Thread on #AbhijitBanerjee's talk on Indian economy last Friday. He is this suave, funny prof telling some tough truths to the govt.
I don’t know why India is growing. I know many reasons why it shouldn’t grow, I’ve written about it (stalled liberalisation, broken banking etc)
He then digs into India's growth story: long history, big talent size, misallocation of economy is an opportunity of growth, breakdown of the joint family key to the real estate boom, poorly run financial sector makes it easy to gamble ("if you are shameless and brave enough")
He then points to the latest NSSO survey:
If you takeaway one fact from what I have to say, this is the fact. NSS 2017-18, is people on average are poorer than they were in 2014-15, not growth has slowed, they are strictly poorer.
He adds: This is something that has never happened in many years, over a four year period avg consumption going down hasn’t happened in many many many many many years. And this is after corrected for inflation
"This is a crisis. I think if we don’t want to call it a crisis we could say we could be in a crisis. But I think we are in a crisis." #NobelPrize2019 #AbhijitBanerjee
On an all-powerful PMO:
We went from a situation where we had no institutions, to potentially better institutions which had their own challenges, to a sit where the institutions are an extra level of check on the system. Institutions went from hyperactive to zombies
Prof: (It is) Part of the reason why investments are flailing. I talked to my friends business it is almost impossible to invest, you don’t know who is going to call you up and say that that’s not the right thing to do.
Prof: In addition there is a demand problem. The result of demonetisation, GST implementations, the monetary police regime...
On the future:
The reaction to sharp growth slowdown has often been disastrous. The reason is... you expect the growth to continue. That makes it very hard to sell the message that we should just tighten our belt on all sides
Prof: As a result... you cut taxes on the rich, make some public investments that don't make any sense,
all it does is really hurt the inc distrib, and make the govt debt explode, often ending up in a full blown meltdown. We are doing well on this time-honoured path to disaster
What's the alternative?
Prof: In the short run, we have to do something on the demand... we should forget about monetary policy... quantitative easing is what the US called it because they didn't want to call it printing money.
Prof: Having a more lax monetary is going to be important for this moment. And not interest rate cuts. No evidence that in a crisis, interest rate cuts do anything. Let the rupee slide. And since it’s NDA govt, we can pray
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