We had two Hot wars, one Cold war, well, this War is freezing!
So well, so it’s over. And that’s for the time being. The stalemate was broken, albeit with some compromise. The debt ceiling was raised, just-in-time. Save the last word-default.
This episode reminds me of a Roman Polanski film. Always somewhere, there tends to remain something sort of a fiscal mess. And somehow, it gets ignored.
So, the new question that certainly lingers in our capacitive mind is- are there any possibilities of a growth rebound in the US? After so much of traumatic deliberations and anxious moments of despair and hope, when we see a certain glimpse of light that offer us some optimism, that’s sure to boost up our expectations. Expectations that hang around in our mind -is of a better tomorrow, about winds of fresh reforms, those sunbathed and tanned brown enough to glitter as golden twilights at the end of the day. Visit snookville, you will feel it!
But all that glitter is not gold. True it is- as an old saying. Considering the structure of the deal, with some cuts here and there to cover budget expenses and trim down expenditures, that doesn’t really seem to be an extraordinary deal. As was evident by the subsequent downgrade by S&P (some others are in the line) that’s however, may not be a great concern for investors. There had to be some concessions anyway, yet, it was tough enough to bargain.
But was there anything stimulating? Perhaps not!
A Tea party break;
The effort should have aimed, in part, for some growth-minded fiscal consolidation, similar to one that of Canada. That means, cutting spending judiciously and not to burden the already overburdened taxpayers. This is roughly striking a deal to avoid default just to borrow more! What was required is to reignite the old economy with a new spark plug.
And that’s what was done following the WWII. That time, the requirement was Investment in education and ‘Blue Skies Research’ to regenerate ‘quality capital’- human and technological, both. That’s what led to the origin of genetics and stem cell of which we talk much about today. What is required now, rather than cutting funding in fundamental research, reallocate and ‘flush’ the education system with new capital.
This would in time ripe enough to generate innovation and entrepreneurship (growth), new product, leadership, and technology development, which means (more business) and technology leverage. That was the goal of that report. And that should have been now, yet again!
One can’t expect a workforce to end up doing job like “counting of national public debt” forever. The debt clock in Times Square will do that.
It is always a better option to “leverage” technology as far as possible, for scientific research rather than leveraging liquidity for financial gains. Someday, that liquidity may vanish, with all those financers as well (hope we all remember) but technology would leave a mark on the society. It’s better to avoid such a “liquidity trap”-in future. But what about the fat pay checks of Wall-Street hunkers? They got some lesson by investing in the wind and air of Wall-Street. Balloon bubbled and blew off. So, they opted for $1 pay checks. That’s a surreal austerity.
What’s required is investment in something productive-human capital, as Warren Buffet once said. And that means growth which means surplus, and no future debt concern-no hangover episodes. It is true that extraordinary growth leads to surplus- China is already there, and there is oversupply of growth in China (trying hard to cool it off). So, it’s better to emulate and get stimulated rather than to sit back and think over it again, what went wrong.
Rational choice! That’s what the Scientific Committee on Research presented as a report to the then President Roosevelt by Vannevar Bush, Director of Office, Science R&D which read as, “Science the Endless Frontier”.
Full report: http://www.nsf.gov/about/history/vbush1945.htm#ch1.1
This is vital, just to evolve not to devolve and fall back behind.
Obama administration had few options. On one hand, a credit downgrade would have raised borrowing costs. On the other, an abrupt default, well, you can guess. So in some tune, it is much like a credible plan to reduce debt by at least $2 trillion over 10 years. But to some noted economists, fiscal consolidation at the midst of a crisis of this sort is not a receptive action. That was attempted before, in 1937 following the Great depression and which led to a greater misery. But it’s not that austerity measures do not help at all. It worked miracle following the German reunification when East Germany was absorbed and build by the theory based on reducing spending and raising taxes.
Why it’s struggling with Greece then? And why it won’t work with America anyway?
East Germany has been an eastern bloc nation post WWII under the Soviet proscribed communist zone. The sphere of influence was arguably, some sort of communist sponsored economic hardship-molded in austerity regime and so, ‘that stuff’ was already there, as part and parcel. Hence nothing new when compared to the dream of an economic autonomy and liberty that the West Germany already had. In another tune, it was not America in that sense. They accepted what was destined to be provided by the West Germany post reunification. And they accepted the challenge. They did well. While, Greece going by their charismatic survival of great pantheons and a hedonistic history in profligacy, that’s not enough. Nobody wants to lose something when one gets used to the stuff. That’s addiction.
So austerity drive won’t work for America.
The point is, Growth creates expectation-Deflation results in anxiety, and more austerity!
Can’t say whether George Bush & Co. was right or wrong-but Vannevar Bush was in fact, correct in 1945. That’s a ‘Bush’ legacy. Follow it up!
Source: IHT, Bloomberg, Reuters.
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