Ajay Chhibber’s article “Stop talking about monetary policy” (September 21) took me back 60 years to my university days in Kolkata. In a class on inflation, growth and deflation, the noted Professor Amlan Dutta said we should always remember the following three sayings by economists while discussing these three issues.
First, that inflation basically meant “too much money chasing too few goods”.
Second, at the same time, to think that by merely cutting off or reducing the money supply, by itself, the prices will come down, is like thinking that a car that is running downhill will stop if we switched off the engine. We need more robust and sustained efforts and policies to resolve the supply-side issues.
Third, you can take the horse to water but you cannot make it drink. This has precisely happened in the US, Japan and to some extent in the European Union since the collapse of Lehman Brothers in 2008. In spite of quantitative easing and zero rate of interest on borrowings, the industry is not borrowing funds to accelerate growth. They have burnt their fingers and are a “once bitten twice shy” lot. Central bankers have to give them some assurance, by introducing robust fiscal and employment measures, that there will be demands/markets for their products.
In this connection, the central bankers would do well to revisit the New Deal plans that President Roosevelt started and implemented to bring the US out of the woods during the post-Depression period in the early 30s.
Nirupam Haldar Kolkata
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