The Failure of economic theory and systemic issues

The current global economic slowdown is both scary and difficult to understand. The former federal reserve chairman,  Alan Greenspan, after more than 15 years at the helm concluded that his view of the world was faltered. What causes deflation and recession? There seems to be no answer. Forty years ago Keynesian theory of pumping the prime when the economy slowed was accepted. It lost its strength of acceptability during the Thatcher and Reagan ascendancy. Neo classical economic theories based upon a conception of the economy as the sum of the automised actions of millions of utility maximizing individuals, where markets are stable, information is perfect, capital and labor are equal and substitutable were accepted. What we realize now that this theory is totally inadequate in explaining what is happening in the global setting.

What do we see today? Deflation setting in Europe, permanent deflation in Japan and the US recovery completely dependent on quantitative easing. It is somewhat safer to conclude that the free market orthodoxy of the past three decades has helped in creating the crisis we are currently living through. What do we have now, is slower growth, deeper inequality, greater insecurity and environmental degradation all over the world.

Time has come for a change in the macro economic theories and belief. In India we need new yardsticks to measure our progress. Income and wealth inequality has become rampant. Credibility of economic policies are being challenged. Even after 65 years of independence we have one of the lowest per capita GDP. Its time to change. If we fail, we will face serious consequences. Time has come to define our new vision and mission for the country. The question now is are we ready for a change?

What then should be the vision? The answer is to achieve a growth rate of 9 to 10 per year , year after year like what China did in the 1980s and 1990s. Is it possible to achieve? That is what our mission is. Find the capital and other factors of production such as trained manpower, technology developed lend and passionate entrepreneurs who will strike this dream come through. We need a society all acting as stakeholders to achieve this dream. History has hundreds of example of how countries have achieved their mission. China and South Korea are most noteworthy examples.

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