Dragging the world towards war

Due to certain personal commitments, I could catch up with the American President’s executive order on suspending visas for nationals from certain countries only yesterday. The huge uproar against it and reverberations around the world surprise me. It is orchestrated exaggeration, out of all proportion. The executive order is there for all to read, here. The word, ‘Muslim’ is not there and nor is the word, ‘ban’ part of the order.

We all are used to check http://www.snopes.com for verifying if some emails floating around were genuine or were internet legends. Now, the bulk of the news carried by newspapers, with reputations earned from the past (and being overdrawn fast), on the American President and his actions fall under the category of ‘internet legends’. They are vastly exaggerated and border on outright lies.

There is a constant real time re-definition of the heights of irresponsibility by the media. An email newsletter from FT called it ‘Trump’s Muslim ban’. I took a screenshot of it and I wrote to its editor, Lionel Barber. His reply was all reason and calm. But, his newspaper’s coverage of the American elections and subsequent handover and the administration has been anything but reasonable and calm. Financial Times is not the only one.

Another worst offender is ‘Washington Post’. One Mr. Glenn Kessler splits hairs on whether President Obama’s order in 2011 on refugees from Iraq being subjected to extensive scrutiny for six months was different from that of President Trump’s. He earned himself Pinocchio’ stickers in the process.

The government is reviewing and tightening certain procedures and until it is satisfied with its new procedures, it wishes to place a temporary hold on visas for citizens from certain countries. Yes, perhaps, some forethought about special situations would have been welcome. But, even there, the order had enough safety clauses with discretion granted some officials to review special situation on a case-by-case basis.

If I have bought too much of clothes or too much of furniture and I decide that i am going to take an inventory of what all I have and what to do about them, how to better take care of them and organise them in my shelves so that I know what is where and where is what and, until I do all of the above, if I not buy anything more, is that terrible?

That sounds like very sensible housekeeping to me.

David French at the National Review has an all-too-rare objective evaluation of the Presidential order.

Nicholas Nassim Taleb’s interview with Suhasini Haidar for THE HINDU is well worth a read. The interview has many knockout punches for self-styled pundits.

These are really too little. They amount to murmurs amidst the deafening and toxic noise created by others. Newspapers – on either side of the Atlantic – have gone needlessly ballistic and characterised the decision in such incendiary and polarising terms that they would trigger unnecessary and tragic consequences. It is almost as though these worthies want to trigger a violent backlash against the American President with their disproportionate reactions. It is very dangerous. One has to be afraid and very afraid – not of what the new government in America does but of how the rest of the world is being provoked to react by a cabal, determined to destabilise the government and the agenda.

It is easy for the rest of us, neutral bystanders, to see that the fallout of these reactions would not be more stability and order but unprecedented global turbulence and turmoil. That is a gift of elitist intolerance, arrogance, certitude and hubris, to the rest of the world.

Indeed, one could question the order for its inclusion of certain countries and for its exclusion of certain other countries that have been cradles and fountainheads of terrorism. But then, the order is a temporary one. May be, other nations left out of the order would be dealt with differently or if they are being excluded because of conflicts of interest, then that is a cause for concern. So, there are other justifiable issues to pick with the executive order.

But, the media created a controversy out of other aspects where there is none. It is dangerous. It is lunacy and it is criminally irresponsible. Reactions of some European politicians are inconsistent with their own actions in the light of terrorist attacks on their own soil.

As Rajeev Srinivasan reminds us in Swarajya, this is nothing but a rehash of an order from the Obama era, dressed up differently:

What is most interesting, however, is that the same set of Muslim countries appears in an Obama-era order from February 2016. People who had dual citizenship with one of those countries, or who had visited those countries in the past five years, would be denied visa-free entry, presumably on the assumption they could have been radicalised.

So all that Trump has done is to tighten Obama-era restrictions – the point that has escaped the Leftie observers. Obama issued the order in the wake of terror attacks in Europe, and what Trump has done is to announce a tightening of the rules. [Link]

Rajeev concludes that the new President has made an inauspicious start. Well, I doubt if it could have been any different. Whether it is an inauspicious start for him or it is for the world is a matter of judgement and I think the blame falls more on the reactions than on the actions.

The American President was correct to question, through his tweets, if some of the senators wanted a real world war. He is bang on target. Angry and arrogant elites are dragging the rest of the world, along with them, towards extinction.

Understanding President Trump

I had just finished reading Professor David Shambaugh’s relatively short book, ‘China’s future’. It is eminently readable. There is authenticity about the book that some foreign commentary (esp. from the West) on China lacks. He has been visiting the country almost annually over the last forty years. He has spent some decent amount of time living in China. He speaks the language. The book comes across as an authentic exercise because of his familiarity with personalities and what they stand for. They matter in opaque and non-democratic societies. Persons matter more than the process in such societies. His Chapter 4 on why China pivoted to hard authoritarianism circa 2009 is an important read. Overall, I recommend the book to those who do not follow China closely on a regular basis. This book will bring them up to speed, more or less.

That is why it was somewhat disappointing to read his piece in ‘South China Morning Post’ on how President Trump is ceding ground to China in Asia. It is not that straightforward. It is unlikely to be. Towards the end of his Op.-Ed. he redeems himself. It is interesting that SCMP observes that the article was published under the header, ‘Advantage China’ in the print version. That is precisely what Prof. Shambaugh tries to deny in his concluding paragraphs.

In contrast, Singapore’s George Yeo wrote a thoughtful and perceptive piece on President Trump and China’s Xi Jinping. Pointedly, he cautions against underestimating the President and against calling him stupid:

As he himself has said, he’s from Wharton, so he can’t be stupid. And he’s not. To think that he is would be a serious miscalculation…. There are many people whose entire careers are formed on certain perspective and he’s challenging them. It’s important to get past the common criticisms against Mr Trump, quoting him against him, laughing at some of his inanities, and ignoring his deep purposes. I think it’s much more important to look at his deep purposes because he’s not a man to be disregarded.

I doubt if the Western media gets it. They have decided to wage war against this President, thinking that they can win this one. That is laughable given the extremely low credibility that the world attaches to them. They are delusional and are wallowing in their own make-believe world of self-importance. The more they dig into the President the more they are digging themselves deeper into the hole that they are already in.

Their resistance will be intelligent and meaningful only if they take a nuanced and issues-based stances against the President’s agenda rather than persist with their current ad-hominem attacks. It is not just confined to the Western media. It also is a disease that afflicts many so-called intellectuals. Just check out the pages of ‘Project Syndicate’. Those are the people that George Yeo is addressing in his piece.

We may not agree with him but President Trump has an agenda.

There are four ‘resets’ that the Trump administration would aim to achieve:

(1) China reset. My MINT column on Tuesday was on that

(2) Tackling Radical Islamic terrorism

(3) Domestically, de-regulation and infrastructure spending.

(4) More nuanced approach to free trade and globalisation

The third combined with trade and import protectionism and threat of punitive action on jobs created overseas should, hopefully, pave the way for the creation of domestic employment and blunt criticism of any tax cuts for the rich, etc.

Not for nothing did the Index of Small Business Confidence jump big in December.

As Michael Gove wrote after his interview of the President, “it would be a mistake to think that he is all instinct and impulse. He wants to bring to governing the same calculating business style that he has brought to communicating.”

Demonetisation update 28 – industrial outlook

RBI had released its Quarterly Industrial Outlook (Survey No. 76) yesterday. It is not good news for the economy or for the government.

Table 8: Employment Outlook: deterioration

Table 12: Those who expect ‘cost of finance’ to decrease jumped – that is the only positive thing.

Tables 13, 14 and 15: Not good.

Tables 16 and 18: Summary – not good

On top of these, there is GST uncertainty coming up for businesses. There is one more potential uncertainty lurking. That is more taxation – hidden or overt.

As for the budget, if a variant of UBI were adopted, to finance it, tax terrorism (before jumping on me, please note that the phrase was first used by Mr. Jaitley to refer to UPA) and inspector raj could be further boosted.

The bureaucracy is risk-averse and biased towards more control, oversight and taxation. That is why I feel that the GST rates have been fixed at a higher level than they should be.

Finding revenues through unleashing economic activity does not come naturally to them or does not come at all.

Yanis on Donald

They were creating a bubble of unsustainable investment to give Europe and the US a chance to get their act together.

Yanis Varoufakis mentions this in his recent contribution to ‘Project Syndicate’. ‘They’ refer to China. There is no proof for this and there are equally valid alternative interpretations. I believe that China did it (massive economic stimulus) because it panicked at the collapse of its export markets. It unleashed a stimulus. It cared two hoots about saving the world. It subsequent actions – political and economic – expose the fallacy of the hypothesis that Mr. Varoufakis floats and has repeated.

As for the Renminbi’s overvaluation, as some have already commented, it is not clear that on fundamental economic grounds, it is overvalued. Risk premium arguments can justify the case for its depreciation, even a significant one, given the massive debt and deficit – much of it unaccounted.

What is China’s private debt? It is largely public debt. Loans taken by local government vehicles and State-owned enterprises are not private debt.

Mr. Varoufakis also misses the point about Trump’s economic strategy – it involves de-regulation about which the nation’s small businesses are most enthusiastic. Job creation is done mostly by SMEs. That is why the index of confidence of small businesses perked up sharply in December. Not for nothing.

Perhaps, Trump is (wrongly, in my view) trying to revive the Minotaur by not reining in financialisation and by giving too much of influence and role for Goldman Sachs Alumni. But, let us wait and see what Mnuchin does rather than commenting on our fears. We should be commenting on their policy decisions and actions.

Well, if at all, that could be the worrying part of his policy agenda. Not his China policy reset.

(Postscript: I noticed that I had commented on the article by Yanis Varoufakis already, here. But, this one is a different angle. So, I am letting this stay).

Universal Basic Income and the new Peter’s Principle

I have come across two eminently sensible articles on the applicability of and the relevance of ‘Universal Basic Income’ for India. One was by Prof. Pulapre Balakrishnan (ht: Praveen Chakravarty) and the other by Rajesh Kumar of MINT (Disclosure: He is the Editor of the Edits page that carries my weekly columns).

Prof. PB’s article is also crisply written. It is a good example of good writing. Here is one sample:

But the answer to the accumulating subsidy bill lies less in moving to the distribution of its cash equivalent as much as to transferring the potential saving from their elimination into public investment.

Universal Basic Income (UBI) attempts to tackle only the first part of the sentence above and that too for all Indians?! Why should it be given to people like us and to the ultra-rich? What for?! What about targeted subsidies and the use of technology to do that? Why suddenly talk of UBI for all Indians? It is madness.

His point on UBI is indisputable:

In our present state of development and given the current state of the public finances, the UBI would leave India bereft of public goods and services. Once everyone has been given a certain amount of income under the auspices of the state, it gets absolved of all responsibility for providing these goods and services which the private sector has no incentive to provide. We would now have to live content with our paltry benefits on islands without the bridges needed to take us to our neighbours.

As for financial feasibility, many write glibly that it could be paid for, by pruning subsidies elsewhere. Neat for the op.-ed. writer. It absolves his or her conscience without doing anything to address its practicality. Like many things in life, once done, government interventions are hard to roll back. They are sticky. That is the point that Rajesh Kumar of MINT makes:

The second assumption is that the non-merit subsidies can be rolled back easily. It will not be easy for the government to roll back subsidies such as food, fertilizer, fuel, electricity and water. In fact, politically, it will become even more difficult to arrive at the amount that will need to be transferred under UBI if subsidies are rolled back. In this context, it is important to recall the political backlash when the Tendulkar committee showed a poverty ratio of 21.9% for the year 2011-12. The government had to constitute another committee under C. Rangarajan which gave a higher poverty ratio. [Link]

I reiterate: talking of financing it is only secondary. That should not be construed as an acknowledgement of the intrinsic soundness of the idea. It is bad and extremely dangerous for India. I am both alarmed and amazed at the speed with which the idea has gained traction in India. I would have thought that it merited less than 60-second consideration before being rejected, in the Indian context.

Ideas also conform to the Peter’s principle of management competence that every employee, in a hierarchy, rises to his ultimate level of incompetence.

Its modified form is this: “For every problem, only bad ideas rise to the ultimate level of consideration.”

The week that went by

My last blog post was on Jan. 19. That evening,  I left for Kolkata – my first trip to that city in my 53 years of living on Planet Earth! I was on the panel on Bengal and Asia at the Bengal Global Business Summit. My presentation – which argued against giving special concessions and treatment to foreign investors but which argued for getting the basics right in governance, administration and infrastructure (hard and soft) – surprisingly went down well. Visited the Bandhan office and also ITC Victoria House to meet with friends.

A day trip to Hyderabad to meet with Dr. Y.V. Reddy and Vijay Mahajan of BASIX was sandwiched between Kolkata and Delhi. Both were very good meetings. Vijay Mahajan had just returned from a two and half day workshop cum seminar on sustainable development practices at the Xavier Institute of Management in Bhubaneswar. He was very impressed with the content of it. Gave an interview to the ‘Andhrajyoti’ newspaper. Met with the founders of Manthan – a great initiative. You can check them out here and here.

On Monday in Delhi, Carnegie India formally launched the hardcopy version of my book, ‘Can India grow?’. It is not priced. If you are in India and if you want a copy of it, you can write to them. They may send it to you.

On Tuesday, I made a presentation on China Macro outlook at a think-tank and was back in Singapore last morning. To a large extent, this Tuesday column in MINT on the beginning of a China reset by America captures the presentation.

The weather in Delhi was pleasant and the smog was not asphyxiating. Watched a bit of the Republic Day Parade rehearsals. Nice.

Read an interesting news-story of Francois Fillon – French Centre-Right candidate for the Presidential election due this year – advising Germany to improve relations with Russia and to get tough on immigration. Coincidentally or not, this morning, I noticed that the French authorities have opened an investigation into whether Fillon made payments to his wife, appointing her as his Parliamentary aide, without doing any work. H…mmm

This letter in FT by a former economist at the World Bank calling Germany the China of Europe was also a different one and was well worth a read.

Also, read this lovely interview of Harsha Bhogle (my batchmate) with ET Panache, aboard the Singapore Airlines flight to Singapore from Delhi. His advice to Rahul Dravid not to marry a fan can be very broadly extended to many categories – to advisors for leaders, for example. One needs devil’s advocate/fearless advisors for all types of decision-makers.

Lastly, the UK Supreme Court asking the British PM to seek approval of the Parliament for initiating the Brexit process is a non-event. I wrote to a British journalist to confirm or rebut my assessment that it is a non-event, attaching this link. This is what he wrote to me:

I think it is probably fair in the details but ‘rebellion’ makes it sound bigger than it is. Yes there is opposition but I feel it is contained – at least for now – within a small minority. When push comes to shove, the Tory and labour politicians know that with the exception of London and Scottish constituencies the country voted Brexit, and they need to follow the people’s will.
I think one of the key points he makes is that outside of London and Scotland, the vote in favour of Brexit was overwhelming. Similarly,  much is made of Ms. Clinton’s 3-million extra popular votes. Take away few counties in California and the mandate is clearly for Trump.
A separate blog post on Trump’s political and economic strategy follows. Much of the media despite its abysmally low to non-existent credibility with the public is still not getting the message. There is a surfeit of media hubris.

An illogical conflation

I read Mr. Someshwar Sundaresan’s article in ‘Business Standard’ on the structural changes that the government should enforce, post-demonetisation. The article left me confused and concerned. The latter reaction prompted this blog post.

Demonetisation had the potential to be a politically (for the BJP) and personally (for the PM) costly move. Hence, it required risk-taking. Some of the measures that the author advocates are not going to stir popular imagination. Hence, there is no natural, logical sequence in putting them up now for consideration, in the wake of demonetisation. In other words, they are independent. They stand or fail in terms of merits of the case, regardless of demonetisation.

One of his first proposals – that is to decouple the banking regulation function from the monetary policy role of the RBI – is not new. It was proposed by the Financial Sector Legislative Reforms Commission in 2012. That Commission had several dissenting notes and one or two dropouts too. So, what exactly did the commission represent and how widely-held those views were within the Commission are important considerations. That said, we can comment on the author’s proposal without going into the credibility of FSLRC recommendations.

Monetary policy decisions are transmitted to the real economy through financial markets and through the financial system – banks and non-bank financial corporations. In India, as in several countries even in an economically advanced region like Europe, the banking system is the far more important channel than financial markets.

Therefore, banking regulation and monetary policy are two sides of the same coin. There is information flow between the two functions that is critical for the effectiveness of the central bank in monetary policy conduct and conversely, there is information in monetary policy decisions that affect regulation. Separating the two would impede this information flow and play into the silo-mentality that is pervasive in bureaucracy and officialdom in general. Indeed, creating structures and an enabling environment that breaks down the silo mindset in official authorities is a crucial structural reform that has to happen now. It is part of the reforms in State capacity building. That is the broader and more urgent task. State incapacity was evident in some form or the other in the execution of demonetisation.

As for separating the regulatory function from the monetary policy role of a central bank, those who tried it have rolled it back. England is an example.

Whether intended or not, the proposed change would undermine soundness of financial regulation. Financial economy and real economy are two different animals. Principles that govern the latter – mainly, laissez faire – are not readily and automatically applicable to the former. There is both solid conceptual and empirical evidence against such a mindless application of so-called ‘free market’ and ‘laissez faire’ principles to the financial sector.

Therefore, the call to separate the banking regulatory function from the central bank that is responsible for monetary policy is best unheeded.