Obamanomics and Us | Revati Laul

Obamanomics and Us

Wikimedia Commons/Pete Souza

Winter sickness can be seriously psychologically damaging, especially if it means you end up on your parents’ couch to recover, instead of your own; on a day when the US election results are declared on TV. And as you and your mother concur with, “Thank God Obama won,” and your father walks in with – “I wish Romney had.” A domestic shouting contest ended with me storming out, but privately realizing I had no idea if Obama had really taken the economy down or whether the man with the better sounding politics had just sunk the world’s largest economy and jeopardized ours with it.

Surely a man who pushed through the most difficult 6 billion dollar healthcare programme despite massive opposition from the Red Republicans; on an argument that it was what America needed, can’t have been blind about the way forward for the economy? But the US deficit or debt is now 70% of its economy or GDP – that’s never happened since 1950. Forbes magazine and market savvy economists shouted that the wrong man is back with his “perverse” economics. A guy called Alan Reynolds in The National Review Online even suggests that Obama’s ideas of taxing the rich is his “revenge against successful people who often vote the wrong way!” (Read this intriguing piece online – http://www.nationalreview.com/articles/332613/obamanomics-explained-alan-reynolds )

The question of whether or not Obama has tried to steer the US economy out of its crisis isn’t just a curious one, because it connects directly to the logic our planning commission and economists apply here all the time about how much to regulate and how much to free up, who to tax more and how to get money back in circulation. The arguments of the West still hold our own policymakers in awe, flawed as they may often be. And it’s much deeper than that. The same market and corporate institutions that regulate it and fund elections there, do so here. If Obama is backed by Goldman Sachs that was seen as partially responsible for the subprime housing and mortgage crisis; then Reliance money is seen as propping up our government in much the same fashion. Much more now than ever before, what goes there, goes here.

And so confused, economically unsavvy, neanderthal me needed to know what Obama has done right or wrong. And so I turned to an economist I trust – Paul Krugman, who writes for the New York Times. The first myth he busted in his blogpost about Obama winning is this: The Deficit. That the deficit or large borrowings in the US economy isn’t entirely Obama’s doing is known. But Krugman also says that tax cuts to stimulate the economy that Bush proposed, and that are still in force; are not the panacea Republicans and Indians who tend to follow the Republicans are looking for. For one simple, school level, common sensical economic reason. In an earlier piece, on January 27th, 2009, Krugman refered to a phenomenon called ‘a dark age of macroeconomics.’ In which he sneered at economists for automatically presuming that government borrowing brings down the economy by taking tax payers money that would otherwise be saved and invested back. He said what these economists are doing is confusing accounting in economics with actual economic behaviour. And reminds us that savings don’t “mystically” turn into investment because accounting principles demand the two sides to add up. But forces work on the ground to account for that series of changes. And so increased government spending does not reduce investment, it actually increases it. For Obama to pump in money into the economy wasn’t entirely wrong even if it didn’t take the economy magically out of its deficit and unemployment. Krugman likens this “Treasury” view or the US treasury approach to economics to “being overrun by barbarians in the grip of an obscurantist faith.”

And his column on the day Obama won was much the same vein. It’s called “Deficit Hawks Down”.

What can and should be used to stimulate an economy? I’m no economist; but I do hear voices from the ground. And a battleground with equally triumphal econometric arguments is Gujarat. Going to the polls next month. Where Modi is painted brightly as the valiant protector and keeper of business. If anyone wants to push the levers of progress in this country, goes the rhetoric, then they must `Gujarat’ their way into it. Or so goes the myth. The fact that big business has always been in the DNA of Gujarat is an important part of this story that gets lost in the Modi myth building. But is this the direct result of policies where land is cleared for the TATAs in seven days, and SEZs are sanctioned without the concomitant violence and protests like Nandigram in West Bengal? In that case, there are counter statistics. Workers’ strikes in Gujarat at factories, are amongst the highest in the country. So it’s not as if taking a factory to Gujarat will automatically lead to less work days lost. Uninterrupted electricity, great roads and fabulous phone connectivity are all definitely big pluses. But as Modi goes into possibly a third term as CEO, Gujarat Inc., the rumble from rural Gujarat has gotten louder. From across the north, the districts that span the Saurashtra region, which is Modi’s stronghold, are complaining of under-development, no water and not enough electricity. The Human Development indices that make up the economy, not limited just to India Inc. or the market are much more of a mixed bag. In how much its literacy has grown, Gujarat has slipped from 5th place to 6th between 2001 and 11; its informal work force has amongst the most repressed wages amongst Indian states and its overall ranking in the Human Development Index amongst all states slipped from 7th in 2001 to 8th in 2008.

As long as we are mesmerized by the thought that big business equals good economics, these indices won’t matter. And we will all argue that Modi should just keep giving more land and electricity to industry and ignore the voices of fishermen whose wharfs are disappearing and villagers who have no water. And at the centre, we will agree with the Planning Commission when they say that sops given to Reliance Industries to explore gas in the KG basin are fine, but subsidies to farmers should be cut. The question of whether Obama should try and get the US Senate to clear spending 6 billion dollars in a bankrupt economy on a national health insurance policy or not ties in directly with how we see things pan out closer home. Should governments spend on the NREGA or will there automatically be more jobs if taxes are cut for the middle class in India? How do we cut up the slices of an ever shrinking cake and how do we stop that cake from shrinking? Different country, same question. And even if my arguments aren’t tallying the GDP in America or talking about the deficit, Paul Krugman is on my side. And that’s enough for me to feel stronger at the next family dinner fracas over Obama’s win.

(The views expressed in this column are the writer’s own)

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  • http://www.facebook.com/johnson.a.jerry Jerry Johnson

    Actually, Revati, Krugman is perhaps the least objective economist you can turn to. His dogmatic keynesian economics has repeatedly shown to be fallow. For instance, when Krugman says that higher taxes does not actually mean diversion of money from savings and investments, then where does the money come from? You forget to ask yourself the second-half of the equation: the keynesian answer is that the extra money enters circulation through printing of a floating currency by the Fed reserve.
    Now, you only have to wait for a few years to see what happens to all the floating liquidity in the economy: searing inflation that burns out the value of wealth, leaving behind only large wads of paper.

    Read George Reisman, who’s written a treatise on capitalism which is perhaps the best since the Wealth of Nations. Also, become familiar with Frederic Bastiat and Henry Hazzlitt’s “Economics in One Lesson.”

    That is, only, if you want to continue to write about a topic you admittedly know little about.

    • http://Website Revati Laul

      Shall do Jerry, thank you. But I’m not sure plain objectivity suffices. An informed opinion is I think far more valuable in a time of market led myths and econometrics…shall arm and inform myself and read what you suggest. Thanks very much for that.

  • http://Website DJ

    I am surprised that anyone who writes an article titles “obamanomics and us” can not touch on his views about outsourcing. You classify your self as an economic neanderthal. I cannot help but Agree.

  • http://www.discoveringhappinessnow.com Aurindam

    YOU ARE AMAZING!!! I was really hoping to get a different perspective into this win of Obama and your post nailed it. American way of dealing with the crisis is indeed shortsighted and we need more people to come forward and contribute to the growth.

    The lesser about Gujarat, the better.

  • http://www.explainingindia.blogspot.in/ Sachi Mohanty

    The sizes of stimuluses and deficits in America are no longer measured in billions of dollars but hundreds of billions of dollar.

    So you missed out a couple of zeroes twice in your article.

    The argument over the economics and what approaches to take to tackle the ecoonmic problems are long and convoluted and unending.

    So I will not even start on that!

  • http://Website Mohit

    Revati, I’m an on-and-off reader of Tehelka. That Tehelka is opposed to Modi is well-known. But the reasons always stop at a vague “Rural Gujarat” – something you also allude to in the same vague spirit in this piece. Would love it if you guys provide a more watertight case on this – some development indicator, a data cut on a mortality rate or anything else which is more than just the conclusion of an argument. Thanks

  • http://www.explainingindia.blogspot.in/ Sachi Mohanty

    Let me add to my previous comments. I am astonished that the errors have neither been corrected nor anyone else pointed to them.

    Obama did not “push through the most difficult 6 billion dollar healthcare programme despite massive opposition from the Red Republicans.”

    He did NOTHING of the sort. You have written a sentence that is WRONG on three different fronts:

    1) Obama passed the healthcare legislation in the teeth of intransigent Republican opposition. This legislation will mean that when it comes into force – in 2014 — more Americans will be insured. It will ensure — quite significantly — that people with “pre-existing conditions” will GET health insurance and companies cannot deny them this insurance on the basis of that pre-existing condition. I am sure this is something we in India who has ever bought a health plan is familiar with.

    2) Obama passed a ‘stimulus’ bill through Congress. The purpose of this bill was to “pump in” more than $700 billion into the US economy. This was of course government spending and ‘deficit’ spending. That was not to the liking of the “fiscally conservative” Republicans either.

    3) Obama bailed out the US auto industry a.k.a. GM and Chrysler. Romney wanted none of that and he argued as much in an article for the New York Times.

    The next battles are to do with what to do about the impending ‘fiscal cliff’ and the expiring Bush tax cuts for the rich.

    It’s about that road diverging in the forest really like in that Frost poem and the American people have made a clear choice.

    Hope this helps.