Promod Radhakrishnan

Bleak Statistics for 2008 - Will 2009 Be Better?

I agree with your fundamental worry - that a shallow debt-driven fiscal-deficit heavy strategy can pose long term risks. But, do we have an option now - but to replace private demand with government spending and ensure an emergency resuscitation?

Assume we have a stimulus package which does a mix of these:
1) Large scale spending in new (non-pork!) projects in alternate energy, healthcare, infrastructure (targeted)
2) Tax hikes on higher income segments while maintaining corporate tax levels
3) Tax cuts on lower income segments
i.e. target investments in productive sectors which drive future growth while not going over board with tax cuts and fiscal imprudence. This can both help save/create millions of jobs while keeping the dent on long term deficits to a minimum (with the assumption that productive investments yield tax revenues and downstream jobs, which in turn create more revenues etc).

Even if we touch a 10% fiscal deficit (USD 2 trillion) by Q2 2010, as long as we have a way up to take us back to a 4-6% level in the next 2-3 years, we would have prevented a deeper recession without creating too much of long-term fiscal imbalance!


On Jan 12 11:45 AM OldLimey wrote:

> "The big question in every one's mind is - is this the start of a
> deeper recession or is the worst behind us?"
>
> No, not every one's. The question on my mind is whether the economic
> model that has powered global growth over the last two decades (cheap
> and increasingly easily available credit fuelling sequential asset
> price bubbles fuelling overconsumption and misdirected investment)
> is permanently broken. If it isn't, then the author's optimism may
> well be correct - although what price we will ultimately have to
> pay for yet another debt-fuelled surge in end-consumption is anybody's
> guess. If the model is in fact broken, a much longer period of (global)
> economic rebalancing will be required whilst the role of household
> consumption in total economic activity is ratcheted back down to
> historically more normal levels in the Anglo-American economies.