Reading Paul krugman these days,read Joseph stiglitz last weak and i am amazed at how the ubiquitous downturn has progressed starting from financial "creativity" and finding solace in a globalized world which is utterly mismanaged.To carve a new path ahead we have to look closely at the road we have left behind.Our new policy must be a confluence of keynisian economics because a booming economy won't always be booming and the ideas of adam smith because a receding economy won't always recede.strong public spending along with tax cuts is the need of the hour.the problem with INDIAN policy is that it has failed to rise to the occasion.the interim budget makes great political sense but it is bad economics.The argument posed by the UPA government is that the results of the fiscal stimulus given out in december will only be evident in 10-11 months but what about the results of the current liquidity desert in the country? when will they be evident? well they already are.it seems like the starting of an unemployement wave and remember india has a very weak social security net.So the longer we take to tackle this the more will be the "COST" of this downturn.
What are the americans doing on their part now.The new stimulus package designed by president obama raises many hopes but the sane economists opine that it won't be enough.It's the right way to deal with the crises but it falls appalingly short of what's really required.300 bn in tax cuts,500 bn in public spending .yes they need it.But what about the bank rescue plan?president obama is playing the politically correct card by not mentioning bank nationalization in the senate but again like the indian policy its bad economics.nationalization may not be the american way according to some but did selling the "american dream" by giving irresponsible loans fit in the conventional american lifestyle? nationalization and then eventual privatization of banks after the government gets rid of the toxic assets is the way forward.because sometimes socailism is the best ally of capitalism.
Now what has been the Indian government's plan.chintambaram's last budget provided a significant relief to the Indian farmers and increased public spending bythe government substantially while keeping the fiscal deficit at 2.5% but again we are on the same old track of ineffective and excessive spending by the government which is reflected by the depressing 6% deficit contributed by the central government and another 5% by the states.which makes it 11%.
What does this reflect.these numbers say that our rural areas(which account for the maximum spending by the government) have been a victim of mismanaged globalization of our country.before opening our economy we established all the laws required by the corporate sector on the road to liberalization but then we forgot what repurcussions will this have on the rural economy.hence any attempt by the goverment to bail out the rural areas falls straight on it's face doing nothing but increasing the deficits without any substantial reduction in rural poverty while simulatniously promoting the culture of "subsidization".It's true that deliberate efforts by the government are required to increase the rural demand and wealth in a country like ours but those efforts need to be in the right direction.India is typical case of a partially mismanaged globalized economy and before anything else we need to create a social security net for our rural population.directly subsidizing the farmers(a repurcussion of an open economy) which does nothing but harm the rural population eventually due to an increase in food prices(remember most people living in villages are not farmers perverse to popular thought) is really not the solution.the NREGA(national rural employment guarantee) scheme is a move in the right direction.
Both Americans and the Europeans need to embrace keynesian economics wholeheartedly while eventually moving back to privatization and the developing economies like India need to refrain from blindfolded public spending in rural areas and concentrate a little more on the industry while simultaneously strengthening the social security net which is a must in a capitalist system.I know this article was boring but then economics is because it matters.