Niranjan Rajadhyakshya’s blogpost in Mint and the comments on that led me to respond with this:
“There is no doubt that governments have a larger role to play in the downturn, and their greatest contribution will be in filling the investment gaps left by the receeding private investors. I beleive that they will also have to support the gap in demand for services for a while too, while the economy finds its new rhythm and balance.
This is an opportunity for the governments to focus on re-examining their systems – physical, regulatory and at the policy making level. The recent frenzied pace had governments rushing to keep pace with the demand for each of these services,and the slowdown gives them an opportunity to do just that. The tools they use to do so must have the twin targets of supporting investments and creating demand while re-inventing these systems. The ultimate goal of course being sustainable long term (high) rates of growth (at least till we climb Maslow’s mountain!)
This begs the next two questions: ‘What needs to be done?’ and ‘How do you know it is working?’ Here I have to agree with myself and other commentators – Direct targets for fiscal policy can really only be set in terms of inputs. The results (phal) of these policies are based on complex inter-relationships, unpredictable and very difficult to measure. The correlation of any stimuli to growth may be measurable, the causality truly is not. Intermediate targets such as jobs, health (delivery numbers), education and skills initiatives are great examples of the categories of targets that can be measured. (The underlying assumption here being that there is a direct causal relationship between these measures and the goal – growth/living standards/happiness).
To add my tuppence and answer the original question at the very begining of your post: Should there be an explicit variable that they should target. Yes,it has to be explicit. They will be measured by other economies, by the press, by the people and if they are to be honest about their progress, they must let us know what they are working towards.
I add another question: Can it be a single variable? I think not. I think they (or some of us!) will have to work to creating a composite that is like a ‘balanced scorecard’ and I know that there are others like me who would love to take this forward.”
My question here is: What should this scorecard contain? What are governments really working towards?