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Inequality and slow economic growth 1

The following narrative is part of a series of articles on issues affecting both the global economy, and the Virgin Islands. It is a story that assesses aspects of the US economy, relevant to home
Dickson Igwe. Photo: VINO/File
By Dickson Igwe

This Old Boy Journalist has been reading with interest the political discussion in the Virgin Islands media of recent days. It appears that a narrative is already being written in the lead up to the General Election of 2016. In his opinion, it is a story about economics. It is a rendition on which economic model is best for these islands sitting in the North Atlantic, in the years ahead.

One potential national leader has been drumming out policy proposal after policy proposal as he makes his rounds, introducing himself as new leader of a major political party. This has been much to the chagrin of those wholeheartedly opposed to any idea of him becoming leader of the Virgin Islands.

One well known commentator, a personal friend by the way, wrote in the BVI Beacon Newspaper of September 4, 2014, that the leader of the largest political party in the Virgin Islands will never be forgiven for the traffic lights issue, or Bi Water, matters of 4 to 5 years past. The commentator further rubbished the idea of the great man, to increase the retirement age to 65 in the Public Service.

However, was any valid alternative offered to that proposition? Yours truly did not see one in the story. So, to those assertions on the new political leader, this reader of the Beacon will state: he that is without sin, let him cast the first stone.

Yes, every time the good man makes any policy proposal, there is a rush to oppose by his opponents. In this Writer’s opinion, a lot of this opposition is IRRATIONAL and KNEE JERK. He is yet to hear about any solid alternatives to the great man’s proposals. Discussion is more than simply not accepting a message because one hates the messenger. Enough said!

In any event, in today’s world, underlying all policy and public discussion, is the subject of economics. And the world’s two top media economists agree on one thing. That social and wealth inequalities lie at the root of slow economic growth globally. Paul Krugman and Joseph Stiglitz are bright economic minds, Nobel Peace Prize winners, who state that the top to bottom economic model of trickle down, also called austerity, is bad for economic growth.

Both men are stimulus advocates. Stimulus is a theory of economics that states, government spending on specific parts of the social and economic infrastructure is good for economic growth, especially in time of recession.

Stimulus views government management of the economy, a good thing. It is a theory that advocates government intervention in an economy when circumstances dictate. Stimulus, also termed Keynesian Economics, was the brainchild of British Economist John Maynard Keynes. However, stimulus spending must be well targeted to achieve the intended effect of stimulating a slow economy.

A good example of targeted stimulus was President Barack Obama’s injection of billions of dollars into the US car industry at the time of the Great Recession between 2007 and 2009. That injection of funds into a comatose US car manufacturing, rescued that industry from collapse, and saved millions of US jobs. Today the US car industry is both competitive and profitable, and the loans have been paid off. Austerity advocates at the time stated, that the US car economy should be left alone, to go under, even if that meant its demise.

Trickledown is the opposite of stimulus, and is also called austerity. Austerity is linked closely with monetarist economics, and was spawned by Economist Milton Friedman of the Chicago School. Austerity is an economic model where the economy is controlled through capping public spending and regulating the supply and cost of money. Austerity is a free market idea which will allow the worst to happen in the belief that an economy in the grip of recession will eventually self correct.

However, had the austerity idea been adopted as the panacea for the Great Recession of 2007, the world could have been plunged into economic depression.

To be continued

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