Pre-announcement of our new book

I have some good news to convey:

Our (Yours truly and Gulzar Natarajan) co-authored book, ‘The Rise of Finance: Causes, Consequences and Cures‘ has been accepted for publication by the Cambridge University Press. It is now ‘syndicated’ for publication. Have to deliver the manuscript before I go on a holiday end of this month. Will provide further updates on the timing of the launch of the book.

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Italy, Europe, Pakistan and the rest

Been six days since I blogged. Was travelling again on May 30-31. Backlog of blogging builds up. So, this one is a potpourry.

Almost done with reading ‘Final hour’ Sir Martin Rees. Recommend it.

Of course, ‘Adults in the Room’ by Yanis Varoufakis remains the highlight of the year in terms of readings completed. He has a fairly sober piece on Germany (Merkel, in particular) being at the heart of the problems confronting Europe. In his attempt to be politically correct, I think, he has finessed his lines.

Paul Krugman has three tweets on the Italian President denying the Italian election winners the right to form the government by denying them their Finance Minister nominee.

But, Yanis makes this interesting point:

Trump understands one thing well: Germany and the eurozone are at his mercy, owing to their increasing dependence on large net exports to the US and the rest of the world. And this dependence has grown inexorably as a result of the austerity policies that were first tried out in Greece and then implemented in Italy and elsewhere.

Today, I heard Raghuram Rajan in Singapore saying that, one of the reasons behind the austerity policies in the UK was (or, could be) that their banks were too big relative to their economies and that the austerity was an accommodation of the demands of such a big banking sector on the government’s fiscal resources. Same goes for Europe. He was not defending this, however. Rajan was delivering the 9th MAS lecture today in Singapore.

Nonetheless, I am not advancing this either as an explanation or justification for the ‘Troika’ to impose austerity – and that too with utter hypocrisy (I am yet to write a full review of ‘Adults in the Room’) – on Greece. Simply recording something I heard today related to the word, ‘austerity’.

Inter alia, UK Government sold some of its stake in the Royal Bank of Scotland at a hefty loss today.

The UK Chancellor of the Exchequer George Osborne has such a massive conflict of interest with what he is doing at the ‘Evening Standard’ that I do not know where to begin. Read this to figure it out yourself. Equally, I am not surprised that Google took up his offer. They should be embarrassed but will they be?

The implications of this story are staggering and overwhelm me. How is India, for example, going to find employment for its youth with or without formal education? Is technology such a holy grail that it should be pursued, no matter what? That is where I find Sir Martin Rees thoughtful and humane. See the beginning of the post.

Prof. Atif Mian at Princeton has a series of fourteen tweets on development, the vicious poverty trap and how public policy and prejudices make it more vicious. First tweet here.

Australia charges Citi and Deutsche Bank for cartel-like behaviour in their underwriting of ANZ shares a decade ago. The authorities have made a criminal charge and that is serious stuff. Banks will be banks, I suppose.

A damning verdict on American universities by Rana Foroohar. They are now hedge funds, she says. Ed Luce wishes she were not right. He concurs.

A powerful way to understand what we (humans) have wrought to the climate. Found it via the twitter handle of Atif Mian.

Gulzar shared this pithy and perceptive blog post by Tyler Cowen on how Trump’s foreign policy might outlast him in America.

This should tell us why Europe has not earned Trump’s respect.

A good summary of Pakistan’s acute ‘Balance of Payments’ situation.

More later.

‘The House of cards’ trilogy

Mr. TCA Srinivasa Raghavan suggested that I read the trilogy, ‘House of Cards’. The books were ‘un-put-down-able’ while I was reading them. Well, I did not put down my iPad since I was reading them on the Kindle app in my iPad.

He is a very good, if very cynical, story teller. May be, very British too.

The first book did not impress me much because it was simply a case of FU (very creative name) using the information gathered in his role as the party Chief Whip to blackmail his rivals in the party.

The second one was better than the first – the thrust, the moves and the countermoves by the King and FU were interesting. It was good that he allowed King and his press secretary to emerge stronger and superior at the end of it. May be, that too was a very British thing to do – the superiority of the Constitutional Monarchy over the elected (or, unelected, in this case) public official.

His story telling reaches a peak in the third of the trilogy. It builds up slowly but surely and steadily to its climax with many strands woven and neatly handled to produce a grand finale, although one begins to anticipate it a bit, towards the end.

But, at least in fiction, one would like the story to end with morality emerging victorious and not only smart and wicked people emerging on top. Michael Dobbs does not allow that. That is why I call him a cynic.

To destroy Tom Makepiece in the way he does, in the end, is cruel. He also does not paint the Greek Cypriots with his climax that well versus the British for all the wrongs they had suffered.

FU keeps saying that he knows only to fight and he knows only this thing and nothing else. So, the author could have given him the glorious speech but ended with another twist with FU not getting a place in the history book because, after all, he was just a rank manipulator.

The PM’s wife basically does side deals for personal benefits – his Library – and barters away national interests. She escapes scot-free.

It is not fair.  May be, it is quintessentially British in that sense.

​Michael Dobbs’ women are smart, intelligent, pretty and ambitious and are prepared to sleep around to realise them. You might say that he is sexist and I could not possibly comment on it. 

For ‘budding’ politicians, the trilogy is an important reading manual for they might be missing a trick or two. FU or Michael Dobbs is the best teacher they can find.

In the final analysis, Michael Dobbs had put up a grand political theatre in his ‘House of Cards’ trilogy.

Adults in the room

That is part (or full) of the title of the book by Yanis Varoufakis, former Greek Finance Minister. I would like to get hold of it.  I have read his ‘Global Minotaur’. I liked it. The review of his book by Prof. J.W. Mason (a Marxist-economist, I am told) is quite well written. Makes one want to buy and read the book. J.W. Mason is Assistant Professor of Economics at John Jay College – CUNY.

The private memo sent by the European Central Bank to Italy, the advice that the Italian Prime Minister got from the German Finance Minister Wolfgang Schäuble to end collective bargaining and then the question that Christine Lagarde posed on Pharma sale de-regulation to Yanis Varoufakis are rather revealing. Notwithstanding all the tall talk of having learnt their lessons from the global crisis, of heightened sensitivity for the marginalised local population, the real agenda is laid bare in these situations.

I was also looking for a blog post that my friend Gulzar Natarajan had written on how many of these social enterprise investment funds incorporate in tax havens. Very simple. Consistency between practice and precepts or between words and deeds is missing. Credibility eroded. Backlash occurs and non-establishment candidates win. No point in blaming them. Elites bring this upon themselves and the public. Elites will survive. The public has it tough under both regimes.

At another level, this is also about the sovereign right to choose its economic agenda, the sequence and timing of implementation. Reminded of the paper, ‘Refocusing the IMF’ by Martin Feldstein published in ‘Foreign Affairs’ (March/April 1998). He said that IMF had no business dictating economic policy agenda to sovereigns.

(Postscript: I could not understand Professor J.W. Mason’s interview on the stock market. I do not quite fully understand why Marxist-economists believe that the Federal Reserve is helping the working class by not raising interest rates. To a degree, I can understand that. By raising rates just as wage growth gets going, the Federal Reserve snuffs at the nascent trend of higher income share going to workers. But, the failure lies not in that but in not raising rates early enough. The damage the Federal Reserve causes to the incomes of the working class with its monetary policy framework that underpins asset prices far exceeds the damage that it causes them with its belated tightening).

Jordan Peterson

Peggy Noonan has an interesting article (ht: Venugopal Ramakrishnan) on the interview of clinical psychologist and social philosopher Jordan Peterson by a British television journalist. From what she writes, I think Peterson’s work resonates with me. I listened to the interview he gave to Cathy Newman of Channel 4. He handled himself exceptionally well.

If you want to be ‘shocked’ at how someone could so deliberately distort the interviewee’s words and if you do not want to watch the interview, you can read an article in ‘The Atlantic’ on the conversation.

I got to know of Jordan Peterson as the person who had interviewed the Google employee James Damore. Sunder Pichai fired him for posing important questions on the culture at Google. Now, Mr. Pichai says he stands by his decision. Well, I suppose, it is too early for a mea culpa. Julian Baggini has a review of his book at FT.

The sub-title of the review is: ‘A YouTube intellectual’s advice on how to live emphasises order and tradition’. That is enough to put any objective reader off. The arrogance of some of these self-styled intellectuals is blinding them to the obvious reality that it is not helping but hurting the very causes that they claim to espouse – so-called liberal values. There is nothing very liberal or liberating about putting down another person. It is cheap and vulgar. It is intolerance. There are far better, more effective and more persuasive ways of critiquing a book’s content or the lack of it.

Cathy Newman of Channel 4 and Julian Baggini have done the greatest disservice to genuinely liberal values and principles.

Peggy Noonan has an answer for Julian Baggini:

When cultural arbiters try to silence a thinker, you have to assume he is saying something valuable.

So I bought and read the book. A small thing, but it improved my morale.

As many readers-commentators in FT have said, the article in ‘The Guardian’ on his book is far more insightful. I could also read what Professor Peterson had to say about the backlash his interviewer from UK’s Channel 4, Cathy Newman, faced.

The last line of that article tells me that he is a liberal:

If Cathy is interested, maybe we could model a conversation. That would be a good thing.

That is the way to foster a dialogue.

Books I read in 2017

During the year, I read several books:

1.       The Money Formula (Paul Wilmott + 1)

2.       Advice and Dissent (Dr. Y.V. Reddy)

3.       The Beautiful Country and the Middle Kingdom (John Pomfret)

4.       Journey Continues (Sri. M)

5.       Asia’s Reckoning (Richard McGregor) – in parts, because I was not persuaded to read the whole thing

6.       War by other means (Robert Blackwill + 1)

7.       Aadhaar (Shankkar Aiyar)

8.       Reflections on the Revolution in Europe (Christopher Caldwell)

9.       I do what I do (Raghuram Rajan)

10.   The Fix (Jonathan Tepperman)

11.   An Extraordinary Time (Marc Levinson)

12.   A Capitalism for the People (Luigi Zingales)

13.   Sapiens – a brief history of humankind (Yuval Harari) – brilliant in parts

Advice and Dissent, The Beautiful Country…, Reflections on the …., Sapiens and The Fix deserve special mention. My comment on John Pomfret’s book are here. For the spiritually inclined, Shri. M’s ‘Journey Continues’ is utterly fascinating.

A short review of Pomfret’s book, ‘The Beautiful Country and the Middle Kingdom’ appeared in MINT:

Among the many books I read this year, I would pick The Beautiful Country and the Middle Kingdom by John Pomfret as the best.

It was slow to start as the book traced the history of the Sino-American relations from several centuries ago. But, once the book entered the contemporary era, I perked up. What comes out rather clearly in the book is that China has played America like a fiddle over several decades–from President Nixon to President Obama. It appears that America won the Cold War not because of but in spite of the State Department. Nixon reflected later that he might have created a Frankenstein monster. Too late. When President Trump told Xi Jinping that China did what was right for it and that his predecessors had to be blamed for the unequal relationship, he was spot on.

It is interesting that Mao waived Japan’s apologies for its crimes against China but that did not stop his successors from making it a big issue. The amount of damage that Nixon and Kissinger have done to America’s (and India’s) interests thanks to their utter cynicism is considerable. We learn from the book about the origin of Siamese twin. The lesson that comes out rather clearly is that China views solicitude as a sign of vulnerability. Being nice is unrequited diplomacy with China. The book is a must read for India’s diplomatic community that includes both policymakers and starry-eyed commentators. [Link]

Lessons in economic ideology from office room allocation in U. Chicago

This is coming from Luigi Zingales who wanted to save capitalism from capitalists!

When I visited Stanford Business School many years ago , I was surprised to see that all of the offices in its new building were identical — a result that had cost money , thanks to the structure of the building . Why should socialism prevail with respect to offices ? I was told that the dean , who had to assign the offices , wanted to avoid the headache of having to decide who would get the best ones.

At the time , I thought these concerns were exaggerated , until Chicago Booth also constructed a new building for itself but decided to differentiate offices . To minimize lobbying , the dean announced that each faculty member would be randomly assigned a number within categories — presumably assistant , associate , full , and chair professor ( though this was not explicit ) , and would choose an office sequentially . But when the selection order was announced , the most famous faculty members were first , suggesting that the process had not in fact been random . The school erupted . Emotions took over . One faculty member shouted “ I hate you ! ” at another who had received a better office , ruining their relationship for quite some time .

We might underestimate the cost of all this commotion because it was not easily measurable . But if you do factor in the time wasted in office – allocation simulations , along with the cost of tense relationships for years to come , you see that Stanford’s choice was the more efficient one. This point has been recognized by a few economists.

Source: Zingales, Luigi. A Capitalism for the People: Recapturing the Lost Genius of American Prosperity (p. 205). Basic Books. Kindle Edition.

I shared this with my friend Gulzar Natarajan. We then had a couple of back and forth on it. He was wondering whether Communism and Socialism were ostracized because they were also tainted by association with totalitarian repression that some of the Communist leaders practiced.

At the same time, he noted that capitalism had adapted by embracing certain aspects of socialism:

“adaptability of capitalism to emergent threats – the welfare state, regulatory institutions, social democracy itself.”

This is what I wrote in response:

Several valid questions and interesting speculations in your email. Who knows the answers? In all these matters, all of us are like the blind men guessing the elephant. We are also influenced by the context and the times in the weights we assign to competing arguments.

I have always believed that a competitive market economy is about as egalitarian as one can get, in terms of opportunities. That is about the best one can hope to achieve in a society. Equality of outcomes, of course, takes away the incentives.

The best a government should aim for is a combination of competitive market economy with social safety and affirmative actions in the early phase of lives for the population – for health and education. Easier said than done.

In the concluding chapters, in ‘Faultlines’, Raghuram Rajan spends some time on these questions. They were practical and useful.

As for the current state of the world, humans are doomed to go through the cycles – swings between extremes with very brief (if lucky) interludes of stable equilibriums. Those of us who are lucky to find ourselves born and grow into adulthood in such stable equilibrium periods think that this steady state of affairs prevails permanently. We fail to grasp and remember our history lessons well.

In fact, that is the other lesson from this office room allocation episode. No matter how much of economics or anthropology or sociology these Professors have learnt, they had to fight for their office rooms with bitter name calling! We have too many flaws to create/achieve anything positive and stable on an enduring basis.

That enduring feature of humanity is what brings out and accentuates the drawbacks in these systems – capitalism or socialism or market economy.

We are capable of bringing out the worst in ourselves and in all things that we touch!

I am re-reading Yuval Harari’s Homo Sapiens. I read it too quickly the first time around. Sapiens are deadly!