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 )
The Global Analyst ( Commentary about economic, environmental, political and other topics )
Tuesday, January 8, 2013
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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