The Politics of Economics

Fears of a double dip recession are giving nightmares to everyone ranging from a B school student to an investor to head of a nation. The ultimate question is will the US economy sneeze again transmitting cold waves to the economies across globe. Till now Macro Economics has been accused of being highly irresponsible to ignore symptoms of something as grand as economic recession and then being further dumbstruck to provide any strong tool for recovery. However, in theory plethora of solutions can be advanced but, ultimately are recession and  recovery economic phenomenons only. Elections are fought and won on the issue of Economic Recovery, foreign policies take twist and turn on issue of recover so definitely economics has a political touch to it and that's why economic decisions have political motivations underlying. 

US has had 'Debt Ceiling' since 1917 i.e. it was there even during the great recession of 1930 but never has such political deadlock arisen over 'Debt Ceiling'. At a time when fears of next round of slowdown are looming all that Republicans were eyeing was a budget cut. Which economic logic of which economics book suggests a spending cut on part of govt. to be an anti recessionary measure. It never has been and it never will be. All that this 'Debt Ceiling Drama' did was damaged the US govt.'s credibility to fight recession and that's where the 'Grand Old Party' won - it has succeeded in making people believe that Obama administration can't pull economy out of recession. What is the danger of issuing more bonds till yours is the hardest currency in the world with China ever ready to hold all your bonds and finance all your debt. 

This is why when S&P downgraded sovereign rating of US it was the stock market that crashed and funds were actually siphoned off to US treasury bills and other bonds. Now if a govt. has lost its credit rating why are more funds going in that direction. This was because 'Debt Ceiling Drama' made one thing clear and it was that the US govt. wasn't going to make enough spending to fight recession and budget cut were inevitable. That's why stock market fell although later corrections showed it was more of a panic attack.

Now logic of Economics said govt. should continue intervening in the economy and the intervention should be direct beyond tax cut and unemployment benefit; in the form of real asset creation to create job opportunities but, the republicans wanted spending cut and they succeeded in it with their majority in House of Representatives. What it signals is that Democrats are running a weak govt. as any one who knows US political system knows that 'Senate' despite its less no. of members manages to get its way through 'House of Representatives' in situations of deadlock which has not been the case this time and Americans don't like their president to be weak and meek. So Obama has definitely lost it on 'Image' front, he now will have to work hard to bring economy back on track to win it on 'Economic' front and finally be in race of Presidency for next turn. At the moment Republicans seem to gain more. So Economic decisions aren't economic after all and they can't be blamed in solidarity.