Theatre of the absurd

The title of this post refers to the Climate Change Summit held recently in New York coinciding with the annual session of the UN General Assembly. As a former Minister (Amanda Vanstone) in the Howard (Australian) government wrote, it is even politically incorrect to write against the manufactured outrage. It was theatre. See her piece here.

Of course, agreeing with her comment on the meaning of the protest speech by Greta Thunberg does not mean that one has to agree with her on the relative contributions of nations to carbon emissions.

A timely publication by Deutsche Bank Research puts the global challenge in perspective:

Possibly, the key elements of the climate action package are a fairly accurate reflection of the German public’s attitude towards climate protection. It is illusory to believe that a rapid “grand transformation”, the maximum demand of some climate activists, would be supported by a democratic majority in Germany.

Although 61% of Germans voice concern about climate change, according to a recent survey conducted by the Allensbach Institute, “only” 33% are willing to pay higher energy prices for climate protection. And just 21% are in favour of a CO tax. The respondents either prefer further incentives to stimulate behavioural change over financial burdens, or they are pinning their hopes on technological progress towards climate-friendlier products. Moreover, a majority of Germans (rightly) believe that Germany and Europe by themselves can do little to mitigate climate change. [Emphasis mine]

Source: Germanyʹs climate action package – Foul compromise or a reflection of society? Deutsche Bank Research, 25th September 2019 (www.dbresearch.com)

That is right. Everybody thinks that everyone else should pay for mitigating climate change. Also, a vast majority of those who claim to be immensely worried by the havoc that climate change is wreaking and could wreak are unable to make meaningful changes to their lifestyles. That is what Deutsche Bank research says.

This paragraph is even better:

These survey results fit in well with actual human conduct: Private transport continues to rise more or less steadily, the average house size per capita is edging up, demand for electronic consumer goods is increasing across all generations, and consumers are only gradually becoming aware of how much food is actually being wasted. Moreover, fossil fuels still account for 79% of primary energy demand in Germany. The upshot is that the average citizen is not (yet) prepared to drastically reduce every-day consumption, even though more and more Germans claim to have cut down on their consumption in some areas for climate protection reasons.

The climate doomsday train left the station long ago. A chart in ‘The Economist’ published in 2012 showed how much humans have compressed economic activity into a very short time-span. If one is unable to understand the full import of the chart, then, there is no way to understand the time for redemption is long gone. I cannot reproduce the chart here lest I am accused of copyright violation. Here is the URL.

Over 23% of all the goods and services made since 1 AD were produced from 2001 to 2010, according to an updated version of Angus Maddison’s figures.

That is more output than the first nineteen centuries combined.

The 20th century alone produced 55% of all output since Christ (since 1 AD). If we remember that the first half was marked by two world wars, an economic depression and hyperinflation, then bulk of that 55% must have been produced in the second half of the 20th century. Therefore, humanity has produced output in the sixty years to 2010 many times more than the rest of the 1950 years combined.

No wonder that climate, environment and whales are protesting and wish to be restored. It is too late, methinks. Here is one proof:

Forest and land fires burning in Indonesia have released 360 million tonnes of carbon dioxide since August, said Singapore’s Minister for the Environment and Water Resources Masagos Zulkifli on Thursday (Sep 26) [Link]

ECB back at its futile game

My former student alerted me to the European Central Bank going back to monetary easing. Such was the power of its previous spell of sustained monetary easing and ‘whatever it takes’ efforts that, in less than a year, after ending its asset purchases, it had to go back to the tried-tested-and-failed policy. Here is the press release.

ECB’s deposit facility rate has been ‘cut’ further to -0.5%. Now, this announcement says ECB will buy even private sector bonds with yields below the deposit facility rate! Oh, yes, that means that bond purchases have resumed at EUR20.0bn rate per month until such time that interest rates begin to rise. QE Infinity!

Additional monetary easing measures can be found here and here. Banks will not have to pay the deposit facility rate to the European Central Bank for keeping excess reserves with it! How considerate of bank profitability!

In the meantime, the same former student forwarded these remarks by the Vice-President of the European Central Bank in a speech made in Rome in June 2019:

In this context (favourable macro conditions), it is important to recall that the overall effect of our monetary policy on bank profitability has so far been broadly neutral. Nevertheless, the overall effects of negative rates on the banking sector need to be carefully monitored, particularly because the balance of their effects will depend on how long rates remain in negative territory [Link]

Good luck to European banks!

Should S&P bring back ‘core earnings’?

This chart shows how S&P 500 Companies’ Operating Earnings has now reached a high share of the overall National Income measure of corporate profits. The last time it did so was in 1999-2000!

Source: https://twitter.com/GauravSaroliya/status/1156536674517753857

I remember that, in 1999-2000, Standard & Poor’s had introduced a concept called ‘core earnings’ because companies had begun to state whatever they wished under ‘Operating Earnings’. Perhaps, it is time to bring it back.

In another sign of market craziness, the 5-year Greek bond yield (1.27%) is lower than the 5-year US Government bond yield (1.5%). Does the prospect of Euro appreciation over US dollar dominate the credit risk of Greece (in comparison to the USA) or is it that the market is very confident of the European Central Bank and the European Commission rescuing Greece in the light of any default risk? Both stretch credulity, in my view. (ht: tweet by David Rosenberg).

Call Centres or Casinos and why Hastie was not hasty

Philippines is discouraging the emergence of more call centres in Manila in the name of helping other regions grow. A great public policy study on how to come in the way of a good story.

Iceland is staring at the prospect of running out of ice. [Link]

Russia finetunes its tax collection mechanism. Some would pray that Indian Income Tax does not get wind of this. [Link]

Andy Xie’s thoughtful piece on what Hong Kong didn’t get right. Commentators take snapshots. Historians observe the flow of events over time.

Revisiting Chris Balding’s twitter handle becomes essential now. He points to this interesting thread.

Chris Balding’s twitter thread on why US and China are not engaged in a trade war but something else much bigger. Clarity.

Australian politician Hastie sounds the alarm not about China but about Australians themselves. It can apply to several other nations:

Right now our greatest vulnerability lies not in our infrastructure, but in our thinking. That intellectual failure makes us institutionally weak. If we don’t understand the challenge ahead for our civil society, in our parliaments, in our universities, in our private enterprises, in our charities — our little platoons — then choices will be made for us. Our sovereignty, our freedoms, will be diminished. [Link]

This is a good perspective on how and why Hastie wrote what he wrote.

Rather shallow stuff from Yasheng Huang on Huawei. Just wondering why.

Big, big rumour. Must remember to follow this.

Two good pieces from South China Morning Post’s Karen Yeung – one on China’s dollar shortage and the other on China’s social ills reaching a tipping point.

More on why China cannot afford to let the yuan slide too much:

According to analysts at Nomura, the amount of offshore dollar bonds issued by Chinese corporations has more than tripled since the end of 2014, rising to $841.6 billion at the end of June. [Link]

We rent digital books and don’t buy them

Katharina Pistor rightly raises the alarm on Facebook’s cryptocurrency. Central bankers’ silence is, one hopes, a sign that they are studying it deeply.

Yanis Varoufakis (May 2019) writes that the stellar returns achieved by Greece’ stocks and bonds since 2012 are part of the problem. He is right. There is a gap between economic reality and financial returns. Greece is not the only place it is happening. But, it could be one of the more extreme examples. He forgot to zero in on the principal source of the problem: reckless monetary policy pursued by the developed world.

Wall Street Journal comment on the appointment of Christine Lagarde is a very good read. It is politicisation of the European Central Bank. Not that Draghi was much different. The comment notes that markets are cheering her appointment but that markets would regret it. Well said. The cheer is because it means continuation of reckless monetary policies.

Adam Tooze’ review of the book, ‘1931’ by Tobias Straumann made for very interesting reading. My friend Ajit Ranade suggested that I read a blog post by his friend on the book. I did so. It is well written. The post makes a good point about how Jews were made the scapegoats by the Nazi party when they were actually in the forefront of defending Germany’s interests in the peace conference and that the German foreign minister was Jewish, etc.

As to the take-aways from the book, I am not sure that there are neat answers to avoid a certain march of history, except in hindsight. Colour me sceptical on humans’ ability to solve the problems they create. They are good at creating problems but not that good at solving them. Most of the time they solve themselves or plain luck and humans take credit.

It is hard to quarrel with the motherhood statement made by the blogger here:

Economic orthodoxy must always take second place to the need to make sure individuals, communities and businesses are able to work and earn a decent return on their investment (labour in the case of individuals, capital in the case of businesses).  [Link]

One important take-away from Adam Tooze’ review is that democratic politics (local politics) can come in the way of doing the right thing in terms of global obligations. This is but a variant of Dani Rodrik’s ‘Inescapable Trilemma’. The review also reminded me of what I had not read yet: John Kenneth Galbraith’s account of the Great Depression.

This FT Edit made for very disturbing reading, especially for someone like me who has gotten used to reading stuff on the Kindle App in my iPad. I did not know that I am renting books and not buying them outright. As the Edit says, this is duplicitous. The Edit says that, in this regard, the revival of paper-based books is a good thing. I have to agree.

Sucheta Dalal in Moneylife has a good article on the corporate cleanup underway in India. She thinks it has been overdue. I hope she is right that it is being pursued with earnestness.

The toxic strawman

Is a case for ‘social cohesion’ racism? If comments by some of the readers are anything to go by, then the answer seems to be ‘yes’. But, this blogger is not clear that it is. It should be possible to have constructive debates in families, in societies and in nations on limits to charity.

Nations created out of communities which, in turn, were created out of tribes or groups have their own character. It is natural to want to preserve that. Within that framework, one can be generous and accommodate strangers, the persecuted, the able, the skilled and the rest. But, when the latter threatens to overwhelm the former or when the former feels threatened, it is time to have a discussion on limits.

In short, there has been and there has to be a core for each society or nation. Otherwise, societies and countries will become the equivalent of ‘travellers’ bungalows’. That will be an existential crisis for societies.

The article in FT on the tough stance adopted by the Centre-Left Social Democrats in Denmark is an important read. Indeed, one can have a seminar for a day or two on that. The Centre-Left immigration spokesperson is the son of an immigrant himself – Ethiopian father and Danish mother.

These remarks of his are central to the entire article:

The areas where the migrants are moving to are classically Social Democrat areas. So typically it will be Social Democrat voters who will have kids in schools that will have problems, typically skilled and unskilled workers who will have new colleagues. This is challenging the social cohesion in the welfare state,” he said [Link]

The conflicts and the challenges faced by open-ended immigration are borne by the poor and the marginalised in those nations that have had a history of being open to immigration and asylum seekers.

That these nations too have their poor and marginalised- even if only in relative terms – is, in turn, a problem of the model of economic organisations that countries have adopted or have been forced to adopt – capitalism without social characteristics.

One can discuss the multiple strands of implications that the article throws up. It is not just about Denmark. That is the ‘beauty’ of the article/story.

Finally, one commentator captured the problem in public debates on these issues:

So, unless you’re an open-borders fanatic, you’re a Nazi? No wonder the votes are migrating to so-called populists.

This is the mistake that the so-called ‘do-gooders’ are making. Their readiness to paint all those who do not agree with their positions as dangerous demagogues or right-wing populists shuts out adult-like discussion on important matters. That is the toxic strawman that the so-called Liberals set up to shut all necessary discussions on the topic.

In doing so, they give rise to the ‘populism-nationalism’ that they claim to abhor or detest. That seems rather daft to me.

It is important to recognise that these are not just issues of budgets or economic viability alone. These are legitimate existential questions for ordinary people.

Postscript: Over the weekend, my friend Srinivas Thiruvadanthai had shared an article by Reihan Salam of the Manhattan Institute on India, written for ‘The Atlantic’. Mr. Salam has an interesting book, ‘Melting pot or Civil War’. Sounds interesting. I have just ordered it.

Cash, community and branches

This long article in Quartz on the closure of branches in rural Scotland by the Royal Bank of Scotland is well worth a read. It is an interesting case study on many things related to business, economics and society.

One of the important take-aways in this is credibiity, trust and integrity. RBS promised that it would not close a branch if theirs was the last branch left standing in a community and proceeded to do exactly the opposite.

This is not how one wins back trust for capitalism.

Incidentally, the article has many useful links.