Measuring the power of economy…

How could we describe a strong economy? Is it the one with large reserves? Is it the one with powerful industry or competent human capital? Let’s find out! But first, we’ll have to explore the basic concepts of economics.

A lot of people ask me about the difference between growth and development. My usual answer is: “It’s to be very powerful despite your small size”. This definition, which should be understood easily by normal people, apparently doesn’t seem enough to those who expect to comprehend everything in the fraction of a second. So, I provide them with further details.

As the name implies; growth is a type of behaviour that aims to achieve the desired growth target by increasing the gross domestic product. Growth-oriented policies do not consider the welfare and prosperity of the people, claiming that these two outcomes will eventually follow once the desired economic growth is achieved. However, there were no precedents in history to support their claim. On the contrary, it has been observed that development and prosperity can be achieved and made sustainable only in countries that pivot around the promotion and improvement of human rights, justice, education, culture and art, sports, and other social activities and values, while implementing an economic model based that can separate needs from wants. Accordingly, the difference between growth and development is likely to be defined as “prioritization of quality over quantity”. Now, why don’t you tell me whether the economy is strong enough or not according to this definition?

“Throwing money around will solve everything?”

“Could we guarantee an economic boost when we increase the money supply and cut interest rates?” If the economy has already gained a reasonable level of momentum, economy can be accelerated further by cutting rates and increasing the demand for money. This situation usually occurs as the outcome of a public works programme and private sector investments in a medium run economy. However, expansion efforts through monetary and fiscal policies and rate cuts during periods of financial bottleneck and high unemployment hardly bring about the intended result. EU and Japan are most apparent examples of such efforts. We all know that too much money leads to a dangerous road liquidity trap, where there is an abundant amount of money, yet slight dynamism.

It is also known that these efforts made by governments during periods of recession may lead to imbalance in product and factor markets, sometimes to deflationist or inflationist results.

This being the case, I think I would not be wrong in saying that it is actually a matter of time to achieve the intended result by means of rate cuts and increase in the money supply. In short, doing the right thing at the right time determines your level of success.