Who would have thought that ‘The Economist’ would be forced to write a leader on the love of the millennials for socialism. I think, once again, the diagnosis is correct. But, the solutions are hackneyed. Capitalism has gone to extremes. Share buyback, financed by debt, and its brazen link to executive compensation are just an example.
Pity that an astute observer like James Mackintosh twists himself too much to exonerate or minimise share buyback. It is hard to understand how one has to be mutually exclsuive about these things. That is, one can be critical of share buybacks and one can also be critical of the other stuff that he writes. Why does it have to be EITHER/OR?
This is incredible. The story is about how some of the corporate bonds that the European Central Bank bought went bust barely a year later. Had it happened in India, all hell would have broken loose and the Reserve Bank of India would have either had to close down and then be reinvented or the entire management and the Board would have had to resign. But, there is barely an eyelid batted in Europe. They preach governance to us. Read these extracts:
Scores of banks and bond investors were freely lending to investment-grade rated companies on not particularly onerous terms back in 2016. Yet the ECB determined that jostling its way to the front of this queue would boost investment and create jobs. What it did create were immediate pricing distortions, with companies able to issue negative-yielding bonds for the first time — charging investors for the privilege of lending to them. …
This QE bezzle was sometimes dramatically revealed even while central bank bond-buying was in full swing. Months after the ECB bought Steinhoff’s bonds in 2017, it had to dump the position at half face value amid an accounting scandal at the retailer. [Link]
I do not think Indians are paying attention to what is happening in Italy although folks of Italian origin continue to make the news in Indian politics. Mateo Salvini, one of the two Italian Deputy Prime Ministers,spoke about seizing the gold reserves from the Bank of Italy. Again, had the Government in India spoken like this, the so-called elites will have concluded that India was doomed forever.
In the meantime, the other Deputy Prime Minister did meet anti-government protesters in France:
Italy’s Deputy Prime Minister Luigi Di Maio said he met leaders of France’s “yellow vest” anti-government movement on Tuesday, an encounter likely to further test already strained bilateral relations. [Link]
Interesting, isn’t it?
For economists who see ominous patterns in the world of numbers, one figure — 18 — is giving pause for thought. Last year, China, the world’s second-largest economy, accounted for 18 per cent of the global economy — just like Japan on the cusp of a decade of stagnation, and just like the Soviet Union shortly before it collapsed.
“In different ways, the USSR and Japan both stumbled when they faced the need to generate growth from more bottom-up, entrepreneurial, service- and network-oriented activities,” says Arthur Kroeber, managing director of research company Gavekal Dragonomics. “Despite a strong record of bottom-up dynamism, China is now moving in a much more statist direction.” [Link]
That leads to interesting political battles too:
Last month, the son of 1980s reformist leader Hu Yaobang warned that the USSR’s demise was due to overly centralised power and over-reliance on a planned economy, in a pointed swipe at Mr Xi. The son of reformist leader Deng Xiaoping has similarly warned that the country’s aggressive international stance could lead to danger. [Link]
The Free Exchange blog in ‘The Economist’ argues that a world without Facebook will be a better place. It might be hard to quarrel with that, even for FB users.