Monetary

National | World | Economic History | Pop Eco | Interactive Articles

It’s Politics, Stupid

by Amal Varghese

SYDNEY- Before David Axelrod- one of the finest political strategists in modern American history- there was James Carville; the man who played a big hand in Bill Clinton’s rise to the White House. His greatest achievement was touted as devising the catchphrase for the campaign ‘The Economy, stupid’, which was modified after it caught on fire to ‘It’s the Economy, Stupid’. That mantra highly resonated with American voters who were gradually convinced by the Clinton campaign that George H.W Bush, despite ending the Cold war and coming out a victor in the Gulf War, was not the man who could turn the downward-spiralling economy around. The year was 1992, and in the decade that followed America grew at an average of 3.8% GDP and managed to balance its budget for the bulk of that time under Clinton. The divides that are a caricature of Washington today were present back then (though perhaps the climate was not nearly as polarized) but political leaders found a way to come together and carve a future path for growth. In the decade and a half that followed Clinton’s exit from Pennsylvania Avenue, America’s deficits have ballooned to over US$16 trillion, its growth prospects remain bleak nearly five years after the financial crisis and political paralysis has become the hallmark of Washington. But in stark contrast to the 1990s, America’s deepest problems today are rooted in politics, not economics.

Read more

If the Economy was like a Car

If I were to use an analogy to demonstrate the effects of monetary policy and fiscal policy on the economy I would first say the economy is much like a car and GDP is much like the speed at which the car is driving at. The key assumptions are that the car is driving on an infinitely straight highway and it is equipped with 2 accelerator peddles each with its own gearbox. Why 2 accelerator peddles?

Read more