Monday, July 05, 2010

Krugman, Ferguson and/on Zakaria

Fareed Zakaria is one of the most insightful host and journalist. In this episode, the presents the two sides of Austerity vs. Stimulus debate. I have already presented my thoughts about Austerity vs. Stimulus.

I want to make a few comments.

First, only certainty can fight uncertainty. In times of uncertainty, like today, the objective of policy is to increase certainty. So a roadmap for reform and policy changes for 10 years and a political consensus (bipartisan or multi-party political consensus as applicable in each nation) and commitment is essential. So Niall Ferguson is spot on with this point. I believe any reasonable certainty will work rather than a specific austerity oriented certainty.

Second, we can kill certainty by acting without a plan - or let me rephrase - by appearing to act without a plan. Conversely, just by acting decisively you can create certainty. I believe the US president should split his speech into two parts - the unchanging goals and course correcting strategies. In both aspects he should communicate decisive action communicating certainty. A plan will definitely help.

Third, Krugman is correctly pointing out that stimulus has not reached the masses. The objective of stimulus, to my mind, was to create income certainty. Whatever the reason, the stimulus has failed to achieve this objective. In this aspect, I think Keynes is being misunderstood and then derided for what may be out-of-context interpretation of his ideas.