Two main articles that i have read over the last week, set the tone for this blog. One is on whether we are staring at a Hayekian recession(by Swaminathan in ET) and secondly the "Buy USA" policy attached to the fiscal stimulus package of US.
The Hayekian recession broadly states that misallocation of resources in a system over a period of time leads to a situation of boom and bust which can only be corrected by removing the imbalances. Keynesian policy is different in this regard, as it formulated pumping of money into the system to recover the economy. I am of the view that Keynesian policies might not work this time round. The current situation has been brought about by a spending by US (and few other countries) and saving by exporting countries. This imbalance in the global economy led to booming asset prices and the aftermath. To recover form this situation, the solution as per Hayekian , is to make the exporters start spending ( ignite the domestic demand) and the US export.
The next issue of "Buy USA" is linked to this as it is contradictory to the Hayekian solution. "Buy USA" would lead to a wave protectionism something which the world economy and US in particular cannot afford. Domestic demand in US is at its weakest and 'buy USA' policy would not be able to stimulate the domestic demand sufficiently.
The world not requires concentrated action by all the countries to get out of the mess in which the US has to lead, but the recent postures of US (smack with China on currency, protectionism measures) do not give a healthy sign in this regard.
No comments:
Post a Comment