The best way to catch the rabbit is not to chase it; demonstrate enough love for it so that it will lead into you.

The economy is sometimes like a rabbit, if you want to chase it with a laundry list of sops and doses of stimulus, you will end up chasing a rabbit. Your effort will at best open up a Pandora’s box, ¬†you will have fiscal imbalances created or end up stoking those parts of the economy which you needed the least to be stimulated.

Think of the stimulus like a tax relief (supply side stimulus) or a wage increase (which acts on the demand side), both could have the same effect but applied on different sections and strata of the society, the end result could be very different. A small stimulus could end up growing bigger and bigger while a large stimulus could taper off easily.

But the actors in the economy need constant change, so they get some of this and some of that, uncoordinated efforts, sometimes coming from lobbying interests as well. The sum total of all of this could act at cross purpose.

When you are triggering a wage increase, surely somewhere inflation would be impacted and more money would be needed to chase the same goods; the way to counteract this would be to change monetary policy, but this could take time.

The supply side gives us some hope as it surely shapes to reduce unemployment by improving productivity and efficiency which raises output per capita that in turn ushers in investments. Mere demand side stoking helps in the short run but without efficiency improvement the added value per capita diminishes.

Supply side economics needs time to settle, it involves deregulation, privatization, reforms in all sectors of the economy. It needs laws to be enforced for things like intellectual property or land acquisition for example. All of this is very difficult to orchestrate as it needs consensus to be developed and expanded from one agenda to the next.

Failing to stoke the supply side, does not mean that shifting focus to the demand side would help to jump-start the economy. It is again like chasing the rabbit, you are forced to gyrate without achieving the desired result.

Consistency also holds the key, moving from one extreme to the other leaves more doubts and confusion.

When surprise is the only nudge, it helps to shape uncertainty; channelizing investments needs just the opposite of this.

Rabbit Chase & other imponderables

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