INDIA, US, China... (Rev.)

The protectionism does work and the free-trade does not, when we have capacity to produce at lower prices and scope to reduce unemployment, importing at higher prices lower real wages/income/profits...

Automation might help save labour and lower prices (due to lower real wages) in countries with full employment to increase productivity... ie capital and tech rich countries... Countries with higher unemployment need to use cheap labour intensive tech...

The economists dislike protectionism and automation... If, it had been true, that they are bad, China had not grown unprecedentedly... Imports are important for lower prices to increase economy’s productivity... unfurnished and intermediate goods to get a place in the supply goods global chains and lower global prices may be good for price and employment stability...

The 6% unemployment rate (INDIA) is only 1% more than the full employment range which points that the economy is growing just below the potential real growth 8%... which could be gauged also from the fact that after factoring the natural rate of unemployment the population growth rate is 8% which is also the potential growth…

The economy (INDIA) is growing 7% which is just 1% short than the potential growth rate... 1% increase in unemployment shows that the growth rate is lower by 1%... 1% of unemployment means 10 million jobless...

The US shows that full employment could go down as low as 3.5 % which means that there could be 25 million unemployed in the economy which also means that INDIA could grow at just over 10%...

INDIA has adopted a flexible inflation targeting which means that the RBI can tolerate higher inflation upto 6% and could afford to be patient not to raise real rates...

Had the RBI not increased nominal interest rates when inflation was low, the higher real interest rates had not increased the borrowing cost, which exposed the shadow banking crises and the economy turned slow due to liquidity crisis...

Price stability always comes at the cost of higher unemployment... We have stable prices during NDA... with setbacks for demand... from monetary policy, too...

The rate cuts would not solve the problem of low inflation in the US, rather they could further lower inflation by lowering borrowing cost and increasing (investment and employment and) supply and demand by increasing productivity of capital or lowering the opportunity cost of capital, which could again increase rate cut expectations and the economy might find itself in a deflationary spiral... The same is true for inflation and rate hikes; they further increase rate hike and inflation expectations...

The Fed may try to stabilize real interest rate at neutral or zero at which there is price stability and full employment...

If the multiplier theory is true tax cuts in the US could multiply its effect every year if money supply is not tightened and/or reduce spending by the government... Now, the Fed has to maintain stability of the natural real interest rate, real wages and exchange rate, and savings and consumption, and, investment and employment, and, demand and supply, and, prices and incomes and the economic growth and expectations...   China is facing excess capacity and over supply and also lower demand due to trade tension with the US which have reduced prices and expectations which must be changed to higher prices and expectations to increase demand and also to constrict supply to increase growth... China must increase real interest rate and expectations to increase price and price expectations through higher borrowing cost and lower supply without overheating... Higher price expectations could increase demand and lower supply to increase prices and expectations....