US Economy- Some random thoughts

US Economy -The way to come out of the present mess- Some random Thoughts
The US economy, the leader of the world economy has been in trouble since 2008 after the breakdown of its financial system. Unfortunately for Mr Obama, the president on whom lot of expectations were there with his message Yes, We can Change, things have not gone in his favour both domestically and internationally and the Change he wants to see in US and the world over has been elusive for some reason or other. The full potential of the economy remains untapped and for no reason, the country is facing an embarrassing situation. It is avoidable and needs to be avoided. Mr Obama has the mind and the commitment and he should be in a position to bring the changes.
The Fiscal and the monetary policies pursued particularly after the financial turmoil in 2008, have not brought the desired impact in the economy and the fear of US facing a deep recession if not depression is looming large. The fiscal deficit and the debt incurred to save the economy from the crisis have aggravated the problem and the monetary policy inducements have also not helped to salvage the situation. The downgrading of its debt from AAA+ to AAA by S&P followed by European crisis has deepened the crisis further. Problems will always come in battalion is literally proved in the case of US. More than the disease, the remedy has turned out to be a major head-ache is said to be the situation in US now. To make the situation worse, regulatory measures on the financial system are often blamed for the banks' poor performance particularly in the area of deployment of credit.
To come out of the situation, it is advisable to pursue some simple theories than to depend on major economic theories and then face criticism from all around. As an observer from outside and without any deep knowledge of the economic theories and the economic crisis faced by the US now, I would like to suggest a few measures worth attempting.
The country is very vast and any amount of infrastructure to link east to west and north to south would prove to be only inadequate. The present approach to connect these places by vast stretches of road is good no doubt, but it is proving to be costly and energy consuming affecting the fiscal health of the economy. The dependence of the economy and its people largely on road and air needs to be reviewed and these need to be equally supported by expansion of rail and water transports. The money spent on oil and electricity needs to be saved by introducing massive rail and water transport system. The acceptance of this, may have resistance but in the long run, the economic benefits derived in terms of employment generation, reduction in fiscal deficit, improved consumption, saving and demand would justify such an action.
Public spending needs to be augmented considerably and private savings need to be encouraged to derive real strength for the economy. Demand, Consumption and investment should basically come from improved savings and prudent public spending. Expecting only enhanced consumption without any inducement for saving, for increased investment and employment opportunities would prove to be a disaster for the economy and this needs to be avoided. This approach will tantamount to building a house without adequate foundation.
Taxation policy pursued should ensure equitable distribution of wealth and income. Allowing one segment to accumulate wealth and another segment to consume more through induced credit without savings will have its own adverse impact in the economy. Development of the economy is the responsibility of both the haves and have nots and taxation policy should ensure that as per the capacity, people contribute for the economic development.
Too much of dependence on capital market to earn and accumulate wealth is not a healthy trend. Capital market cannot be taken as a substitute for Casinos. Its function is basically to aid capital formation and provide adequate liquidity and return to those who provide capital by way of investment. Too much of Speculation is not envisaged in capital market. This is perhaps where more regulation and supervision are called for to prevent casualties. Introducing exotic products in the guise of fighting against risks in speculation is inviting all round trouble and this tendency needs to be completely eradicated. The economy can function well even without any of these products.
The need of the hour is to improve the functioning of the economy through generation of employment opportunities, well managed public spending, induced private savings, improved fiscal deficit and well intended taxation policies. Infrastructure development connecting the entire length and breadth of the country through railway and water net work system can help to improve the economy with all its multiple side benefits. The other areas of development can however keep going as per the major proven economic theories true to pattern.
T.V.Gopalakrishnan ( Personal views)