Democracy and Equality

I just saw a following header in an article at the website of Carnegie Endowment for International Peace:


I think the author got the idea wrong totally. Democracy is incompatible with equality simply because humans are not born equal.

One can only force-fit them to be equal and that is not democracy. The State can attempt to level the playing field – opportunities – for all, unprivileged by wealth, birth, power, etc. But, force-fitting equality of outcomes and material status will be incompatible with democracy. Only autocracies can achieve that – for a while.

That is, put differently, autocracies have a better chance of achieving equality, assuming they are sincere about it. Even then, it is unlikely to last long.

One of the reasons is that equality is inconsistent with evolutionary logic.

Tribal war of hypocrisy and not morality

The paragraph below in the article by Rana Foroohar sums up the hollowness of the Democrats’ idealism and ‘moral outrage’ rathr well:

What’s more interesting and also murkier is why Democrats would list Kraft-Heinz as their most favoured company. As both myself and my colleague John Gapper have written, this is a corporation that exemplifies many of the most problematic aspects of capitalism today, including short-termism and financialisation. And that tells you a lot about the challenges for Democrats today. The Clintonian move towards a “market knows best” approach, which dominated the party’s approach to economics until quite recently, created many of the legislative changes that have driven companies like Kraft-Heinz into the ground — not to mention helping to brew up the financial crisis and create a generation of “socialist” millennials. [Link]

What we are witnessing is not a battle between the ‘ideal’ and the cynical nor between the ‘ethical’ and the ‘unethical’. It is a tribal war between two sets of competing interests, cultures and values. If anything, for one side to clothe itself in the vestiges of morality, ethics and higher values is downright hypocritical. At least, with the other side, what you see is what you get.

SOX and Fed conscience

Record high in the semiconductor (SOX) index (with rapidly slowing end markets for semis and collapsing industry fundamentals)! Extreme (manic) speculation is back. Does the Fed have no conscience? (that’s a rhetorical question). [Link]

That was a tweet by Fred Hickey. I learnt about Fred Hickey from the Global Investment Strategy Weekly of Albert Edwards. Fred Hickey’s tweets also pointed me to the rather shocking slide in the quarterly results of Micron Technologies. See their press release here.

As per this article by Martin Wolf, we learnt that the Federal Reserve has done the following:

We learnt this month that the US Federal Reserve had decided not to raise the countercyclical capital buffer required of banks above its current level of zero, even though the US economy is at a cyclical peak. It also removed “qualitative” grades from its stress tests for American banks, though not for foreign ones. Finally, the Financial Stability Oversight Council, led by Steven Mnuchin, US Treasury secretary, removed the last insurer from its list of “too big to fail” institutions. [Link]

It is a good piece. Worth reading.

This is the actual news-story that Martin Wolf refers to, here.

Alan Krueger and ‘mind fixers’

Gary Greenberg’s review of the book, ‘Mind Fixers’ by Anne Harrington is not just a review but also an indictment of the profession of psychiatry. He indicts Anne Harrington for not indicting the profession enough for not acknowledging the limitations of what it knows about psychiatric illnesses and the vastness of what it does not know yet, of the origins of psychiatric illnesses. In other words, the psychiatric professionals have a psychiatric problem or two: hubris and denial. Well, in that, they have a much larger company: the entire humanity.

That this book review caught my attention today in the aftermath of the sad and sudden death of Prof. Alan Krueger in the United States is entirely coincidental. He took his own life apparently and that he was suffering from mental depression. I had listened to him twice in Singapore during the Annual ABFER Conferences in the last few years. He was a good looking man and appeared confident and positive. He had done quite a bit of empirical work and was on the Council of Economic Advisors for President Obama. His suicide and his depression actually proves the point Gary Greenberg makes.

We do not know much about mental illnesses and we refuse to admit it. That is so typical of us.

I seldom agree with Martin Sandbu’s economics because of his steadfast refusal to allow empirical evidence to influence his pet theories of policy prescriptions for the post-crisis economy in the world.

But, I will readily concede that he has written a very good and a very apt tribute to Alan Krueger. Martin Sandbu focuses on Krueger’s work on minimum wage. It had re-shaped the pet, ideological views of many that a higher minimum wage necessarily lowers employment. It is not the case. Alan Krueger took interest in questions of economics that had a public policy dimension and public utility. That makes his demise all the more sadder and untimely. There are many useful links in Martin Sandbu’s piece. One of them is this.

President Obama had reportedly said, in his moving tribute, that Alan Krueger had a smile even when he was critical – something for all of us to keep in mind.

Also, the last paragraph of the article is very important:

“If someone has positively shaped your life and work, let them know,” Susan M. Dynarski, a professor of public policy, education, and economics at the University of Michigan, wrote on Twitter. “No one is too famous or accomplished to be lifted by your kind words.” [Link]

STCMA – 22nd March 2019

Buying Gold and being bearish stocks is the ‘Trade of the Century’ according to a hedge fund. Personally, I hope they are right.

John Authers defends Jerome Powell for shutting the door on any further rate hike in 2019. I beg to differ. Even if he did not mean to raise rates, there was no harm in keeping markets uncertain. If the Federal Reserve Chairman was worried about a recession, he should also be worried about a stock market that betrays no sign of it. This divergence will make the ultimate pain for the economy all the more longer and greater.

As always, established and prominent figures are dovish in their criticisms of a dovish Fed. Here is Mohamed-El-Erian.

The headline of this article says it all: “Over 80% engineers unemployable for any job in knowledge economy”. If one wished to download the underlying report featured in the article, you can find it here. Have not read the full report yet.

While Martin Feldstein is worried about the looming federal debt crisis, John Authers has a good story in Bloomberg on the 12th March about the corporate debt bloat in the ‘here and now’. The story has many good charts and good arguments (ht Rajeev Mantri). But, John Authers fails to evidently connect this story to his latest missive on the Fed signalling no rate hike. A central bank pre-emptively foregoing its rate increase options does nothing to bring down corporate leverage.

Thanks to my IIM batchmates K.N. Vaidyanathan and Subramanian Sharma, I came across this ‘tweet storm’ or ‘tweet thread’ by Jawad Mian. It is equal to a full credit course on market valuations. It is a salutary lesson in investing at today’s prices.

STCMA – 15th March 2019

Study Links Eggs to Higher Cholesterol and Risk of Heart Disease [Link]

Across the globe, a question of air safety becomes a question of American leadership [Link]. I agree. America dithered a bit and damaged itself a lot in the process. Some pilot friends explained the nasty ‘penny pinching’ that Boeing did. Sad and condemnable. Chalk one more entry in the journal of ‘how capitalism is destroying itself’

Elbridge Colby urges America to take India’s side [Link]

Disturbing story of the treatment of Kazakh Muslims by China [Link]

This is from February 14. A fascinating long read on China’s mistreatment or harassment of young Marxists [Link]

Aarati Krishnan provides some good statistics on aggregate wage growth and breaks it down well. She explains why the economy is lacking the spark it needs. Well written. [Link]

On Thursday, 108 economists and statisticians put out a note urging that agencies associated with the collection and dissemination of economic statistics should not be subject to any political interference. [Link].

Some question the timing but the appeal has gained in legitimacy in recent months. The government’s many moves on different statistical data have raised more queries than answered them.

Honestly, this requires much more than a cursory mention. The article on how we need to save our ignorance from artificial intelligence is rich with philosophical implications and questions too. [Link]

Undoing IBC

Only the other day, I did a post on the recovery of non-performing assets in India. I wondered or hoped if IBC would help drive a bigger recovery than we have seen in recent years. But, came this op.-ed., in BusinessLine that threw some cold water on my optimism. The reactions to this from friends (they shall remain anonymous) were interesting.

One wrote: This confirms the Gunnar Myrdal thesis: India is a soft state.

Another wrote:

I think it failed purpose in its conditional clauses. It tries to avenge and recover – both cannot sustain. Its dharma  should have been to extract the best price for the assets — from whosoever. This was not to be because the political objective of optics of punishment found place in the rules. The process of criminality or malfeasance cannot be pre-judged by barring original promotersits a mess from day one.

I asked him:

I see your point. Jayanth Varma has made the same point in one of his blog posts too that “dharma  should have been to extract the best price for the assets — from whosoever.”
However, I have this question:
if the borrower was able to bring  70 to 80 paise on the Rupee he owed, clearly, there was a very high probability that the default and the refusal to keep the loan current were mala fide?
How should that be dealt with? Should the asset be sold first back to him and then pursue him separately for fraud? That won’t work and might not be legally tenable.

His response:

I agree it’s complex. But case has to be proved not presumed. So question source of funding, create escrow and process investigation on the side.

Appears reasonable.

Another friend wrote:

But this is typical of the judiciary. India’s courts always act as they please. The law as written does not apply to them; they consider the written text as a suggestion to be considered as far as  possible. Because of the contempt law, the intelligentsia is reluctant to lay blame at their door. Much easier to blame the executive, the politicians etc.

The fourth friend sort of echoed the above:

This is the problem when you allow the judiciary and retired judges to decide such cases. They play to old instincts where worker interest ia paramount. Also NCLAT tends to take long judicial vacations

While two have blamed the judiciary and the retired judges who man the NCLAT for these interpretations, the truth might be more nuanced. The morality aspect may be given more weightage than is due or necessary while the recovery aspect should have been accorded primacy.

The Cadbury Makers

I had made a mental note long ago to check what Mondelez is since I see it every day during my walk in Sri City but never got around to doing some internet hunting. Today, I decided I must check them out. I did not know that they make chocolates for the Cadbury brand.

So, during my internet search, I found this ET article on their workforce. Felt happy to read about their workforce comprising a large portion of rural women from Andhra Pradesh. Good stuf.

Mondelez International has an interesting website, although I am not sure its ‘purpose and strategy’ would pass the Lucy Kellaway test.

Their ‘Compliance & Integrity’ page is rather comprehensive and, at first glance, looks impressive.

NPA recovery in India

On December 28, 2018, RBI released the ‘Statistical Tables Relating to Banks in Inda, 2017-18′. I just quickly browsed the table-headers online and looked at NPA recoveries in India :’ NPAs of Scheduled Commercial Banks Recovered through Various Channels’. The trend has not been good. In that sense, the implementation of the Insolvency and Bankruptcy Code (IBC) has been very timely. It may have initial troubles, changes and resistance, etc.

Which momentous change would go unchallenged or has gone unchallenged by entrenched interests? The table below shows the percentage recovery (col. (2)); percentage recovered through SARFAESI Act (Col. (3)) and the fourth column is the amount referred to the various sources for recovery – Debt Recovery Tribunals, Lok Adalats and SARFAESI Act. The recovery % are proportions of these amounts (Col. (4)).

Source: RBI

Let us see how these numbers evolve in 2017-18 and later, after IBC becomes accepted and established. Clearly, the table shows that IBC had not come a day too soon!