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.

Is it a Japan tragedy?

Early on Tuesday morning, read this interesting (and sad, to an extent) piece in the Nikkei Asia Review on Japan’s scenic golf courses in rural parts. But, the story is interspersed with narratives of dwindling populations and innovation.

Sample this:

The town of Nemuro lost its only obstetrician last year since its birthrate had fallen so low. Its fishing industry may be strong — global tennis star Naomi Osaka’s grandfather once served as chairman of the cooperative — but nobody new is moving there.

The lament is not particularly constructive but I doubt if any reconstruction is possible:

Somehow Japan has lost its will to innovate, to develop new technologies and to compete with the rest of the world. A pervasive conservatism has infected much of working and social life, leaving regional Japan a museum-like landscape of rural beauty and Asian culture. Buddhist temples of astonishing grace, Shinto shrines of perfect simplicity, small fields of rice or vegetables, and orchards of flawless fruit decorate the countryside. Yet behind it all are dying towns, shuttered shops, and unending road projects or concrete barriers piled up along island shores to protect against typhoons.

Abenomics works to preserve the tranquil beauty of rural Japan and sustain its culture. but what is going to save rural Japan from the hollowing out that you can see, hear and feel? The digital economy is barely discernible here, stunted by too many large corporations whose overweening presence in national policymaking makes the startup sector a minor sideshow instead of a pathway to the future.

Demographics are long-term and slow-moving trends in motion. They have impact on innovation and investments, etc.

Somehow, I feel that Buddhist Japan will and is handling its aging better than the Christian West would do or is doing. The swing towards relative and growing intolerance of strangers amidst dwindling economic prospects could be traced not just to a financial crisis but also due to demographic transition towards a greying population in the West.

The crisis pulled the economic rug from under the feet of millennials. More debt in America and youth unemployment in Europe. The older generation is reacting to the economic loss (networth wiped out by the decline in asset prices and having to work into old age) and the social aspects of globalisation.

Each and everyone of us who have crossed 50 can reflect on how their own attitudes towards many things have shifted and are shifting with age, slowly, imperceptibly but surely.

At a policy level, to counter this with even more forced immigration is a policy disaster which is what ‘liberals’ would want governments to do. One has to accept the costs of the economic crisis and demographic trends and work with them rather than seek to overturn the consequences forcefully. That ends up feeding the resentment.

STCMA – 06 May 2019

(1) An empirical essay on the non-causal (or, non-correlation) link between money supply measures and consumer price inflation. Some of the comments below the essay are unfair. The paper reinforces the argument that the evidence of consequences of loose monetary policy are to be found elsewhere and that inflation dynamics remains the least understood phenomenon by economists, among others. By sheer elimination, the only thing that seems to be explaining inflatin dynamics is the wage dynamics. As long as workers’ anxieties are high and wage growth low, we should expect conventionally measured consumer price inflation to remain low in the developed world.

(2) Following deregulation, bank credit flows more to non-productive investments, says this brief based on an empirical work published in November 2018. At the same, credit guidance, with political economy, leads to inefficient credit allocation. That is the evidence from developing economies. Where is the golden mean and how to find it?

(3) Four decades after Washington and Beijing re-established diplomatic ties, the doors on scientific and technological engagement appear to be closing fast. A wary US has accused its biggest trading partner of getting ahead by unfair means, from forced technology transfers to intellectual property theft and industrial espionage. …. Since last summer, Chinese students involved in robotics, aviation, engineering and hi-tech manufacturing – priority areas in Beijing’s “Made in China 2025” industrial policy – faced tighter visa controls. [Link]

(4) China is encouraging consumer credit loans now. Doesn’t sound like the right thing to do and sounds more like desperation, especially if you read this news in conjunction with this story too, on tighter foreign exchange approvals for Chinese residents, taking money out. Does not sound like a healthy economy.

(5) This BBC story presents a more balanced picture, than stories that appeared elsewhere, of the election results in Spain. Socialists did surprisingly well but so did the so-called ‘Far Right’ Vox party.

(6) Hong Kong’s extradition laws – deporting people to the mainland to face trial – are drawing protests. I guess, one would say, that is unsurprising. The laws supposedly contain safeguards against people charged with political and commercial crimes from being sent to the mainland. But, not many are convinced that they would be honoured.

(7) One more example of technology running amok – cashless and till-free shopping at a Sainsbury pilot in the UK. Just as backlash over social media platforms are rising, this too would face a backlash:

Last year’s Access to Cash study, commissioned by Link, found 8m people would struggle to exist in a cashless society, noting that those with a heavy reliance on cash tend to be older and poorer. Most basic bank accounts, designed for those with a poor credit history, do not come with contactless cards. [Link]

(8) Jamil Anderlini’s short piece in FT on the Islamic world’s mostly silent indifference (read, ‘acquiescence’ in reality) to China’s treatment of Uighur Muslims is a good read. Two important quotes:

In the aftermath of the horrific mosque shootings in Christchurch in March, Jacinda Ardern, New Zealand’s prime minister, earned great praise throughout the Islamic world for her sensitive and empathetic response to the tragedy. But on a trip to Beijing barely two weeks later, Ms Ardern refused to mention the situation in Xinjiang, despite public calls from Muslim and human rights groups to do so. [Link]

The New Zealand Prime Minister’s non-reaction is rather typical of the so-called Liberals. Their selective outrage is what has lost them trust, goodwill and credibility among voters and alienated most of them towards other relatively more outspoken outfits in their own countries. They continue to refuse to heed the lessons. That is irrational. Does that go together with the tag of ‘liberal’?


Put it this way: mocking Donald Trump and his administration or criticising American policy will not trigger US sanctions. Countries, companies or, indeed, newspapers that attempt the same with Xi Jinping and China do so at their peril. [Link]

(9) As a former Australian Prime Minister, would Kevin Rudd not be embarrassed by what Paul Keating has to say on China? [Link]

The ‘Enlightened’ West

Now, of course, all the 12 disciples, like Jesus himself, were Jews – yet, as this new exhibition shows, it was Judas who western art chose to depict as the Jew, often with the red hair that marked him out as a betrayer, alongside his mysteriously fair-haired, fair-skinned fellow apostles. The power of the Judas story lives on: Judas a byword for traitor, the word Jew and Judas almost indistinguishable in several languages, including German. [Link]

I am glad that this article appeared in ‘The Guardian’ (ht: Rohit Rajendran). The important thing to note for readers is how optics is used to influence us and manipulate us, without us being conscious of it – Judas with red hair and other jews are ‘fair-haired’ and ‘fair-skinned’!

So much for Western openness, tolerance, reason, racial harmony vs. Eastern (Indian) prejudice, intolerance, bigotry and untouchability, casteism, etc.

ECB is back!

So, the European Central Bank made some noise about reversing its Quantitative Easing and ‘Whatever it takes’ policy decisions. After having split open the European Union countries with the consequences of its monetary policy, the ECB has now reversed its stance and has actually announced monetary stimulus today!

So, here is the gist:

Do six years of ‘whatever it takes’;

Threaten for six months to end it, without ending it;

The economy rolls over.

Then, go back to ‘whatever it takes’

That shows the efficacy (or, more precisely, the lack thereof) of their policy. Yet, there are people who do not ask those questions and advocate it (again) and the ECB obliges.

How about this for monetary policy prudence and sobriety?

Still, the ECB refrained from more extreme measures such as restarting its bond-buying program or cutting its deposit rate further from minus 0.4%. These options weren’t discussed, Mr. Draghi said. [Link]

Then, we write tomes on why ordinary folks are angry.