are allocated and the kind of investments that take place. Sometimes, the bailing out of financial institutions and banks becomes necessary despite all the negative aspects like moral hazard associated with bailouts. If banks have a sudden cash flow problem, helping them out through monetary or fiscal measures may be the right thing to do. Otherwise, the credit flow in the economy may be squeezed far more than is justified by the original market correction or market failure that triggered the economic contraction. This is a case where the judicious use of monetary or fiscal measures can prevent the GDP from falling more than it needs to.
Psychological spillover effects can lead to a contraction of GDP beyond the necessary amount following a large market correction or market failure. Keynesian monetary or fiscal measures can help counter the psychological spillover effects. Dynamical spillover effects, on the other hand, can lead to a contraction, not just of actual GDP, but also of potential GDP ( for example, a significant amount of capital in a certain business or a certain sector of the economy may need to just wait for a long time for a market failure to be resolved or it may need modification before being re-used ). The latter ( dynamic spillover ) consists of cases where necessary dynamical corrections are experienced by the economy even after the most aggressive Keynesian measures.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
It is a useful exercise to distinguish carefully between the spillover effects of a major market correction or a major market failure on banks and financial institutions on the one hand and on other businesses on the other hand. After all, banks and financial institutions play a major role ( and a different kind of role compared to other businesses ) in determining how the savings of a society are allocated and the kind of investments that take place. Sometimes, the bailing out of financial institutions and banks becomes necessary despite all the negative aspects like moral hazard associated with bailouts. If banks have a sudden cash flow problem, helping them out through monetary or fiscal measures may be the right thing to do. Otherwise, the credit flow in the economy may be squeezed far more than is justified by the original market correction or market failure that triggered the economic contraction. This is a case where the judicious use of monetary or fiscal measures can prevent the GDP from falling more than it needs to.
Psychological spillover effects can lead to a contraction of GDP beyond the necessary amount following a large market correction or market failure. Keynesian monetary or fiscal measures can help counter the psychological spillover effects. Dynamical spillover effects, on the other hand, can lead to a contraction, not just of actual GDP, but also of potential GDP ( for example, a significant amount of capital in a certain business or a certain sector of the economy may need to just wait for a long time for a market failure to be resolved or it may need modification before being re-used ). The latter ( dynamic spillover ) consists of cases where necessary dynamical corrections are experienced by the economy even after the most aggressive Keynesian measures.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
Wednesday, March 27, 2013
What is the potential GDP of a quasi-capitalist economy during a deep and prolonged recession ?
How accurate are the potential GDP numbers ( or the differences between GDP and potential GDP ) being cited for prolonged and deep recessions in certain economies ? We are talking about economies with combinations of large private sectors and government welfare systems. The overall economic contraction is marked by businesses that have to lay people off or shut down due to declining profits. Is it possible that the potential GDP numbers being cited consist of overestimations because of, say, huge over-investment in particular sectors ( investment that wrongly anticipated demand levels by very large amounts ). This is one example where the potential GDP concept becomes murky. Have the corrections due to the capital associated with this over-investment been taken into account while calculating potential GDPs ? In other words, capital associated with unprofitable businesses can become a significant percentage of total capital during deep and prolonged recessions. This needs to be taken into account while calculating potential GDPs in quasi-capitalist economies. Since it is not easy to make unprofitable businesses profitable instantly in quasi-capitalist economies, the GDP at any time during a deep and prolonged recession is probably very close to the possible GDP at that time. Growth of GDP and potential GDP then becomes strongly dependent on the creation of new capital that is associated with profitable and sustainable businesses. Capital associated with unprofitable businesses may need to be modified or augmented or allowed to perish. Or one may have to wait for a long time before this capital becomes usable again. And the nominal value of capital associated with unprofitable businesses may have to be allowed to decrease significantly till it is priced correctly according to the pricing mechanisms available in quasi-capitalist economies. Large-scale market failures of the type we saw recently in the US and in Europe in the real estate sector can indicate a need for drastic decrease in the nominal value of existing capital in that sector and possibly in other sectors. That this revaluation takes very long and that the market takes many years to reach the right price levels and the right modification of capital or augmentation of capital or perishing of capital in that sector and in sectors where its spillover effects are felt means that it may be difficult to calculate what the actual potential GDP is in nominal terms. In real terms, capital that is expected to be idle for a long time ( no prospect of speedy re-use ) needs to be excluded from useful measures of potential GDP. Capital that needs costly modification before re-use needs to have the right value attached to it for potential GDP calculations. This may mean that for certain deep and long recessions, the GDP at any time may not be that far from actual potential GDP at that time ( where the effect of idle capital has not been overestimated ).
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
Thursday, February 14, 2013
The recent US economic stagnation and implications for the short and long runs
Troubling fourth-quarter-2012 GDP data and unemployment numbers that are stubbornly high despite a decrease in labor force participation rates should have US policy-makers worried. There is always the danger that the Great Recession and its after-effects may be perceived as just another business cycle ( similar to others in the last few decades, just a bit more severe ) and not a sign of significant long-term shifts in the US economic landscape. The more policy-makers view the recent economic problems of the US as an isolated business cycle, the greater the danger that long-term shifts in the US economy, the global economy and the US-global economic linkages will be ignored in policies and short-term considerations will prevail.
The fact that the Fed has had to keep key interest rates at zero or near-zero for a long time and the fact that the Fed has resorted to several rounds of aggressive monetary easing ( in the process making control over possible future inflation difficult due to its purchase of risky MBSs ) is one sign that things are not normal. That the growth and unemployment numbers have remained unimpressive despite these unprecedented measures is an indication that things may go the way they did in Japan over the last two decades. The fact that the US has experienced the recent economic catastrophes and the recent slowdown in its economy despite a decade of low-tax policies holds several lessons. First, low-tax policies do not correlate with high growth rates or high investment rates. Secondly, low-tax policies, even when followed over long periods of time, do not prevent recessions and a deepening of low-tax policies does not necessarily contribute to economic recovery during or after a recession. Also, there is only so much that fiscal policy can do in the wake of a crisis that has as its trigger excessive over-investment in some sector of the economy. Once again, the fact that low-tax policies have not led to impressive economic performance and have not been able to prevent dramatic collapse in specific sectors and in the overall economy and have not been able to bring about significant recovery is a sign that malaises similar to Japan's are affecting the US economy and that there has been a shift in the economic realities.
While the Great Recession and its effects do not look as ugly as the Great Depression, this should be no cause for complacency among US policy makers. But the reality of the policy-making framework and the way the democratic process of the US goes about its task of reaching policy decisions should be cause for great concern. Tax-policy deals that lead to miniscule tax revenue increases compared to the scale of the fiscal deficit and the scale of the long-term debt problem is one example where the policy-making framework has failed the American people. An excess of political noise and a paucity of hard achievements does not inspire confidence in the ability of the system to be forthright with US citizens about the scales of the challenges, the hardships that may lie ahead and the adverse effects of elitist myths ( like anti-tax myths ) on the framing and execution of unbiased economic policies.
The fact that the economic profession has been marked by deep theoretical divisions in several areas like monetary policy and fiscal policy has meant that it has not been able to provide a whole lot of apolitical or ideologically unbiased inputs into the economic policy-making process. Moreover, questions like public debt have received less attention than the growth aspects of monetary and fiscal policy. However, public debt and the sustainability of public finances is a major area of concern for the US right now. And the public debt will become more of a problem in the next ten years. How much of the burden of fixing deficits should fall on the taxation side and how much of the burden should fall on the spending side ? Not only does the economic profession not have clear answers to these questions, but whatever standard methods of analysis have been developed over the years find themselves somewhat flummoxed in the face of these questions. This creates conditions where ideological considerations and political opportunism have a much greater influence on economic policy than is healthy for the economic system and its ability to provide for the people. The IMF, which usually has a large number of US-trained economists, has been in the business of advising and specifying solutions to countries around the world during economic crises, some of which happen to be debt crises. However, the IMF's usual role has been to respond after a crisis has begun. The ethos of trying to identify possible scenarios of debt crises, of quantifying the risks, of using projections to predict the approximate times of crises in the absence of major policy changes and of making serious efforts to fix the deficit-debt-short term growth-long term growth-government spending-government revenue framework in order to avoid major debt crises has been lacking at the national level in many important economies and the US is no exception. In fact, the US approach to the public debt problem during the past decade has been one of complacency and indecisiveness and continues to be so.
When the economic output plunges or stagnates, public finances become more severely strained. This aspect has tended to have a bigger impact on the economic health and economic policies of European countries like Greece and Spain, whose economies are smaller compared to the US. However, one has to take cognizance of this fact even for big economies like the US. Since democratic politics creates conditions where short-term considerations of all kinds tend to prevail, it is difficult for economic policy to be immune to these political dynamics. No wonder then, that there is a tendency to think that a resumption of higher growth should take precedence over everything else. While the quick resumption of high growth trajectories has its benefits, public debt is affected by factors that go beyond just growth and that definitely go beyond just short-term economic growth. For example, the debt build-up of the US had been happening through the first decade of the twenty-first century even before anything catastrophic like the Great Recession happened. The US democratic system, its political system and that part of the economics profession that has been involved closely with US economic policy-making have not yet properly come to terms with the public debt problem and they have not been able to reach the desired level of objectivity for judging how taxation and spending affect the fiscal deficit, the public debt, short-term growth and the long-term sustainability of GDP growth and public finances. Economic stagnation or economic slowdown merely makes this a harder challenge. But it still is a hard challenge even when the economy is doing well and will likely be even more of a hard challenge in the future, whether the GDP numbers are bad or whether they are good.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
The fact that the Fed has had to keep key interest rates at zero or near-zero for a long time and the fact that the Fed has resorted to several rounds of aggressive monetary easing ( in the process making control over possible future inflation difficult due to its purchase of risky MBSs ) is one sign that things are not normal. That the growth and unemployment numbers have remained unimpressive despite these unprecedented measures is an indication that things may go the way they did in Japan over the last two decades. The fact that the US has experienced the recent economic catastrophes and the recent slowdown in its economy despite a decade of low-tax policies holds several lessons. First, low-tax policies do not correlate with high growth rates or high investment rates. Secondly, low-tax policies, even when followed over long periods of time, do not prevent recessions and a deepening of low-tax policies does not necessarily contribute to economic recovery during or after a recession. Also, there is only so much that fiscal policy can do in the wake of a crisis that has as its trigger excessive over-investment in some sector of the economy. Once again, the fact that low-tax policies have not led to impressive economic performance and have not been able to prevent dramatic collapse in specific sectors and in the overall economy and have not been able to bring about significant recovery is a sign that malaises similar to Japan's are affecting the US economy and that there has been a shift in the economic realities.
While the Great Recession and its effects do not look as ugly as the Great Depression, this should be no cause for complacency among US policy makers. But the reality of the policy-making framework and the way the democratic process of the US goes about its task of reaching policy decisions should be cause for great concern. Tax-policy deals that lead to miniscule tax revenue increases compared to the scale of the fiscal deficit and the scale of the long-term debt problem is one example where the policy-making framework has failed the American people. An excess of political noise and a paucity of hard achievements does not inspire confidence in the ability of the system to be forthright with US citizens about the scales of the challenges, the hardships that may lie ahead and the adverse effects of elitist myths ( like anti-tax myths ) on the framing and execution of unbiased economic policies.
The fact that the economic profession has been marked by deep theoretical divisions in several areas like monetary policy and fiscal policy has meant that it has not been able to provide a whole lot of apolitical or ideologically unbiased inputs into the economic policy-making process. Moreover, questions like public debt have received less attention than the growth aspects of monetary and fiscal policy. However, public debt and the sustainability of public finances is a major area of concern for the US right now. And the public debt will become more of a problem in the next ten years. How much of the burden of fixing deficits should fall on the taxation side and how much of the burden should fall on the spending side ? Not only does the economic profession not have clear answers to these questions, but whatever standard methods of analysis have been developed over the years find themselves somewhat flummoxed in the face of these questions. This creates conditions where ideological considerations and political opportunism have a much greater influence on economic policy than is healthy for the economic system and its ability to provide for the people. The IMF, which usually has a large number of US-trained economists, has been in the business of advising and specifying solutions to countries around the world during economic crises, some of which happen to be debt crises. However, the IMF's usual role has been to respond after a crisis has begun. The ethos of trying to identify possible scenarios of debt crises, of quantifying the risks, of using projections to predict the approximate times of crises in the absence of major policy changes and of making serious efforts to fix the deficit-debt-short term growth-long term growth-government spending-government revenue framework in order to avoid major debt crises has been lacking at the national level in many important economies and the US is no exception. In fact, the US approach to the public debt problem during the past decade has been one of complacency and indecisiveness and continues to be so.
When the economic output plunges or stagnates, public finances become more severely strained. This aspect has tended to have a bigger impact on the economic health and economic policies of European countries like Greece and Spain, whose economies are smaller compared to the US. However, one has to take cognizance of this fact even for big economies like the US. Since democratic politics creates conditions where short-term considerations of all kinds tend to prevail, it is difficult for economic policy to be immune to these political dynamics. No wonder then, that there is a tendency to think that a resumption of higher growth should take precedence over everything else. While the quick resumption of high growth trajectories has its benefits, public debt is affected by factors that go beyond just growth and that definitely go beyond just short-term economic growth. For example, the debt build-up of the US had been happening through the first decade of the twenty-first century even before anything catastrophic like the Great Recession happened. The US democratic system, its political system and that part of the economics profession that has been involved closely with US economic policy-making have not yet properly come to terms with the public debt problem and they have not been able to reach the desired level of objectivity for judging how taxation and spending affect the fiscal deficit, the public debt, short-term growth and the long-term sustainability of GDP growth and public finances. Economic stagnation or economic slowdown merely makes this a harder challenge. But it still is a hard challenge even when the economy is doing well and will likely be even more of a hard challenge in the future, whether the GDP numbers are bad or whether they are good.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
Tuesday, January 8, 2013
It's the novelty, sloppy !
Many people in the US would like to think of the Great Recession as a matter that is done and over with, without regard for the fact that economic cataclysms often have long-term consequences and that the bigger the cataclysm, the more widespread and deeper and long-lasting these effects are likely to be. Add to that things like resource constraints, and you can form an idea of how perilous the propaganda of economic optimism can be. Further, when we factor in the fact that several characteristics of the current crises confronting the US ( and other countries in the world, for that matter ) are new in content and in form, business-as-usual politics, business-as-usual economic policy-making, business-as-usual economic commentary and business-as-usual academic activity in the field of economics appear that much more inadequate for dealing with the economic challenges confronting the US. And elitists who think that they can pursue their elitist agendas like in the past will have to realize that the unprecedented nature of the economic challenges, both as regards the management of cash flows and as regards the sustainability of production, place them in a position that may be as vulnerable as of those whose well-being is closely tied with welfare systems. In other words, elitists who may have thought that their privileges and economic futures were assured are now confronted not just by those who want to stress distribution and egalitarianism and economic welfare, but also by theoretical and practical conundrums as to the sustainability of economic systems themselves and old modes of privileges themselves.
No system, elitist or non-elitist, egalitarian or non-egalitarian, equitable or non-equitable, can persist when the requisite knowledge and management competence is lacking. The huge gap between what the present and future exigencies demand from our policy makers in the field of economics and what they are actually able to come up with should be viewed with dismay by anyone who is interested in economic stability, economic progress or human welfare. In other words, it's the novelty, sloppy ! There is a need for leadership that can be honest and forthcoming with the American people. In many ways, modern economics has a lot to do with sending the right signals to a large number of people at the right time. A leadership that is mired in old ways of thinking that are out of touch with current realities and that miss the seriousness of new developments can end up leading the nation towards a state of economic underperformance, if not failure. Also, a leadership that fails to realize some crucial constraints in the economy can end up pushing the economy towards an unsustainable trajectory that can lead to catastrophic events with adverse consequences for both the elites and the masses.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
No system, elitist or non-elitist, egalitarian or non-egalitarian, equitable or non-equitable, can persist when the requisite knowledge and management competence is lacking. The huge gap between what the present and future exigencies demand from our policy makers in the field of economics and what they are actually able to come up with should be viewed with dismay by anyone who is interested in economic stability, economic progress or human welfare. In other words, it's the novelty, sloppy ! There is a need for leadership that can be honest and forthcoming with the American people. In many ways, modern economics has a lot to do with sending the right signals to a large number of people at the right time. A leadership that is mired in old ways of thinking that are out of touch with current realities and that miss the seriousness of new developments can end up leading the nation towards a state of economic underperformance, if not failure. Also, a leadership that fails to realize some crucial constraints in the economy can end up pushing the economy towards an unsustainable trajectory that can lead to catastrophic events with adverse consequences for both the elites and the masses.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
The sum of all vulnerabilities - the need for comprehensive reform in US economic policy-making
The US economy is now marked by some serious vulnerabilities. On the fiscal side, public debt keeps accumulating at an alarming pace and federal government fiscal deficits show no clear signs of decreasing. On the monetary side, Fed experimentation with exotic securities has set the stage for possible scenarios where the Fed's ability to control inflation is seriously constrained. On the structural side, US wage competitiveness lags behind many other countries in several sectors. Also, energy sustainability and energy independence are very difficult goals. And the real estate sector languishes. On the finance side, serious weaknesses still remain in the financial system, several years after the peak of the financial crisis associated with the Great Recession. On the trade side, Americans buy and consume much more of foreign goods and services than American goods and services bought by foreigners. On the investment side, levels of domestic investment are anemic. On the productivity side, there are serious doubts about meaningful improvements in productivity. On the employment side, unemployment is very high even though labor force participation has decreased. On the human welfare side, poverty levels are high by historical standards.
What is the US political establishment doing in response to this confluence of serious problems ? A country may be able to find ways to future prosperity and welfare without excessive difficulty when confronted by a few problems of this nature. However, when confronted by so many problems in so many critical areas, it is time for the policy makers to do some serious introspection about what has gone wrong, what policies may have led to this state of affairs, what kind of response is needed for future economic recovery etc. There is no sign that the politicians belonging to either of the two major political parties in the US are serious about recognizing the unprecedented nature of the vulnerabilities in the US economy. Economic policy, which should have a strong component of economic science in it ( impartial and objective economic science, if possible. Alas, objectivity, impartiality and unanimity are missing from many crucial areas of economic science. And there is a tendency towards conformity of a nature that favors elitist, inegalitarian and unstable outcomes ), seems to be influenced much more by political and hidebound ideological considerations than should be allowed in any mature economy or mature democratic system. Also, there is a rush to advertise inadequate partial measures as political success and as national success. There is a worrying tendency to give false reassurances to the public about the economic problems of the country. In an atmosphere where the public discourse tends to hide the seriousness of the challenges, the field becomes open for opportunistic politicians and myopic corporate interests to pursue their selfish agendas without hindrance. Since today's economic decisions will have lasting effects on the economy and since delays in implementing crucial policy changes will lead to a deterioration in one or more aspects of the economy, this lack of honesty has the potential to damage the strength and character, not only of the US economy, but also of the US democratic system.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
What is the US political establishment doing in response to this confluence of serious problems ? A country may be able to find ways to future prosperity and welfare without excessive difficulty when confronted by a few problems of this nature. However, when confronted by so many problems in so many critical areas, it is time for the policy makers to do some serious introspection about what has gone wrong, what policies may have led to this state of affairs, what kind of response is needed for future economic recovery etc. There is no sign that the politicians belonging to either of the two major political parties in the US are serious about recognizing the unprecedented nature of the vulnerabilities in the US economy. Economic policy, which should have a strong component of economic science in it ( impartial and objective economic science, if possible. Alas, objectivity, impartiality and unanimity are missing from many crucial areas of economic science. And there is a tendency towards conformity of a nature that favors elitist, inegalitarian and unstable outcomes ), seems to be influenced much more by political and hidebound ideological considerations than should be allowed in any mature economy or mature democratic system. Also, there is a rush to advertise inadequate partial measures as political success and as national success. There is a worrying tendency to give false reassurances to the public about the economic problems of the country. In an atmosphere where the public discourse tends to hide the seriousness of the challenges, the field becomes open for opportunistic politicians and myopic corporate interests to pursue their selfish agendas without hindrance. Since today's economic decisions will have lasting effects on the economy and since delays in implementing crucial policy changes will lead to a deterioration in one or more aspects of the economy, this lack of honesty has the potential to damage the strength and character, not only of the US economy, but also of the US democratic system.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
Thursday, January 3, 2013
Advertising timid measures as progress
The recent Congressional fiscal cliff deal consists of timid measures on the taxation side. However, by averting drastic and sudden spending cuts, it helps ensure that the US economy does not see more negative effects for human welfare and for public sector jobs. The deal does not do much to address the long term debt build-up of the US economy. Republicans have indicated that they will keep pushing for spending cuts when the debt ceiling debate takes place.
So, nothing much changed as a result of the fiscal cliff deal. Republicans ceded some ground on taxes, but not much. The actual amount of tax revenue increase is not significant compared to the scale of the deficit problem. Sudden spending cuts are fraught with dangers and the compromise recognises the fact. The long-term debate about spending will continue. These measures will not be able to prevent a debt build-up that may lead to a sovereign debt crisis in a decade. It looks more like a desperate compromise attempt to prevent the onset of sudden and drastic policy measures. It does not signal confidence on the part of the Democratic Party or of the political establishment. More than that, it shows that the part of the academic establishment concerned with economic policy and the part of the intelligentsia concerned with economic policy have not been able to provide timely solutions for the country's economic problems during these grave times. They have not been able to convince the political establishment about the urgency of many of the problems facing the country's economy. They are probably too caught up with old ideological divisions and have not been able to speak with one voice about some core principles concerning US economic policy. There is a tendency to persist with policy measures that have not provided very good results, like in the case of Japan during much of the last two decades. The academic and political establishment lack coherence and believability when they try to communicate their diagnoses and their solutions to the public. And there is a tendency to advertise any and every deal as some kind of achievement worth boasting about without regard for the actual numbers like debt accumulation. Something needs to change in the culture of economic policy making in the US if the goals of sound economic health and human welfare are to be achieved in the country.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
So, nothing much changed as a result of the fiscal cliff deal. Republicans ceded some ground on taxes, but not much. The actual amount of tax revenue increase is not significant compared to the scale of the deficit problem. Sudden spending cuts are fraught with dangers and the compromise recognises the fact. The long-term debate about spending will continue. These measures will not be able to prevent a debt build-up that may lead to a sovereign debt crisis in a decade. It looks more like a desperate compromise attempt to prevent the onset of sudden and drastic policy measures. It does not signal confidence on the part of the Democratic Party or of the political establishment. More than that, it shows that the part of the academic establishment concerned with economic policy and the part of the intelligentsia concerned with economic policy have not been able to provide timely solutions for the country's economic problems during these grave times. They have not been able to convince the political establishment about the urgency of many of the problems facing the country's economy. They are probably too caught up with old ideological divisions and have not been able to speak with one voice about some core principles concerning US economic policy. There is a tendency to persist with policy measures that have not provided very good results, like in the case of Japan during much of the last two decades. The academic and political establishment lack coherence and believability when they try to communicate their diagnoses and their solutions to the public. And there is a tendency to advertise any and every deal as some kind of achievement worth boasting about without regard for the actual numbers like debt accumulation. Something needs to change in the culture of economic policy making in the US if the goals of sound economic health and human welfare are to be achieved in the country.
by C. Jayant Praharaj ( send comments to cjpraharaj.blog@gmail.com )
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