Dr. Parchure is the officiating director at the Gokhale Institute of Politics and Economics, where I work. He was also my guide during my PhD saga (there is no other word for it), and has forgotten more macroeconomics than I will ever learn.
Tomorrow, at some point of time, I and Dr. Parchure will be sitting down – at our respective homes, of course – for a chat about what India can do when it comes to macroeconomic policy after the worst of the corona virus lock-down is over.
First things first: health comes first, and that’s a non-negotiable. There’s no version of this story in which we can discuss trade-offs about “getting things back to normal” so that “the economy isn’t destroyed”.
As Russ Roberts puts it:
No one should ever say that a policy is a good idea because it is "good for the economy" or "efficient." The only thing that matters is human flourishing. Yes, they are related. But the shorthand "the economy" leads to mistaken thinking and stupidity.
— Russell Roberts (@EconTalker) March 24, 2020
So we’ll be talking tomorrow about an as yet unspecified date in the future, where India might not be as mobile and social as she was before, but not as locked-down as she is right now. But when that day comes, what should macroeconomic policy look like?
Here are two articles that I will be basing this discussion on:
Please read both, and don’t worry if you don’t get some details. Just power through both write-ups regardless.
Here are some aspects that I will definitely be asking questions about tomorrow:
- The advisability of giving a monetary and fiscal stimulus: everybody seems to be taking it as a given (myself included). But is there a case to be made for limiting it, if at all?
- That out of the way, should both fiscal and monetary policy be wheeled out simultaneously? Either ways, why?
- What are the major tools in the monetary policy toolbox? Which of them will give the most bang for the buck? Which should we be holding back for later, and why? What mistakes should we be guarding against?
- Ditto for fiscal policy.
- What would Keynes have advised? I have this book in mind when I ask this question.
- What episodes, in 20th century macroeconomic history, have parallels we can learn from? If there are none, are current macroeconomic models good enough to handle such scenario? If not, how might they be updated?
- If you, Dr. Parchure, were in charge of things – interpret that as you being given carte blanche to handle India’s economy, no questions asked – what would you do? What are the political realities that in reality will stop some of these solutions from being implemented?
I’ll be sharing this blog post with Dr. Parchure, but in the meantime, if you have any questions that I have missed, please let me know in the comments, or email me.
The conversation will be up on YouTube tomorrow at some point of time.
Stay home, stay safe!