Flash back from 2008 when I wrote against Patrick Manning s Economic Policies Getting the Economics Right Patrick (2008) Economics - the study of how scarce resources can be used to satisfy needs and wants. Recently , as many others have been doing , I have been reading up on the plans of PM Manning to create a stimulus plan to help other caricom nations, or as he puts it extend a helping hand . From reading this I have become assured of two things, firstly manning is out to become the Caribbean Obama ( as Trinidad becomes the Caribbean Zimbabwe ) and secondly a geologist should never be prime minister. If they are, the least they should do is get the economics right. The Trinidadian economy has been faced with inflation for some time now. But what is inflation ? Inflation is a sustained increase in the general level of prices of most goods in the economy of any country. Inflation has many negative impacts: Reduces the real value of money or what is known as the purchasing power of money, as consumers have to put out more money to obtain the amount of goods they previously obtained. Another effect is, the price of local goods and services increase due to inflation, therefore most individuals turn to foreign goods as they are cheaper, thus this increases the amount of imports, which may have severe reprocussions on the balance of trade and even domestic GDP. However it is important to note that inflation always exist. Inflation would always be prevalent in a country that is experiencing economic growth. Economist Milton Friedman has described inflation as being always and everywhere a monetary phenomenon. Therefore because inflation always exits it is the role of the government to ensure that inflation is curtailed and prices remain stable if not constant, after all , one of the macro economic goals which all governments aspire to achieve is the reduction and control of inflation. The current administration under Patrick Manning has shown total disrespect and disregaurd for the economic laws, they have not only practiced poor economics, but one thing that is essential in any money mangement is the abilioty to make common sense predictions, yet they have not done any of that, they have done the same thing over and over, but they expected a different result. In fact they did get a different result, eevrytime they did soemthing, it resulted in the a worse than before scenario. Any novice economic student as myself , looking on would see that the PNM has over used the monetary policy to the point , that the word ineffective has become an understatement. The monetary policy pertains only the interest rate and the amount of money circulating within the economy. The monetary policy operates, where by the assumption is that prices are high, because the level of demand for goods and services are higher than the supply, so the higher the demand with supply remaining constant or dropping , the price would also increase. Therefore according to the monetary policy is to reduce the amount of money circulating within the economy. This should be effective , where by reducing the amount of money, it reduces the amount of expenditure and demand, hence prices should decrease. But, this can only work if a strong and effective fiscal plan is in place. Fiscal policy deals with the level of government spending and taxation. Unfortunately the level of inflation would continue to rise as the fiscal policy is very weak, this is so because of not only the large amount of government expenditure, but the items that are being purchased or its being used on. There is no problem with having a high government expenditure, once it is spent on capital goods and services which would lead to the future economic growth of our country. The PNM however has dedicated its spending on goods and services which cannot add any economic growth and are not even need at this time. Therefore the monetary policy cannot work as it is contradicted by the current fiscal policy. but how is it contradicted ? The monetary policy is used to curtail the level of money in the economy, which is done to affect or reduce the level of general demand. The fiscal policy is used to affect the level of government expenditure, as this type of expenditure also affects the general demand. Therefore on one hand the demand is try to be reduced by the monetary policy , while on the other the demand is sent back up with the increase of wasteful government expenditure. The current administration appear like firemen trying to out a raging blaze, but not with water, instead they are using kerosene . With the current economic crisis and the world market plunged into a reccession , we in Trinidad now face a situation known as stagnation. This is where an economy is faced with high inflation and also a stagnant economy, meaning that our economy would not grow and our GDP or National Income would remain the same or even decrease. Therefore it is pertinent that the a government faced with such a dilemma use all the ways and mechanisms possible to stimulate economic growth in their country. But why is economic growth important ? Economic growth is important as it generates income for the country , otherwise known as GDP. This GDP is used to provide infastructure , to equip society with the neccesary institutional tools and repay debts. However our government has not seen the value of that, well at least not seen the value of that to their own country. Recently they have released plans to help the other CARIBBEAN NATIONS DEVELOP, despite reports that our own country might not have any economic growth at all, yet they would like to carryout expenditure that is off no gain to us, it might even make our country worst, cause when we run into the debt cycle and have no money to repay, it might be to late. How can government wish to help other countries when their country remains undone. Not all of the macro -economic goals have been met, yet they decide its time to help others. The macro economic goals are : Stable prices and low inflation. Economic growth Full employment or low unemployment Favourable external position. The only economic goal that has been met is the favorable external position. But because we have high unemployment, high prices and are destined to have negative economic growth, our imports would soon out weigh our exports. There is no gain in helping others , while your own citizens remain undone. How can a PM want to stimulate the economy of another country , when a financial institute ( H.C.U ) has gone into solvency and not a dime has been put forward to a bail out process. The only gain I see in this for the PNM is the political integration matter being enforced, and because Manning is helping everyone , he would soon gain all their support which he might already have, and be the Caribbean Obama. If this current administration had their economics right, they could have practiced a loan to loan policy. This government has numerous loans outstanding, at very high interest rates, while due to the reccession, many banks with England, namely the Bank of Barclay lowered their interest rates to low as percent. Therefore this government could have taken the low interest loan, repaid the higher interest loan and continue to repay to newly taken loan, but at the lower interest. This would have saved a lot of money which could have been invested back into the economy. However it appears they always seem to get their economics wrong. Nicholas Morris nicholas-morris.blogspot/2009/06/getting-economics-right-caribbean-obama.html
Posted on: Thu, 08 Jan 2015 03:47:42 +0000
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