Growth at any cost?

In an interview with the Economic Times of India on 17 October, Mr Joseph Stiglitz, Professor of Economics at Columbia University and Nobel Prize winner said," In my view adverse effects of inflation are a bit exaggerated. 8% inflation is normal in a developing country whereas growth has the ability to keep millions of mouths feeding, creating jobs and opportunities. Raising interest rates is unlikely to make a ' big ' dent on inflation. In a trade off between growth and inflation, I would plump for growth." A few months earlier Mr Kaushik Basu, Vice President and Chief Economist at the World Bank and previously the Chief Economic Adviser to the Government of India, made the same point. He said that given a choice between a inflation at 10% with growth at 11% and inflation at 5% with growth at 6%, he would choose the former, that is high growth with high inflation. It is worth pointing out that both these gentlemen live in the US where inflation rate for September was 2% and historically from 1914-2012 it has been 3.4%. The ECB tries to maintain inflation below 2% as does the Bank of England. Inflation rate in China reached 6.5% in July 2011. The government acted swiftly by increasing interest rate and increasing bank reserves to bring down loans. Inflation has come down to 1.9% in September. We may assume that all these central banks are being run by economists. So are they all fools to treat inflation as a threat to the economy and act swiftly and decisively to bring rates down below 2%? Low interest rates help the government the most because it is the biggest borrower. This year the Indian government is going to borrow Rs 5 trillion so a 1% cut in interest rates saves Rs 50 billion in interest. Not a small amount. However, this is at the cost of savers who lose because they get less interest on savings and the value of their savings fall because of inflation. It is, therefore, a tax on savers, especially pensioners. High inflation also reduces the value of the loan the government has taken so over time it is a tax on the people. In the case of India a focus on growth at any cost is especially dangerous because the Congress will squander all the gains to try and win the coming general elections in 2014 like it did in 2008. At that time it increased civil servant salaries by 80%, selectively forgave all bank loans to farmers, gaining handsome returns in Andhra, UP and Maharashtra, and started the MNREGA scheme which hands out cash to villagers for doing nothing. This time there is talk of distributing free cell phones which will cost Rs 70 billion. A huge amount of money will be stolen for electioneering increasing the black money in circulation, increase property prices and add to inflation. Fiscal deficit and Current Account Deficit will increase, as happened last time, and the rupee will fall further adding to inflation. Disaster looms.