WHILE COMPARING GROWTH RATES

The comparison, that’s actually in vogue, is between a normal base period and periods of high inflation, in case of inflation. And, in case when we are comparing economic-growth, it is the mathematical-figures like 2% or 5% or 8%, just for example, which are point of discussion rather than the rate of inflation, and, the text-books says periods of high rate of economic growth are characterized by high rate of inflation and low interest rates. But, even when it comes to the comparison of rates of economic growth, periods with low and stable inflation, with high rate of economic-growth seems more meaningful than periods with high inflation and high/low rate of economic-growth, interest rate being decided by the Central-Bank. The point remains same, choose a good base year. Or, you can extrapolate a base year, too.

The kind of capacity, here, is a kind of savings. Part of income not spent, certainly not the one that goes to debt-repayment, advance commitment for savings and goes either for investment or purchase. There is a difference; actual savings are not swept by inflation, but commitment is, if income does not rise. Particularly for those who do not have houses and borrow from banks. Productive capacity on producers side can grow but if it does not add or match to the consumptive capacity on consumers’ side, without relying too much on borrowed money, production will not grow optimum, unemployment at 5% (frictional), as Keynes said may be. Here, where the where Keynes-Ramsey rule intervenes which says, the economy should choose a capital- labor-ratio that maximizes present level of consumption. They did not say anything about borrowed money, but they discussed tax-ratio, as far as I can remember. It’s a golden rule, i think. Boosting consumption with borrowed money is a clear bad-idea, recession teaches well.

So, for measuring capacity in a period, too, period with low and stable inflation, with high rate of economic-growth is not a bad idea and bubbles drive demand, then inflation, then interest-rate, and then a little savings (consumptive capacity),and, in the next period interest rate is, again, driven down, there is whole chain-reaction that starts. The point is, we can not restrict our attention to a particular period while deciding for policies, and, it culminates in our discussion of static and dynamic, and taking into account the past 15, 20 years as base or basic for our learning and innovating from our success and failures is better than 5, 10 years.

Another major point is, fix money supply and interest rates for 15-20 years, and let the expectations work, and, then watch how market dances for fulfill our redistribution goals against the policy of maintaining a class at the bottom, a conspi…. the… of economics of Capitalism. I have an idea!!! How many graduate per year in our economy? Book them for two years in social services.

LET’S BE HOPEFULL!!!!!!!!!!!!!!!