Monthly Harvard-Harris Poll – June 2020

Once in a while, self-styled pundits and experts would do well to pay attention to ‘Vox Populi’. In 2018, I found the Harvard-Harris poll quite reliable to gauge the mood of the public with respect to the Mueller probe into Russian meddling ostensibly with a view to helping President Trump win the elections.

The public was not buying the spin/spiel from mainstream media in America and their friendly counterparts from the country with whom America claims (or, claimed?) to have a special relationship.

Readers should check out the stories here, here and here. They are by Kimberley A. Strassel of the Wall Street Journal.

Anyway, the June 2020 Harvard-Harris Poll was conducted in the third week of May. You can always visit the website of Harvard-Harris poll and click on the full survey results to see how national and representative the poll is. It is representative.

In the June edition, Americans appear to give a better rating to Biden over Trump. The gap looks sizeable. But, on many issues that Biden and his party stand for or have taken a wavering stance , the American public are not aligned with him and his party. Check out the responses on the Police or on de-funding the Police.

I doubt if the race for who occupies the White House from January 2021 is over yet. Not by a long mile. But, the mainstream media deluded itself in June 2016 (on Brexit referendum), in November 2016 (US Presidential elections) and on the UK elections again last year. It lost face, credibility and much else. It is at it again. They have learnt nothing, forgotten nothing and remember nothing.

They are a testimony to the falsehood of the theory of rational expectations: that intelligent people do not make systematic errors. So, that they keep doing so, proves what?

Pl. find here a file with the most important and interesting (in my personal view, that is) highlights (other than the ratings of those polled on Trump and Biden) of the June 2020 Harvard-Harris poll.

The lockdown death of a 20-year-old day trader

This is an extract from the FT big read on the unfortunate and tragic suicide of a 20-year old student who took to day trading, thought he ran up a big loss (nearly three-quarters of a million of dollars) and committed suicide.

Mr Munger was not far off. Research by neuroscientist Hans Breiter shows the same part of the brain activated by drugs like cocaine is also triggered when a person anticipates a financial gain. That has been supercharged in the new era of online trading platforms….

… “The parallels between video games and day trading is becoming closer and closer,” says Andrew Lo, a finance professor at Massachusetts Institute of Technology. “For many gamers, particularly the younger ones who are not used to trading and don’t fully understand the impact of significant losses and gains on their psychophysiology, it could have some significant adverse consequences.” According to Prof Lo’s studies of traders, the consequences include fear, anxiety, regret, frustration and disappointment, and even symptoms of post-traumatic stress disorder for those who made large losses early in their careers. [Link]

Wondering why there is no mention of the role the Federal Reserve’s monetary policy in the article on the inducement to speculation or gambling which is what day-trading is all about. It is just plain lottery. In a lottery, the loss is limited to the price one pays for buying the lottery ticket. In some of the trades here, the losses can be substantial.

Public indifference to public property

Second, we started auctioning properties charged to us in a big way on a monthly basis. Once this process started, the borrowers became alert and they came and regularised the loans. So, that way some NPAs have come down. [Link]

It made me think. One of the reasons – among many – that public sector banks end up with NPA problems at the end of every economic expansion cycle is that the borrowers probably consider a public sector bank as the ownership of no one in particular but of everyone, in general.

So, I hypothesise that there is relatively less compunction in defaulting on a loan to a public sector bank than to a private sector bank.

I am in no way minimising the other reasons – lack of risk management (evaluating the business prospects of the borrower and thus assessing the riskiness of a loan better), performance culture, political influence, outright collusion (between bank staff and the borrowing clients, etc.).

Apart from these, I think the carelessness and indifference to public assets (spitting and littering and damaging public property during agitations) and the consequent lack of accountability to public assets is a factor.

If so, does it make the case for a better mix of privately owned and government-owned banking system?

The cheerful story of the Indian rural economy

The citation said that this blog offered a window to the global economy through the Indian economy. Throughout my twenty-four years analysing global economies, I spent a lot more analysing, thinking about and writing on the rest of the world than on India. That has shaped the content of this blog too. But, clearly, the proportion has shifted more towards India. Still, the RoW and global financial markets compete for and succeed in grabbing my attention. It is time to write a bit on India.

This BloombergQuint piece says that animal spirits in India are not reviving. It has come out with a graphic that shows the animal spirits at 3. Max is 7 and Min is 1. So, there you go.

But, the bright spot is agricultural and rural economy. Monsoon has been good so far. Been almost a month and I am yet to visit the IMD website even once this year. Timely arrival of monsoon and record sowing in its wake (30% more acreage) are helping rural employment. What the increased sowing means for food prices and for rural incomes via record produce is something we may have to worry about later. Also, the record sowing means water consumption too will be higher. But, for now, we will take the jump in rural employment as a blessing, no doubt.

That the Union government has empowered farmers to sidestep Mandis and sell inside and outside the State is a good thing. It will help to dispose off the surplus food production that is likely to follow in the wake of the record sowing.

Mr. Subhash Garg, Former Secretary (Economic Affairs), has a detailed blog post on the recent agricultural reforms of the government. He had to leave his post last year and is now more of a critic of the Union government than its defender. His blog posts are an important read for the wealth of information and knowledge they convey. They are not blog posts but papers actually. For example, his recent post on agriculture reforms runs into more than 10700 words and is almost 69,000 characters-long, including spaces. The virtual dismantling of the Agricultural Produce Marketing Committees through the promulgation of ‘The Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020’ is ‘revolutionary’ and ‘truly disruptive’ in his own words. The full blog post is here.

Harish Damodaran too notes the contrasting government response to ‘Note Bandhi’ (demonetisation carried out in November 2016) and ‘Ghar bandhi’ (Covid induced lockdown). Post-demonetisation which affected the rural economy and the informal sector more, the government’s reaction to food prices was to bring in imports, curb exports and invoke Essential Commodities Act. It is interesting that Harish Damodaran links it to India’s adoption of ‘inflation targeting’ framework for monetary policy.

Incidentally, Mr. Garg thinks that Essential Commodities Act (ECA), 1955 can be scrapped. India is a surplus country in food. ECA ceased to be applicable for industrial commodities long ago. It is time the remaining agricultural commodities too are removed and the Act scrapped. He is right. But, back to Harish Damodaran.

In contrast to the government response in 2017 and in 2018, this time around, the government, Harish notes, has scrapped the APMC act, allowed farmers to sell anywhere and everywhere and has diluted the provisions of ECA. It has procured record amount of foodgrains, disbursed loans, made direct transfer to farmers’ accounts, transferred the first instalment payment under the PM Kisan Samman Nidhi Scheme and increased allocations to MGNREGA. Harish notes that the amount the Government of India had spent on the rural economy amounts to Rs.1.5 lakh crores and that too in a space of three months. Annualised, it works to almost 3% of GDP! Impressive stuff, indeed.

Much has been done but ,as Subhash Garg notes, much remains to be done. The Essential Commodities (Amendment) Ordinance 2020 promulgated on 15th June is only a start. It still allows the Union government to retain power under extraordinary circumstances that are undefined to invoke the provisions of ECA. Stock limit imposition is still possible to tackle ‘extraordinary price rises’ that have been defined.

Contract farming has really not been enabled for which States have to enable land leasing. Karnataka has taken the lead in some aspects, especially with respect to conversion and sale of agricultural land for non-agricultural end-uses. Shruti Rajagopalan covers it partially in this column for Mint. The Karnataka State Cabinet has approved it. The changes have to be legislated and then gazetted.

Not sure if land leasing is going to be facilitated. Land leasing is a pre-requisite to contract farming and much land leasing that happens in the country is informal although it is pervasive. Most State laws prohibit it. So, much work remains to be done, still.

But, the impression one gets is that the farm sector may at last be encountering real and essential reforms from both the Union and State governments. That is good news indeed.

Has the Quad failed to rally behind India and is Europe wiser now?

Gideon Rachman writes that India has picked a side and that it is going to drop the high-wire balancing act between the United States and China. In my view, India has been hedging its China risks rather slowly (too slowly in some view) and imperceptibly (again, there are harsher ways of putting this) over the years. The recent stand-off and loss of lives might push India over the edge.

Gideon Rachman thinks that a Biden administration might be willing to extend a security alliance to India more than a re-elected Trump. Interesting. I hope he is right although I am not sure he will be.

Some think that the rest of the Quad had been somewhat reticent in condemning China for its aggression. Well, Mike Pompeo issued a statement. US media (esp. WSJ) has featured an Edit and at least two articles on this issue. USA Today has a good piece on how China’s Western Command actually planned the attack.

A former Under-Secretary of Defence in the US Government wrote this piece for FT. His piece is a call for the Quad countries to get closer.

If the rest of the Quad countries did not react officially to the border clashes, it can also be said that India had not reacted to recent China aggression (non-military, of course) against Australia. Of course, there is a difference. There is loss of lives for India. Not so for Australia. So, as a former diplomat put it, more noise from the three remaining Quad countries would be welcome.

Trump had offered to mediate. I wonder why. His government is suing China’s mask manufacturer and has named four more Chinese news organisations as foreign missions because they are not disseminating new but peddling propaganda. Quite. So, not sure what is the underlying message of his offer to mediate.

[Parenthetically, it has to be mentioned that the Wall Street Journal broke a story on how some 1300 medical suppliers to the United States used a bogus address]

In the meantime, this note from the Observer Research Foundation on why India voted with America against the issuance of new SDR by the International Monetary Fund is interesting. If true, it reflects strategic thinking on India’s part.

I do not go along with much hand-wringing over India’s handling of the diplomatic fallout and over India’s official communication on the bloody border clash. It is not as though India has handed over the narrative to China. By now, even Germany (if not the officialdom) seems to have wisened up to China.

Fabian Zuleeg, chief executive of the European Policy Centre, notes a significant shift in the mood among EU businesses, including in Germany, where exporters remain particularly reliant on the Chinese economy. Previously, there was an expectation that misbehaviour in China would be corrected over time, he explains. Not any more.

“There is a recognition that is not going to happen, and if the EU wants to insist on a level playing field in its variety of forms it will have to take strong action,” he notes. [Link]

It may be too soon to conclude thus. Interested readers should check out the tweets of Christopher Balding on a regular basis (@Baldingsworld).

In sum, I am not sure I would characterise India’s handling of the matter as disastrous. Far from it, in my view. But, then I am no diplomat nor foreign service man nor a security analyst.

Will other countries tolerate a weaker dollar?

Mr. Stephen Roach has written a sequel to his piece on the US dollar. The sequel is here and the link to the original is in the sequel itself. Well, he picks up the argument that there is no alternative to the dollar for rebuttal. He thinks that both the Chinese renminbi and Euro are ready for appreciation and so is the yen.

Not only does he gloss over the fundamental weaknesses of these economic regions and nations, he also does not address the issue of whether these countries/regions want their currency to strengthen against the US dollar.

Specifically on China, he writes the following:

As long as China stays the course of structural reform — shifting from manufacturing to services, from investment- and export-led growth to consumer-led growth — and embraces a further liberalization of its financial system, the case for further currency appreciation remains compelling, even in the face an increasingly fraught relationship with the U.S.

Yaah, right!

It is not that a 30% depreciation in the US dollar has not happened before. After all, since 1973, the yen, the Swiss franc and the Deutsche Mark appreciated against the US dollar until the new millennium. The Swiss franc and the yen had continued their appreciation while the Euro, the new Europe-wide incarnation of Deutsche Mark has not. Mr. Roach picks up his convenient starting points to make their case for undervaluation and hence, eventual recovery against the US dollar.

The point again is not that the dollar will not depreciate. He may well be right eventually but he does not make a case that is complete and internally consistent. The weaknesses that are there in the American economy are evident elsewhere in Europe and in China. Arguably, even bigger weaknesses exist.

The case he makes is an incomplete and weak one even if he turns out to be lucky with his prediction, eventually.

By the way, I did not find any horizon for the forecast of a crash in the trade-weighted inflation adjusted value of the US dollar by 35% in the latest article or its prequel. That is convenient.

The real ‘Money Heist’ is taking place in private equity | Financial Times

Take the long-repeated claim by Yale university that its endowment had earned a 30 per cent IRR on its buyout investments since starting them in 1973. Had that “return” actually been banked (as Mr Phalippou showed in 2011), Yale’s endowment would be far bigger. Even a $1m initial stake would have compounded to $24bn, easily exceeding the university’s total pot at the time…..

…. pension fund trustees are simply overwhelmed when it comes to the opaque informational soup that private equity firms squirt out like cuttlefish ink….

….Many trustees appear to lean heavily on consultants, whose financial incentives may lead them to recommend a private equity weighting over other more plain-vanilla investments….

…. Pension funds are supposed to be the guardians of the public’s savings. It is depressing to see them fall into the same submissive trap.

Source: The real ‘Money Heist’ is taking place in private equity | Financial Times

The article also has links to the papers it refers to. Let us say that we don’t find this surprising at all. If you want to know why, pick up a copy of ‘The Rise of Finance: Causes, Consequences and Cures’.

Induction or deduction or both

Last night, had an interesting e-conversation with my friend Gulzar Natarajan. He wondered if some of the recent articles/books that I had been sharing on the historical cycles and the patterns they reveal were a case of deductive logic – theorising or deducting patterns out of random events. Quite possible. I don’t even know if there is a way of figuring out. One way is to come up with equally numerous and/or weighty evidence from the past that disproves the deductive logic.

To a large extent, his argument reflects and is reflected in this short but sharp critique of the first work of Neil Howe and William Strauss, ‘The Generations’:

As history, “Generations” does not make the grade. It pretends to offer a new interpretation of the past, but it is too contrived to be taken seriously. And as a guide to the future, it is about as reliable as the neighborhood fortuneteller.

There you go.

But, humans do adopt both inductive and deductive logic at the same time to make sense of social phenomenon. In fact, they make far larger and more frequent use of the latter to make sense of complex social, economic and political events.

Of course, there is the risk that historians, once they find patterns from history, then switch to inductive logic where they try to fit the current reality to their historical pattern or theory or make predictions.

I remember a very good speech by Dr. D. Subbarao, former RBI Governor, in 2010, delivered in Bangalore. He makes the point that causality often ran from empirics or experience to theory when it came to economics. I would say, social science, in general:

In economics, on the other hand, where the human dimension is paramount, the progression has necessarily to be one way, from empirical finding to theory. There is a joke that if something works in practice, economists run to see if it works in theory. Actually, I don’t see the joke; that is indeed the way it should be. [Link]

In other words, deductive logic is how it will be, when it comes to making sense of social phenomena of which economics is one.

In that sense, these kinds of patterns – whether elevated to the level of theory or not – serve as useful points of departure for analysis. Whether we arrive at them as destinations is a matter of our luck, intuition and intellect and, of course, above all, circumstances as to how closely they resemble historical episodes.

Therefore, predictions for 2020-30 (the climatic decade of 80-year cycles or 50-year cycles or 250-year cycles of the empire) derived from historical episodes from the 500+years of the discovery of the land mass that is now called America, I can believe in the following:

Where the authors fit things into a pattern, we can choose to be sceptical. But, the idea (and the fact) the long periods of stability leading to instability (Minsky) or the feeling that central bank policies have been building up to a climax consistent with the notion that fiat currency (purely paper and not convertible into anything else) regimes do not last for ever or that companies themselves become sclerotic or the notion of Yugas in Hindu religious books are all consistent with ‘cycles’ or circularity of history.

In fact, Howe and Strauss begin their book (‘The Fourth Turning’) pointing out that this – a recognition of cycles being the characteristic of human life and societal lives – has been evident in non-western societies. These authors are actually talking to their Western audience that their ‘linear thinking’ glasses are not the right glasses. In that sense, they are not creating a new theory but challenging a western orthodoxy.

When it comes to real life phenomenon (and that includes stock markets), to me, mean reversion is far more compelling than either random walks or random walks with trend.

I need to write a bit more on the inferences from ‘The Fourth Turning’ or from Sir John Glubb’s classic paper, ‘The Fate of empires’. I shall do so.

In the meantime, here is a teaser from another author, Peter Turchin:

Very long ‘secular cycles’ interact with shorter-term processes. In the United States, 50-year instability spikes occurred around 1870, 1920 and 1970, so another could be due around 2020. We are also entering a dip in the so-called Kondratiev wave, which traces 40-60-year economic-growth cycles. This could mean that future recessions will be severe. In addition, the next decade will see a rapid growth in the number of people in their twenties, like the youth bulge that accompanied the turbulence of the 1960s and 1970s. All these cycles look set to peak in the years around 2020.

Records show that societies can avert disaster. We need to find ways to ameliorate the negative effects of globalization on people’s well-being. Economic inequality, accompanied by burgeoning public debt, can be addressed by making tax rates more progressive. And we should not expand our system of higher education beyond the ability of the economy to absorb university graduates. An excess of young people with advanced degrees has been one of the chief causes of instability in the past. [Link]

The above is an extract from a short piece he wrote for ‘Nature’ in 2010. ‘Time’ has picked it up now.

The role of smallpox in the conquest of Mexico by Spain

The extraordinary story of the conquest of Mexico ( soon to be followed by Pizarro’s no less amazing conquest of the Inca empire in South America) was really only part of a larger puzzle. Relatively few Spaniards ever were able to cross the ocean to the New World, yet they succeeded in impressing  their culture on an enormously larger number of Amerindians. The inherent attraction of European civilization and some undeniable- technical  superiorities the Spaniards had at their command do not seem enough to explain wholesale apostasy from older Indian patterns of life and belief.

Why, for instance, did the old religions of Mexico and Peru disappear so utterly? Why did villagers not remain loyal to deities and rituals that had brought fertility to their fields from time immemorial? The exhortation of Christian missionaries and the intrinsic appeal of Christian faith and worship seem insufficient to explain what happened, even though, in the eyes of the missionaries themselves, the truth of Christianity was SO evident that their success in converting millions of Indians to the faith seemed to need no explanation. 

A casual remark in one of the accounts of Cortez’s conquest-I no longer can tell where I saw it-suggested an answer to such questions, and my new hypothesis gathered plausibility and significance as I mulled it over and reflected on its implications afterward. For on the night when the Aztecs drove Cortez and his men out of Mexico City, killing many of them, an epidemic of smallpox was raging in the city. The man who had organized the assault on the Spaniards was among those who died on that noche trista, as the Spaniards later called it. The paralyzing effect of a lethal epidemic goes far to explain why the Aztecs did not pursue the defeated and demoralized Spaniards, giving them time and opportunity to rest and regroup, gather Indian allies and set siege to the city, and so achieve their eventual victory.

Moreover, it is worth considering the psychological implications of a disease that killed only Indians and left Spaniards unharmed. Such partiality could only be explained su­pernaturally, and there could be no doubt about which side of the struggle enjoyed divine favor. The religions, priesthoods, and way of life built around the old Indian gods could not survive such a demonstration of the superior power of the God the Spaniards worshipped. Little wonder, then, that the Indians accepted Christianity and submitted to Spanish control so meekly. God had shown Himself on their side, and each new outbreak of infectious disease imported from Europe (and soon from Africa as well) renewed the lesson.

The lopsided impact of infectious disease upon Amerindian populations therefore offered a key to understanding the ease of the Spanish conquest of America-not only militarily, but culturally as well. But the hypothesis swiftly raised other questions. How and when did the Spaniards acquire the disease experience that served them so well in the New World?

Why did the Amerindians not have diseases of their own with which to mow down the invading Spaniards? Tentative answers to such questions soon began to uncover a dimension of the past that historians have not hitherto recognized: the history of humanity’s encounters with infectious diseases, and the far.reaching consequences that ensued whenever contacts across disease boundaries allowed a new infection to invade a population that lacked any acquired immunity to its ravages.

Looked at in this way, world history offered a number of parallels to what happened in the Americas in the sixteenth and seventeenth centuries. This book describes the main lines of these fateful encounters. My conclusions will startle many readers, since events but little noticed in traditional histories assume central importance for my account. This is because the long line of learned scholars whose work it was to sift surviving records from the past has not been sensitive to the possibility of important changes in disease patterns……

….. Failure to understand the profound difference between the outbreak of a familiar disease amid an experienced population and the ravages of the same infection when loosed upon a community lacking acquired immunities is, indeed, at the bottom of the failure of previous historians to give adequate attention to the whole subject….

…. We all want human experience to make sense, and historians cater to this universal demand by emphasizing elements in the past that are calculable, definable, and, often, controllable as well. Epidemic disease, when it did become decisive in peace or in war, ran counter to the effort to make the past intelligible. Historians consequently played such episodes down…..

….. Quite apart from details of what I have to say, everyone can surely agree that a ‘fuller comprehension of humanity’s ever-changing place in the balance of nature ought to be part of our understanding of history, and no one can doubt that the role of infectious diseases in the natural balance has been. and remains of key importance….

….. Nevertheless, one can properly think of most human lives as caught in a precarious equilibrium between the micropara­sitism of disease organisms and the macroparasitism of large bodied predators, chief among which have been other human beings. [Emphasis mine]……

…… To be sure, different human beings and entire communities exhibit widely varying levels of susceptibility and/ or immunity to infections. Such differences are sometimes hereditary, but more often they are the result of past exposures to invading organisms.’ Adjustment of our defences against disease occurs constantly, not only within individual human bodies but also among entire populations. Levels of resistance and immunity rise and fall accordingly.

Just as human individuals and populations undergo continual alteration in response to infectious disease, so also the various infectious organisms that provoke disease undergo a process of adaptation and adjustment to their environment. Characteristically, conditions within the bodies of their hosts constitute a very important part of that environment, though not the whole of it. After all. a recurrent problem for all parasites, including disease organisms, is how to get from one host to another in a world in which such hosts are almost never contiguous entities.

Prolonged interaction between human host and infectious organism, carried on across many generations and among suitably numerous populations on each side, creates a pattern of mutual adaptation which allows both to survive. A disease organism that kills its host quickly creates a crisis for itself,  since a new host must somehow be found often enough, and soon enough. to keep its own chain of generations going. Conversely, a human body that resists infection so completely that the would-be parasite cannot find any lodgment, obviously creates another kind of crisis of survival for the infectious organism.

Extracted from the ‘Introduction’ of ‘Plagues and Peoples’ by the late historian William H. McNeill, published in 1976.


China is foolish to make an enemy of India and other links

One would think the Chinese leadership, which has made such a fetish of their nation’s supposed “century of humiliation,” would be wary of deliberately fostering the same resentments in a country that will one day be a formidable competitor. China’s leaders may feel that that the U.S. has mismanaged their nation’s emergence on the global stage. But they have no one else to blame for their inept handling of India’s rise. [Link]

Mihir Sharma is right in one sense. He wants China to do unto India what it wants done unto it by the USA. But, he is wrong in another sense. China is not about reasonableness. China is about becoming the Middle Kingdom – the centre of the world. So, it does not like the the present status quo superpower nor would it take kindly to an aspirational power. ‘China shakes the world’ by James Kynge came out a while ago (14 years?). But, that book was my first exposure to their (principally that of the Chinese Communist Party) obsessive desire or pathological obsession to become the world’s most dominant power. So, this doctrine of ‘symmetry of fairness’ won’t appeal to them.

(2) If Delhi can’t redress the growing military imbalance and as Islamabad becomes even more dependent on Beijing, China will loom larger than ever on the entire Kashmir region. That is the real message from the new Chinese affirmation that it is now part of the Kashmir question. [Link]

(3) The military imbalance between the two nations is what is nicely captured in this article with some telling charts.

(4) Dhruva Jaishankar says India should weigh external balancing, perhaps, a bit more in the current circumstances than internal balancing and making peace. Well, I think India has been doing that quietly. The virtual summit with Australia is an example. The recent clashes will fortify India’s mind much more. In that sense, it is a small mercy. Wall Street Journal wrote an editorial urging closer cooperation between nations threatened by China and the United States.

(5) This report filed by Amy Kazmin in Delhi and Tom Mitchell in Singapore for the FT tries to apportion the blame between India and China equally. H..mmm Hard to change some minds when they are forever looking for reasons to support their priors and not to re-examine them. Amy Kazmin appears to be such a person when it comes to India and especially to the current regime.