Promod Radhakrishnan

Bleak Statistics for 2008 - Will 2009 Be Better?

Is it too optimistic to think that USD 500+bn spent in a non-pork, targeted fashion on productive sectors like alternative energy and healthcare cannot create 2 million jobs? If we can do that, it would at least counter job losses that would have occured otherwise. And, with the entire global economy waiting for a stimulus to start sending initial signals of a trend reversal, we have enough international support to feed government debt. We still might have 6 months of gloom, but the same way we couldn't see a never-ending boom cycle, i don't see us in recession for another 2 years...economic cycles have become shorter - and sharper!


On Jan 12 02:39 PM PROXIMO wrote:

> To put a positive spin on the road ahead is a stretch, given the
> tons of economic stats already out and continuing to come out. Strongly
> disagree with "If Obama does succeed, even moderately, of targeting
> fresh money to areas like construction, healthcare, green energy
> and education, the very impact of this in downstream sectors and
> resulting gains in employment would be more than enough to crank
> the engine back." IT WON'T MAKE A DENT.

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.