The conundrum

A SERIOUS conundrum has arisen for the economy. It cannot afford to grow, and at the same time, it cannot lie in the doldrums for very long either. There is no clear answer about how to get out of this situation, hence the choice of the word ‘conundrum’. The most tempting path forward is to do whatever it takes to arrange for another multibillion-dollar bailout from abroad. But all this will do is postpone the inevitable reckoning by a few more years, and make the eventual adjustment that much more painful. In fact, we are in this situation because we have been postponing the inevitable rather than actually working to resolve the underlying weaknesses in the economy that keep bringing us to this pass. There are two critical underlying weaknesses that are at play here. One is the progressive erosion of productivity versus our trade partners, and the other is fiscal. Productivity loss means our economy is increasingly unable to fetch dollars in quantities sufficient to pay for its own import requirements. The fiscal dysfunction means the state is increasingly unable to fetch the revenue required to pay for its own expenditures.