KEEP THE VALUE OF MONEY INTACT!!!!

The mismatch of ideas and its causes, between Obama and Congress, are hard to guess. But any way, we can expect them either to be political or related with economics, which together become Political-Economy, not a very popular term in an economy like India, but, can be found in text-books. Political because any issue in Congress has a bearing on the vast issue of being elected as Government, next-time, and, Economy or Economics because it affects variables like income, interest-rate, employment, inflation, etc., etc.. And collectively concentrates on the economic well-being of the masses.

But, our main concerns are the levels of inflation and employment, and interest rates, short-term (less than 5 years) and long term (more than 5 yeras), decided by Central-Bank, are often influenced by the policies a Government decides to pursue. Here, a definition of short-term and long-term interest-rates depends upon the time-period for which a government is elected, generally 5-years. But, if the system, mainly Central-Bank, is sure that the same government has a fair-chance of being elected next-time, as well, then the bank can also decide for long-term interest-rates.

The relationship between inflation and employment found by Phillips in his famous curve theory is a positive one and the other thing he found, as far as I can remember, that with a 5% increase in employment inflation also increase by 5%. Therefore, if we generalize his findings a 3% increase in employment is likely to produce 3% of inflation and if we want to grow employment by 10% we will have to choose an inflation rate near to 10%.

It’s kind of same thing we do in our growth-models and theories. For instance, the rate of growth of capital stock = to the rate of growth of labour stock = to the rate of growth. Or, more precisely the actual growth rate must be = to desired rate of growth. So, in a nutshell, we try to equate one mathematical figure with the other. They are all out of 100%. But, of course, units are different. I’m a Harrod-Domar fan.

And, here is some personal thinking. You know in any Congress there are those who are in power and the other in opposition. So, the opposition will shout inflation! inflation!!. And, inflation as we all know need cushions, a capacity to absorb price increase, and everybody is not well-equipped, we also know that. Therefore, a food/inflation-cess to keep a dollar a dollar and to facilitate real-supply of food-items, may be 10% of the food-basket for all income groups is not a bad idea. The idea is to keep the value of money intact and then addressing the distribution issues. “KEEP THE VALUE OF MONEY INTACT!!!!”

LET’S BE HOPEFULL!