World’s Second Largest Nation Takes Another Step Away From Keynes
India’s central bank is moving away from its reliance on a wide array of aggregate economic metrics, some of which are based on the flawed Keynesian model, to focus exclusively on fighting consumer price inflation in its monetary policy. This is a step in the right direction. Why it took so long to make is beyond me. India is a perfect disconfirmation of the Keynesian error which says that growth is inflationary and stagnation is deflationary. India has been a slow growth, high inflation country for almost all of its post-colonial history and has continued to be in recent years. It’s a poster child for stagflation, a condition which Keynesians used to believe was economically impossible.
“It’s encouraging that the committee specified headline inflation, rather than core inflation, given that as a poor country, India has a consumer basket that’s about 60% food and fuel. The RBI previously targeted “multiple indicators”—a jumble of inflation, growth, financial stability and exchange rates that confused investors about the bank’s intentions.
If Mr. Rajan adopts the new target, investors should gird for higher rates. As it stands, RBI’s policy rate is more than two percentage points below inflation. The inflation target would start at 8% in the first year, then drop to 6% and eventually to a range of 2% to 6%. Considering how stubborn Indian inflation has been, one could imagine the need to raise rates aggressively to stick to the target.”
Jerry Bowyer is a Forbes contributor, contributing editor of AffluentInvestor.com, and Senior Fellow in Business Economics at The Center for Cultural Leadership.
Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.
Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for CNBC.com, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.
Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.
Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.
Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.
Jerry lives in Pennsylvania with his wife, Susan, and the youngest three of their seven children.