“He can start playing a major role and recreate confidence”
Professor Amartya Sen, Nobel laureate, distinguished economist and academic, has asserted that the American economy is indeed in recession, and expressed the hope that Senator Barack Obama would win the presidential election and cause a financial sector turnaround. Answering questions posed by NDTV’s Sarah Jacob on Friday in New York, where he was being honoured with an Inspiration Prize by Breakthrough, an international human rights organisation working in India and the U.S., he said India would need to launch some initiatives in order to face up to the situation. The transcript of the interview, as provided by NDTV:
What is your assessment of the U.S. economy right now? Is it in a recession already?
Amartya Sen: Oh yes, it is in a recession already, there is no question about that. The question is how deep it is. But in a recession you have to see to what extent it has been caused by some gigantic external problem, but there has not really been any external [problem]. It’s just that people lost confidence. And that is usually how recessions happen. You lose confidence, you cut down your activities and as a result others cut down their activities. It’s the classical Keynesian territory. Regenerate confidence and also support each other through expansion rather than contraction. So I think this is a good time to see what is going wrong, why is the economy in such weak shape — and it is in weak shape. But the positive side is that just as it can decline by lack of confidence, once confidence comes in it can also dramatically improve. Like… suppose there is a change in government.
I am fairly partisan and I hope that [Barack] Obama can win. Then he has to be careful. He will not be in office till January but he can already start playing a major role and recreate confidence. Set up a new office. He has wonderful advisors, many of whom are friends of mine. He can get started on that. He speaks presidential anyway. His coolness is an advantage in the time of a financial crisis. When that happens, I think you will see the confidence turn around quickly. Now, it will take some months to recreate the decline that has occurred; it does not rebuild in a second. On the other hand, we will see a movement and a turnback to normality soon if the cards are played well. And I have every reason to think that they will be played well.
So, in answer to your question, I believe we are in a recession already, [it is] not that we are getting there. It could become deep if nothing is done about it, and I very much hope something will be done about it given intelligent policy. And it does require clear-headed, intelligent thinking. You should be able to make it a fairly shallow recession and turn it around.
But how does one increase consumer confidence? Is the U.S. government on the right track with the bailout package and the nationalisation of the banks?
A. Once you are in a state where the credit markets have declined so much that banks do not trust each other, then you have to do these things. But, as we know, that does not necessarily stabilise things adequately but it was needed. See, when you come to a state that everything the government does you are suspicious of because you think the government has played it badly... Whether somebody blames the greed of Wall Street... It’s a silly thing that John McCain did — to blame greed. Greed is not a new phenomenon. Why would greed suddenly create that result? It has to do with the regulation in the system. We have to think about how to keep the ability to get away with greed and have huge profits in a restrained form, and at the same time how to give confidence to everyone — the small trader, the small businessmen, the large businessmen — but most importantly, protect the vulnerable. Those who are losing employment, educational opportunities, those who are losing health care — which is a scandal in this country.
And how do these affect countries like India?
A: India, China [have been] less affected at least initially because we are not as dependent. But we are affected. Many of the booming sectors have a clear trade connection and those will definitely be affected. So in the long run we may be very well affected and we already are to a large extent. I do not mean [the] Sensex going down. That, of course, is a problem, but there are bigger problems: the possible unemployment, and the possible slackening of the economy. I think these things are something that we need to be careful about. The Government of India, China, Brazil have a lot of initiatives to take, and if the U.S. puts its house in order in a short time then I think we may end up not having as big a disaster as we almost certainly will have if we did not do adequately what is needed to be done by the public leadership both in this country and in the developing countries.