Nation at Perilous Moment, Needs Stimulus package
I am putting my faith in President Barrack Obama that he and his administration will come up with a stimulus package that will help America recover from the economic crisis. We have to wait (patiently) and see how soon America rebounds - by summer 2009? by early next year? Ofcourse, the earlier the better.
This economic crisis has brought out lot of subtle issue into spotlight. What is going to be America's growth rate in the coming years? Is American economy going to grow as it was in the last few decades? Is America going to be still one of the prosperous place to live? Will it still attract immigrants, students, visitors, foreign investments? It all depends on what we are going to do with the money, where we are going to spend this money. The general idea is that the stimulus package will help stir up the economy and probably that will cause the other private sectors to get back into action. But will it ever return like good old days? What is going to be the next growth factor? Where is the next epicenter of growth? In the tech world at Silicon valley? In the car world at Detroit? Are they still capable of growth?
It is a simple logic that we will have better growth rate if we buy less and sell more. But then we are known to be great consumers. Maybe it is time to change that. It is time to produce more than consume. It is time to invest more on our future than exploit the present resources. It is time we look in improving our infrastructure like transportation, healthcare and education rather than just live and use them. Hopefully some money from the stimulus package will be spent in this.
Education is an interesting discussion point. Here is a some interesting data quoted from an article in New York Times - "Between the early 1950s and early ’80s, the share of young adults receiving a bachelor’s degree jumped to 24 percent, from 7 percent. In the 30 years since, the share has only risen to 32 percent. Nearly all of the recent gains have come among women. For the first time on record, young men in the last couple of decades haven’t been much more educated than their fathers were." In my opinion, this needs to change. Education, innovation, produtivity and growth rate are all chained together. One influences the other. Hopefully the stimulus package will do good to our schools - California could get $10 billion stimulus school aid
I liked what Rahm Emanuel, Obama's Chief of Staff said in this context - "You never want a serious cirisis to go waste - it is an opportunity to do things you could not do before". I can substantiate his point from history - I believe the defeated countries of World War II did not rise in spite of crisis. They rose because of it!
I just hope that this economic crisis gives us a chance to find new venues of growth.
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Very interesting read. I think the fact that you state as "simple logic" is actually quite profound (maybe only to me :)). I actually spent some time thinking about it. Here is my take -
ReplyDeleteI am going to assume (to cover my lack of understanding) Growth = Increase in value of goods produced or greater amount of goods produced for the same or lower cost. Now to produce goods you invest capital. In general, if your capital investment is high, then the production is more efficient and you have higher growth (basic notion of economies of scale). If your capital investment needs to be high - you need to either borrow money or use your savings. If you borrow money, then you also influence growth by the amount of interest you need to pay. On the other hand if you use your savings, then you get a higher return or more growth. You can save more only if you consume less! and hence the logic - consume less = more growth.
OK, the underlying assumption here is you are going to be able to sell whatever you produce! The one small problem is if the world's largest consumers decide to save and consume less, what happens? Demand goes down, which brings the prices down which then affect your growth!!! IMO the idea of managing consumption is a delicate dance.
So what would I put my money on? Ofcourse part of the money should go towards manipulating consumption and increasing savings and doing the delicate dance. But a large part of it should go towards building "value". By value I mean building infrastructure that maintains its usefulness or potentially appreciates in usefulness over time. Making "effective" value investments in multiple sectors that could potentially give us growth in the future is the way to go. Which sectors? I am not sure yet. i need to put some research time and thought. Whats "Effective"? Something that is necessary or perceived necessary for future growth; not necessarily "cool". Again for specifics, I need to put some more thought.