The top B.Com Colleges in Delhi NCR regularly engage in research on the different schools of thought that prevail in economics. Given that macroeconomics as an academic discipline is governed by mathematical modelling premised on intricate null hypotheses it is very hard to reach at a definite consensus of views that can be truly all encompassing and all pervasive. At Ishan Institute of Management & Technology, academicians of economics have engaged in both theoretical lectures and mathematical economics driven approaches to reach the crux of the matter and further to satisfy the appetite of aspiring MBA and PGDM students on the floor of the classroom. Sir Winston Churchill, the former British PM had once jokingly commented that if a question produces four different answers from four different people despite the presence of empirical evidence being abundant on the subject matter, they must have been economists!
Tracing the Invisible Hand of the Market and Animal Spirit of Capitalism
While it is common for business leaders, policy makers and economists to heap praise on the invincibility of the invisible hand of the market and the animal spirit of capitalism, they are rather difficult to search for in times of recessions. It is not plain humour that while Gulliver’s giant of erstwhile USSR has long been dead; the animals of capitalism have not been in the pink of their health, with the frequent need for the governments to offer strong socialistic type governmental ventilation. The crux of the matter is that there are academicians, managers, business leaders and policy makers out there who do not wish to acknowledge the fact that capitalism of the laissez faire type can slip into coma.
On several occasions across the world we have seen governments pump priming the economy. The Wall Street crash of 1929 turned the profession of economics on its head. What followed from the then U.S. President Roosevelt in terms of the formulation of the New Deal and the New Economic Policy later under Keynes made a strong case for replacing the invisible hand of the government with the visible hand of the government. Recently India under one of its greatest engineers of neo-classical economic reforms Dr.Manmohan Singh has had to embrace pump priming in the avatars of MGNREGA and the farm loan waiver schemes. This has not been a voluntary choice for policy makers of the erstwhile government of India but a marriage of comfort that aimed to resolve challenges that persisted as a result of the 2008 sub-prime crisis.
The Costs of Pump Priming and Fiscal Profligacy: Baro Ricardo Equivalence
The costs of pump priming can be particularly high as has been the case in the PIIGS countries. While ventilation for recessions can be justified even at the cost fiscal profligacy, the experience of Portugal, Iceland, Italy, Greece and Spain has been far from satisfying. As Dr.Singh put it “no government can live beyond its means”. The lessons of fiscal prudence on one hand and those of the withering welfare state are difficult to recon ciliate. The bad news flowing in from the PIIGS (Portugal, Iceland, Italy, Greece and Spain) economies is a pointer in the direction of the impact that fiscal profligacy can have not just on economic growth rates but on the very legitimacy of a sovereign economic nation state. While jamming in monetary with fiscal policy may raise a few eye brows, it is badly kept secret that the interplay of the two shall determine the course of flow of the Indian economy. It makes enormous good sense to recall the words of the Iron Lady of United Kingdom, Mrs. Margaret Thatcher: “The least state is the best state.” Fiscal prudence is the need of the hour. More than just containing the unplanned government expenditure, there is a need to consolidate the planned expenditure. Fiscal discipline may be criticized by some who have the luxury of indulging in side seat driving but will enable the government to score on multiple points.
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