Liked or eyebrows raised

(1) Last six words of this article are unfortunate. No reasonable person has said that the payroll data released by EPFO in India has settled the jobs debate. Those data are only the beginning of the journey to get to reasonably reliable formal job creation data sometime in the future.

It is a lesson for all writers, including me. We want to end with a flourish. Therefore, we tend to resort to hyperboles. Better to end on a sober and mature note.

(2) No comments required:

Foreign direct investment is usually perceived as long-term strategic and stable investment reflecting fundamental location decisions of multinational firms. Such investment is often thought to bring job creation, production, construction of new factories, and transfer of technology. However, a new study (Damgaard and Elkjaer 2017) combines detailed statistics on foreign direct investment published by the OECD with the broad coverage of the IMF’s Coordinated Direct Investment Survey and finds that a stunning $12 trillion—almost 40 percent of all foreign direct investment positions globally—is completely artificial: it consists of financial investment passing through empty corporate shells with no real activity. [Link]

(3) Unlike in the case of Brexit, the force behind Italian parties that have come to power are the youth of Italy because they felt betrayed by the traditional parties. Could be behind paywall.

(4) India’s Chief Economic Advisor is leaving in two months’ time. Didn’t know that he is expecting a grandchild in September. On the whole, he has every reason to be satisfied with the job he did. He did make the annual Economic Survey a lot more interesting and readable. I am glad that I had a discussion with him in February for the Chennai International Centre and that it went down very well with the audience that day.

(5) Arvind Subramanian and his colleague from the Ministry of Finance wrote about revenue collection under India’s Goods and Services Tax and States’s share for ‘Indian Express’. They are happy with what they see. Chances are high that it gets only better. They are right to suggest that the cesses should go; excluded commodities be brought under the tax and that the rates can be lowered too. They don’t say so directly, however (‘scope for revisiting rates and cesses’ is what they write).

(6) Just saw the breaking news in FT that Atul Gawande has been appointed to chief executive of a venture between Amazon, JPMorgan and Warren Buffett’s Berkshire Hathaway to tackle US employee healthcare. Good choice.

(7) Sathya Nadella, CEO of Microsoft has sent a mail to his employees about the American immigration policy that is separating children from the adults who cross into the United States illegally. It has stoked a fierce backlash. I also happened to see this blog post last night. For some context, see this.

(8) IMF had a working paper published in March 2018 on the distribution of gains from globalisation. Some important conclusions:

The regulatory and economic dimensions of economic globalization contribute to increasing inequality.

Increases in foreign direct investments are significantly associated with rising inequality. For other globalization indicators, notably trade, there is no significant evidence for such an association. This supports the view that it is capital flows rather than trade flows that tend to drive the inequality-increasing effect of globalization.

These studies suggest that greater openness to foreign capital flows may exacerbate unequal financial access and can increase the likelihood of financial crises that raise income inequality. [Link]

Finally, the authors point out the impact of globalisation is non-linear. It is substantial and more positive if existing levels of globalisation are low; not if they are already high.

That is a favourite of mine. Relationships in economics are both asymmetric and non-linear. ‘Asymmetry’ (positive but not negative and vice-versa) and ‘non-linearity’ (like the example given above) are two different things.

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Is there a problem for MSME in Tamil Nadu?

Andy Mukherjee has a useful ‘warning’ piece on the potential for India’s sub-prime. We have seen this movie elsewhere in the world and hence, early warnings are fair game. But, disappointing that he engages in a bit of hyperbole, with respect to GST and its impact in TN.

He cites a statistic that TN’s registered Micro, Small and Medium Enterprises (MSME) are down by some 20%. It is true. The information is available here.

Now, this note has no information on why registered MSME’s in Tamil Nadu have declined. We do not have a breakdown of which category of MSME have declined and which of them are GST paying and which have found it difficult to handle GST and hence, closed down.

If their only financial viability case was tax evasion, then I am not even sure if one needs to blame GST introduction for it – messy or orderly implementation of GST is immaterial.

As to the causes behind the reduction in the number of MSME units, there is a news-article in http://www.thenewsminute.com which cites a former President of the Tamil Nadu Small and Tiny Industries Association making some comments about the causes of this decline. To be fair to him, he cites delayed payments by big corporations for goods supplied by MSME as a major issue and not GST.

We know that it is an endemic issue and that is why the answer lies in Factoring and Receivables Exchange being made compulsory for big buyers. Receivables Exchange has to become active and MSMEs have to get working capital released as soon as possible. They do not have money, time and energy to keep chasing dues from big buyers. What big corporate buyers are doing is unconscionable.

Also, if we cast a glance at the MSME statistics, there is an unusual jump in the number of registered MSMEs from 2015-16 to 2016-17. It almost doubled in one year. Something that has not happened before in the data for ten years that the table in pages 3-4 presents. So, may be, there was some problem with the data and the data for 2017-18 is more accurate than the one for 2016-17 and that some cleaning up of the data has happened. In other words, there are myriad possibilities.

In fact, a ‘Times of India’ report on the same matter hints at data issue, citing a Tamil Nadu Government official:

A state government official, however, sought to brush it aside as a case of misinterpretation of data. “If you look at the number of units registered under the Udyog Aadhaar Memorandum (UAM), which is a kind of re-registration of existing units under the new system, it has shot up. This fact was not properly highlighted in the policy note. Further, these are dynamic numbers that keep changing,” a source in the state government told TOI.

Tamil Nadu started the UAM implementation from January 21, 2016. The number of MSMEs in the state has shot up, with nearly 5.27 lakh UAMs filed in Tamil Nadu as on March 31, 2018. As against 1.42 lakh registered MSMEs in the state as on January 21, 2016, it shot up to 2.67 lakh units for 2016-17 and stood at 2.18 lakh units at the end of 2017-18, indicating a drop of nearly 50,000 units. [Link]

The article in ToI cites one more businessman who cites high wages in Tamil Nadu as an additional challenge for MSME in Tamil Nadu.

Causality is important but it is also hard to establish. One has to tread carefully and with rigour. Else, we may expend precious energy finding solutions for non-problems while ignoring the real problems.

So, attributing the decline in Tamil Nadu registered MSMEs to the ‘tardy’ implementation of GST may be a leap (of logic) too many.

But, let me be clear. Warning of real estate loans to ‘sub-prime’ borrowers and their securitisation, even if it appears somewhat premature now, is the right thing to do and Andy has done well to do that. Credit cannot be a substitute for employment and income. The United States and other countries have done that before and the results have not been pleasant. So, Andy’s warning matters regardless of the interpretation of the data with respect to Tamil Nadu.

On reading ‘The future does not need us’

One of the delights of reading ‘The Final Hour’ by Sir Martin Rees was the discovery of the article by Bill Joy: The future does not need us’ published in ‘Wired’ magazine in April 2000. I read it for the first time today.

There were so many thoughtful observations by the man who was the Chief Scientist at Sun Microsystems. I will start with the footnote!

The footnote on the decision taken by New York Times and Washington Post to publish the ‘Unabomber’s manifesto’ is itself worthy of a separate case-study.  Bill Joy reproduces two paragraphs from the Unabomber’s manifesto that Ray Kurzweil had reproduced in his book. They are actually very perceptive.

For me, this was one of the most important passages in the article by Bill Joy:

Accustomed to living with almost routine scientific breakthroughs, we have yet to come to terms with the fact that the most compelling 21st-century technologies – robotics, genetic engineering, and nanotechnology – pose a different threat than the technologies that have come before. Specifically, robots, engineered organisms, and nanobots share a dangerous amplifying factor: They can self-replicate. A bomb is blown up only once – but one bot can become many, and quickly get out of control.

The second paragraph from Bill Joy that I liked:

I realize now that she had an awareness of the nature of the order of life, and of the necessity of living with and respecting that order. With this respect comes a necessary humility that we, with our early-21st-century chutzpah, lack at our peril. The commonsense view, grounded in this respect, is often right, in advance of the scientific evidence. The clear fragility and inefficiencies of the human-made systems we have built should give us all pause; the fragility of the systems I have worked on certainly humbles me.

He is referring to his grandmother in that paragraph.

This is a key proposal:

The only realistic alternative I see is relinquishment: to limit development of the technologies that are too dangerous, by limiting our pursuit of certain kinds of knowledge.

This is so thoughtfully funny:

Do you remember the beautiful penultimate scene in Manhattan where Woody Allen is lying on his couch and talking into a tape recorder? He is writing a short story about people who are creating unnecessary, neurotic problems for themselves, because it keeps them from dealing with more unsolvable, terrifying problems about the universe.

Bill Joy also cites a wonderful paragraph from Carl Sagan’s ‘The Pale Blue dot’:

Some planetary civilizations see their way through, place limits on what may and what must not be done, and safely pass through the time of perils. Others, not so lucky or so prudent, perish.

Bill Joy on Sagan and humility:

For all its eloquence, Sagan’s contribution was not least that of simple common sense – an attribute that, along with humility, many of the leading advocates of the 21st-century technologies seem to lack.

That is a good moment to end this blog post. Read or re-read that article again.

Our Final Hour

The subject line is the title of the book by Sir Martin Rees who was also the President of the Royal Society, UK from 2005 to 2010.  I don’t regret spending time on it. With my limited science knowledge and reading, I hadn’t come across scientists who openly admit to the limitations, uncertainties and dangers of their research. Yes, after the Hiroshima-Nagasaki bombs, there was a push against further nuclear tests and development of bombs. Robert Oppenheimer himself felt a lot of emotions after the bombs were actually dropped and they could see the devastation they caused. The Pugwash Conference happened some fifteen years too late, perhaps. The first conference was held in 1957.

So, it was good to find a scientist who was calling for restraint, for a rigorous evaluation of costs and benefits of science, etc. I found it difficult to concentrate only with the last four to five chapters. Not that they were uninteresting but they did not fit into the overall theme of the first six to seven chapters. At least, that is what I thought.

But, he is going to be 76 soon (end of this week) and I found his overall views on the places of science and religion quite healthy, clear and level-headed. You can read an article here and an interview here. His comment on Stephen Hawking’s comment on God is worth noting:

He is equally scathing about Hawking’s more recent comments about there being no need for God in order to explain creation. “Stephen Hawking is a remarkable person whom I’ve know for 40 years and for that reason any oracular statement he makes gets exaggerated publicity. I know Stephen Hawking well enough to know that he has read very little philosophy and even less theology, so I don’t think we should attach any weight to his views on this topic,” he said. [Link]

This is what he had to say about scientific research:

The views of scientists should not have special weight in deciding questions that involve ethics or risks: indeed, such judgements are best left to broader and more dispassionate groups.

Scientific research, and our motives for pursuing it, cannot be separated from the social context in which such research is carried out.

For example, he cites Cass Sunstein here to talk about a ‘networked’ or connected world leads to more polarisation:

In his book republic.com , Cass Sunstein, a law professor at the University of Chicago , suggests that the Internet is allowing all of us to “filter” our input , so that each person reads a “Daily Me” customised to individual tastes and ( more insidiously ) purged of material that may challenge prejudices. Rather than sharing experience with those whose attitudes and tastes are different, many will in future “live in echo chambers of their own design” and “need not come across topics and views that you have not sought out. Sunstein discusses “group polarization,” whereby those who interact only with the likeminded have their prejudices and obsessions reinforced, and shift towards more extreme positions.

Another example: mood-altering drugs:

In Our Post-human Future Francis Fukuyama argues that habitual and universal use of mood – altering medications would narrow and impoverish the range of human character. He cites the use of Prozac to counter depression, and of Ritalin to damp down hyperactivity in high – spirited but otherwise healthy children: these practices are already constricting the range of personality types that are considered normal and acceptable. Fukuyama foresees a further narrowing, when other drugs are developed, that could threaten what he regards as the essence of our humanity.

I found that rather thoughtful of Francis Fukuyama.

However, the caveat:

The difficulty with a dirigiste policy in science is that the epochal advances are unpredictable.

Our (humans’) inability to predict the future is so well captured in this paragraph. In a way, it reminds us that we cannot be sure of what the future holds, when we unleash something:

In 1937, the US National Academy of Sciences organised a study aimed at predicting breakthroughs; its report makes salutary reading for technological forecasters today. It came up with some wise assessments about agriculture, about synthetic gasoline, and synthetic rubber. But, what is more remarkable is the things it missed. No nuclear energy, no antibiotics (though this was eight years after Alexander Fleming had discovered penicillin), no jet aircraft, no rocketry nor any use of space, no computers; certainly no transistors. The committee overlooked the technologies that actually dominated the second half of the twentieth century. Still less could they predict the social and political transformations that occurred during that time.

Bill Joy’s ‘Why the future does not need us’

I must be grateful to Sir Martin Rees for one important reference that I had not come across before. He mentioned about Bill Joy’s article, ‘Why the future does not need us?’ published in the ‘Wired’ magazine in April 2000. I read it this morning and I liked it immensely. The original is here. There are so many quotable quotes from that article. I think, if you had not read it before, you must read it. I am doing a separate post on Bill Joy’s article.

His idea of how the world could support 10 billion people by 2050:

A population as high as ten billion would be fully sustainable if everyone lived in tiny apartments, perhaps like the “capsule hotels” that already exist in Tokyo, subsisting on a rice – based vegetarian diet, electronically networked, travelling little, and finding recreation and fulfilment in virtual reality rather than the consumerism and incessant travel now favoured in the profligate West.

On extinction and its acceleration in the modern era:

Extinctions are, of course, intrinsic to evolution and natural selection: fewer than ten percent of all the species that ever swam, crawled, or flew are still on Earth today.

But human beings are perpetrating a “sixth extinction” on the same scale as earlier episodes. Species are now dying out at one hundred or even one thousand times the normal rate. Before Homo sapiens came on the scene, about one species in a million became extinct each year; the rate is now is closer to one species in a thousand.

There were vineyards in England and it was warmer in Northern Europe! So, climate keeps changing. But, the problem is the speed of change.

On Climate change:

Climatic change has, like extinction of species, characterised Earth throughout its history. But it has, like the extinction rate, been disquietingly speeded up by human actions.

It was warmer in Northern Europe a thousand years ago: there were agricultural settlements in Greenland where animals grazed on land that is now ice – covered; and vineyards flourished in England. But there have been prolonged cold periods too. The warm spell seems to have ended by the fifteenth century, to be succeeded by a “little ice age” that continued until the end of the eighteenth century.

Can we always count on this luck? Phew!

Paul Crutzen, one of the chemists who elucidated how CFCs actually acted in the upper atmosphere , has pointed out that it was a technological accident and quirk of chemistry that the commercial coolant adopted in the 1930s was based on chlorine . Had bromine been used instead, the atmospheric effects would have been more drastic and longer – lasting.

The final words:

In the twenty-first century, humanity is more at risk than ever before from misapplication of science.

AND

I think the odds are no better than fifty – fifty that our present civilisation on Earth will survive to the end of the present century.

On ‘Bullshit’ jobs

Why are bullshit jobs created? The author of the book with the above title – David Graeber – offers this explanation:

The answer clearly isn’t economic: it’s moral and political. The ruling class has figured out that a happy and productive population with free time on their hands is a mortal danger (think of what started to happen when this even began to be approximated in the ‘60s). And, on the other hand, the feeling that work is a moral value in itself, and that anyone not willing to submit themselves to some kind of intense work discipline for most of their waking hours deserves nothing, is extraordinarily convenient for them. [Link]

Somewhere here, he has a point:

If someone had designed a work regime perfectly suited to maintaining the power of finance capital, it’s hard to see how they could have done a better job. Real, productive workers are relentlessly squeezed and exploited….

….This is one of the secret strengths of right-wing populism. You can see it when tabloids whip up resentment against tube workers for paralysing London during contract disputes: the very fact that tube workers can paralyse London shows that their work is actually necessary, but this seems to be precisely what annoys people.

He had written the above article in 2016 – little under two years ago. This is the cover of his new book.

His recent interviews are here and here. I get the impression that he has not figured out why bullshit jobs are created, even granting his pro-worker, ‘class revolution’ framework.

Clearly, he is focused on the possibilities of a working class revolution against capitalism of the day exept that he has not yet gone to the root cause.

This article in ‘The Economist’ in 2013 does better. The article talks about complexity of tasks being one of the factors for them to be broken up into ‘bullshit’ tasks. That is one step closer. But, how does complexity arise, in the first place? Is it only technology or is it something else? Rapacity has to be a factor.

The article goes on to predict a happy ending but the author is silent on how we would get there:

The issue is that too little of the recent gains from technological advance and economic growth have gone toward giving people the time and resources to enjoy their lives outside work. Early in the industrial era real wages soared and hours worked declined. In the past generation, by contrast, real wages have grown slowly and workweeks haven’t grown shorter.

The development of large-scale technological unemployment or underemployment, however, would force rich societies to revisit a system that primarily allocates purchasing power via earned wages. And that, in turn, could allow households to get by or even thrive while working many fewer hours than is now typically the case—albeit through a pretty hefty level of income redistribution.

This is how I see it:

Capitalist societies seem to want to pay only as little as possible to those who are not directly contributing to its bottomline. They are employed by the public sector who are paid out of the taxes that the well-heeled pay. Hence, the lower their pay, the better. Their tax dollars travel the most, in  that case.

If they are not in the public sector, they are then employed by contractors who pay even worse.

But, those who are employed by the capitalists (solely) for the purpose of catering to and furthering their greed are paid better. David Graber gives some examples of such professions:  private equity CEOs, lobbyists, PR researchers, actuaries, telemarketers, bailiffs or legal consultants.

It is mostly about greed and how modern capitalism is not satisfied. It is about ‘more is preferable to less’ and non-satiation being the building blocks of modern capitalism. That, to me, is the root cause of ‘bullshit’ jobs and that is what I had mentioned in my column last week.

Explicable silence

In this blog post, I had highlighted a forthcoming IMF working paper on global market power and its macroeconomic implications. That paper was flagged in a IMF blog post on the rise of the corporate giants. At the end of the blog post, there was a link to an enticing panel discussion at the IMF-World Bank Spring Meetings of April 2018. The title of the session was ‘Digitalisation and the new gilded age’. I was pleasantly surprised that IMF had arranged a panel discussion on a hot and crucial topic for our times.

This was the blurb for the session:

Are technological advances leading to greater market concentration in firms such as Google and Facebook and, in turn, creating what could be described as a New Gilded Age? [Link]

The blurb names two companies. Try catching their names in the panel discussion. I listened to the panel discussion which lasted a little over 70 minutes. To say that I was ‘underwhelmed’ would be an understatement.

More than that, I am trying to wrap my head around what the panel moderator was trying to achieve. The moderator was none other than Christine Lagarde, the President of the IMF!

The session was neither about technology and its enabling role (or not) in market concentration nor was it about market concentration in the technology sector itself and how both of them or either of them were leading to the new gilded age or not.

I still do not know what the session was about. There were a couple of leading questions to the panelist from IBM as to how good a work they were doing in Kenya enabling credit for small borrowers through Big Data and how ‘Watson’, their super-intelligent computer was helping with oncological treatment in India.

The moderator wanted all the panelists to answer the following question:

What one change would make the world competitive, equitable, inclusive and innovative?

The question pops up at 1h 05m 10s. Here is the video link.

//players.brightcove.net/45228659001/rkPdEdoaW_default/index.html?videoId=5772879577001

Listen to the answers and decide whether you wish to laugh or cry, be angry, be worried or simply throw up your hands.

When I mentioned this to a friend, he said that this was not a surprise and that there was a deliberate ‘conpsiracy of silence’ in liberal establishments on the key questions, challenges of the day and their perpetrators.

In February, there was this wonderful long-form essay in ‘The New York Times’ magazine titled, ‘The case against google’. That could well have been the specific case -study discussion for this topic.

There was a simple and well-written blog post at the Bank of France website in February on whether monopolies were a danger to the United States. That could have been discussed. Of course, that blog post does not mention technology as a factor in creating monopolies or market concentration but the panelists could have been asked to challenge it or defend it.

Somewhat more provocatively but importantly, the @facebookbreakup movement could have been discussed. The movement took out a full-page advt. in MIT student paper’s commencement edition with quotes from former Facebook employees – some of the founding ones. The quotes are worth reading.

Importantly and interestingly, the blog post cites Luigi Zingales to make the point that even if large firms with their rising monopoly power are not cutting back on investment spending, it is important to understand that these investments are about:

… investment can be misused to create barriers to entry, by using these resources to finance lobbying for example. The fact that the most profitable firms invest relatively little may corroborate this theory. Buying emerging startups to reduce competition is another example of the misuse of productive investment to maintain monopoly rents. [Link]

There are two brief but very useful blog posts in aei.org. They provide references that are staple for discussion for this session. The blog posts are here and here.

For those interested in digging deeper, two OECD papers mentioned in these posts are available here and here.

Also mentioned in these posts is a paper written by Nicolas Bloom paper for HBR titled, ‘Corporations in the age of inequality’. I just saw his policy prescriptions in the end.  Have not read the paper in full. He advocates use of tax policy to support those left behind:

Boost low incomes through tax policy. Governments should also consider measures that put more money into people’s pockets, such as negative income taxes — meaning that citizens earning below a certain threshold receive money directly from the government. For example, the U.S. should consider expanding the Earned Income Tax Credit, which is basically a negative income tax with a work requirement. Rather than constrain companies with more onerous rules around compensation, negative income taxes supplement the incomes for workers whose skills are in less demand while allowing economies to organize efficiently. [Link]

How will governments put more money into people’s pockets unless it takes money out of some people’s pockets?

Anyway, this blog post was supposed to be about the breathtaking obfuscation and dissembling that went on, in the name of discussing the new gilded age. Given that this is what liberal establishments and elites in poweful positions in such establishments do, we should not be surprised at all that populism is on the rise and that populists are popular and winning.

The important realisation for us, the ‘hoi polloi’ is that there is not much point in all of these discussions. They exist to keep up appearances. Power resides and rests with money. Those who have it want to have more and do not wish to part with it. They do so only reluctantly and only if there are no other options to avoid doing so. Democracy is a figleaf that pretends to give equal power to the ‘Have Nots’ as ‘Haves’. But, funding of candidates and political parties is in the hands of the money-ed. So, just a wee bit changes at the margin.

Those who are endowed start with an advantage and engage in expanding that advantage. They create systems that enable them to do so and hinder them only minimally, if at all.

The rest of us believe that we are working to make the world better. If we wake up from our denial, we will also wake up to realise that there is not much meaning left in our pursuits. Slumber is better.

Of conclusions and explanations

Financial Times has a series of stories/articles (actually, these days, newspapers mostly their stories with journalists as creative authors – you can interpret it whichever way you want) on the United States announcing tariffs on Chinese goods and on China’s retaliation. A quick glance at the headlines will tell you which way FT is leaning. Well, actually, you don’t even need to cast a sideways or a quick glance. By now, we should know. Let us set that aside for a moment.

Here is an interesting header:

Header 1.png

So, what is this economic lever? You don’t have to wait too long. Another story and another header gives you the answer:

header 2

It was a fun exercise on a Sunday morning, alright.