Localisation vs. Globalisation

An interesting article (could be behind a paywall) from Gillian Tett in the FT on how executives had already been turning away from globalisation, well before Donald Trump arrived at the White House. It is not too hard to fathom the reasons: they went for cost savings. They had dried up. So, they return. Technology has also made local manufacturing competitive, perhaps. I do not know. I am guessing. More interesting for me was the question of what it meant for the balance between capital and labour.

Globalisation – whether jobs went or work went overseas – expanded the global supply of labour. That, in part, contributed to the withering of labour bargaining power in the West and kept a lid on wage growth. This was true from the Eighties and more so in the new millennium, after the entry of China into the WTO in 2001.

Now, the big question is if the ‘reversal’ of the trend would restore the balance between capital and labour. If one may hazard a guess, it does not seem like it because this reversal is being driven by the same profit consideration too that drove globalisation.

Nothing wrong about the motivation at all except that the fruits of such business decisions were shared in blatantly lopsided fashion. Now, technology – robotics and AI – might end up postponing (or, denying) the reversal of the capital vs. labour imbalance that began in the 1980s.

One thought that the global crisis of 2008 would force a re-examination of many undesirable trends that had taken roots in the previous quarter century: leveraging, financialisation, executive compensation and the erosion of social compacts of business. That has not happened yet. One hopes (in vain) read some good news from Gillian Tett on these.

STCMA – 4.6.2017

A long article analysing various scenarios as to how demand for crude oil would evolve. All of them point to the downside from the projected demand. Well written article. Easy to follow.

A very good story on China’ ghost collaterals. Everyone fakes sincerity and everything is normal. It is one big illusion.The IFC comment that it was an isolated case is pure delight.

Millennials and home ownership in America. A distant dream. With their savings, they can afford dogs, though.

A German law professor wants Germany not to have any association with ECB’s Quantitative Easing programme any more. It is scheduled to run up to 2018.

More robots; fewer jobs – the workers appear screwed either way, robots or no robots. Post-2008, it was supposed to be different. Or so we thought.

Yuval Harari paints it stark: ‘​​Are we about to witness the most unequal societies in history?’

Rural America is the new inner city. Poignant reading.

Shankkar Aiyar on the riveting and unending saga of 100 worst districts in India. Riveting, if depressing reading.

Stuff that caught my attention – STCMA 28.5.2017

On its maiden run, Tejas Express finds headphones missing, seats dirty and scratches on TV screens. Should we be pessimistic on India because of its governments and politicians or because of the people? I would say the latter.

Shankkar Aiyar laments the lack of a constructive, credible and serious political opposition to the NDA government. The question is did we ever have it, in our polity?

Shankkar Aiyar also rues the missed opportunity of the ‘Smart Cities’ programme. He is right.

One nation – one ghee dosa – one price: Praveen Chakravarty on the extremely bad idea of the government’s price gouging authority provision in the new GST Bill. True that private sector might not pass on savings. But, his example shows how intrusive an authority to check that, can become. One hopes it is a case of bark rather than bite.

I liked this piece by Pradeep Mehta of CUTS International on NITI Aayog’s three-year action plan.

Appears more of an excuse than a legitimate justification to sideline Paul Romer (ht: Amol Agrawal).

Abhijit Banerje’s piece in ‘Indian Express’ could have been worse.

This piece by Yuval Harari on how the world would cope with technological progress that would render them unemployed is either too subtle for me or it is too frivolous. Perhaps, it is a parody on progress? If so, I like it. (ht Ravikumar from Washington, DC).

This MINT Edit spotlights the speed with which we reconcile to mediocrity and second and third best worlds. It deals with the issue of how the proposed Goods & Services Tax (GST) in India on Services is too complicated.

From the man of the mangled metaphors, this article, superficial as it is, is well worth a read because he has done what good journalists are supposed to do – go and verify things for oneself.

Ramesh Ponnuru on the Liberal blind spots. Short but effective.

There are times one should be happy that articles are behind paywalls and cannot be accessed. Saves time and much else.

Ajit Ranade pays tributes to a silent tree lover who passed away too young. Nice to remember and reflect.

It can and should be stopped

There is an interview of Dr. Arvind Subramanian (AS for convenience), the Chief Economic Advisor to the Government of India in FT. The interviewer is James Crabtree (‘James’). I know James a little better than I know AS. I had met the latter once in 2010 when we both were invited to the preparatory meeting for the Indo-Chinese Strategic Dialogue, by Mr. Shivshankar Menon, the then National Security Advisor to the Government of India. Of course, he had given a nice blurb to my co-authored book, ‘The Economics of Derivatives’ with Dr. Somanathan. He knows Dr. Somanathan well and respects him.

James now lives in Singapore and I have interacted with him in person and exchange emails from time to time. He is an easy-going chap. He was nice enough to tweet my critical analysis of his analysis of the Uttar Pradesh election results in India in March.

When AS was being considered for the post of CEA, I had checked my own blog posts that referenced him. There were quite a few. I had been blogging for little over six years then. Almost all of the posts had only approving references to his works or views or both. So, I mentioned it to some people whom I thought were closer to the powers-that-be in the ruling dispensation in Delhi.

He has done a very decent job so far. He has made very useful contributions to the progress of the Goods & Services Tax legislation in the country. His annual Economic Surveys are thoughtful and useful for the most part, although I disagree with the consensus view on this year’s Economic Survey, especially with respect to the idea of Universal Basic Income for India. India does not need it. India cannot afford it. Even for the West, it is more a romantic than a useful idea and it is a salve for the consciences of the technology billionaires who are facilitating its destruction of life and society, as we know them. Work is much more than about salaries and handouts are poor substitutes for them. I have more to say on technology later because AS had chosen to mention it, in the interview. Indeed, that is the main and  a large portion of this post.

The only time I disagreed with him and sharply too was on the joint column he wrote for ‘Bloomberg Views’ with Dani Rodrik on the ‘whining’ of Emerging economies on the spillover from the Federal Reserve monetary policy. I thought they were completely on the wrong path. Subsequent research, even from sources like the International Monetary Fund, had confirmed that spillovers are a painful and inevitable reality even for well-run and well-managed emerging economies with sound fundamentals.

Now, back to this interview. It has nice pictures of his pad in New Moti Bagh in Delhi. His Pooja shelf features Shri. Ramana Maharishi. Nice. He has cassettes. So, do I. I do not know what to do with them these days. Even CDs have quickly been replaced by other means of listening.

For the most part, in his interview, he hits the right notes on his boss. That is to be expected. He hits the right notes on India too. The interview is a bit thin on substance though.

James refers to Modi as a leader who brooks no dissent. It would be rather useful to know if any political leader brooks or has brooked public dissent. The real issues are about how they dispose of the dissenter rather than if they allowed them to thrive and that too in public view. So, I am not sure as to the point of it. No politician who makes it to the top in competitive democratic politics will be a front-runner in the competition for the ‘Mr. Nice Guy’ award. That includes the former U.S. President Barack Obama.

For the most part, journalists are either naive or take their readers to be so or it is a bit of both. I am disappointed that James is doing that here.

As for AS’ remarks,

“’Hyper-globalisation is dead, long live globalisation,’ is how I like to put it,” he says. “If you look crudely at the post-war period, 80 per cent of globalisation is driven by technology, 20 per cent by policy. And that 80 per cent, you can’t stop.”

I take issues with that. Well, I winced. At a very philosophical level, many things in the world are processes over which humans have very little or no control. We are mere cogs in the wheel. But, modern societies and governments are organised on the principle that humans are in charge. They choose and decide. Blaming technology is a bit like blaming terrorism or saying that the West is at war with terrorism. That is seemingly clever but a bit daft and stupid.

The world cannot be at war with terrorism. It is at war with terrorists. Period. Nothing more. Nothing less. Narrowing it down further to geographical markers or specific religious markers is also necessary to focus efforts. Euphemism is part of denial and it helps to lull people into believing that something is being done while nothing worthwhile is being done. That is why my eyebrows went up when I read an article in Bloomberg that McMaster advised President Trump against using the phrase, ‘radical Islamic terrorism’ in his Presidential address to the Congress.

Back to technology from terrorism, even though both could be terrorising humans and societies. Technology is deployed and advanced by leaders – political, commercial and scientific – making choices. It does not advance by itself. Some technologies have been shelved and some have been abandoned because their negative externalities were judged to exceed vastly their private benefits or even public benefits.

Several examples would help. The decision by President Nixon to open up to China was a choice. The decision to admit China into WTO even before it became a ‘market economy’ was a choice. The decision to sign the NAFTA was a choice. The decision to repeal Glass-Steagall Act was a choice and so was the decision to legislate the Commodities Futures Modernisation Act in the United States. All of them had consequences. Financial and technological innovations amplified the consequences greatly. Some of the decisions were made without awareness of their fallout on communities, on families and on society. Only economic and commercial considerations, at the aggregate level, were the decisive actors.

That is why Bill Gates was right to propose taxing robots. Obviously, robots do not pay taxes but the companies that are behind them do. The tax may and could even be punitive enough to stop some of the research and advance in the technology. That is not being Luddite. That is being careful about consequences. That is about being honest and humble about forces that one is about to unleash, about which one has no ideas and over which one has no control. That is about recognition of human limitations.

“High-tech hubs were among the five metropolitan statistical areas where the gap between the highest- and lowest-income households expanded the most: two in California, San Francisco and San Jose, as well as Austin and Seattle.” [Link]. The article’s header is a tell-all tale: ‘America’s rich get richer while the poor get replaced by robots’.

Predictably, Larry Summers has objected to Bill Gates’ proposal. Mr. Summers is a very useful weathervane for the direction in which conventional wisdom is blowing. It is usually wrong. Summers’ views are useful for many of us to make up our minds – usually in the other direction. Here is another example. But, that is a different topic.

Political correctness prevents many from admitting to their inability to comprehend the present and the future, especially with respect to such obviously disruptive developments. There is more disruption than progress about them. Tyler Cowen’s article in Bloomberg in February is an example of this unfortunate political correctness. He concludes on that note despite advancing all useful and important arguments against precisely such a stance.

Perhaps, Tyler Cowen, AS and Summers should read an article that appeared in ‘Quartz’ last month. The article is headlined, ‘No one is prepared to stop the robot onslaught. So what will we do when it arrives?’.

The article notes, “In February, the European Union did consider rules that, while not stopping the robots, would have the force of discouraging automation by compelling companies to pay compensating taxes and social security payments for jobs that their robots wipe out. But, EU parliamentary members balked even at this, adopting much milder language that exacts no retribution on the robots or the companies that use them. A pivotal dynamic in the vote seemed to be a reluctance on the part of the deputies to expose themselves to possible ridicule as Luddites.”

That is the problem. Andrew Feenberg, who teaches the philosophy of technology at Simon Fraser University in Vancouver, says, “Doing trade deals and robotics without consideration of the people displaced is insane. The backlash is understandable.”

Feenberg notes, “Societies do have choices with respect to technology.” He is very right.

In sum, this long post is a message to AS that it can be stopped and we, humans, would do well to make choices because we can make them. It is both fashionable and wrong to say that technology cannot be stopped.

Micro sense and macro no sense

Infosys uses its artificial intelligence to eliminate the need for lawyer. Hardly the right remedy for India.

This is like the paradox of thrift. What makes micro sense makes no macro sense. What is the answer? How to bridge incentives or simply prepare for CMAD – Collective Mutually Assured Destruction?

“For now, we have AI  at  a  unique situation, where on the one hand it is eating the jobs of the past but on the other hand it is creating far greater opportunities for jobs of the future,” Sikka added. [Link]

That is baloney. He surely does not know. Not his fault. He cannot. None of us know. We unleash things without knowing the consequences. We are limited. IF we recognise that much, we would do fine. But, we don’t.

I draw attention to the blog post dated March 6, 2017.

Confronted with confounding complexity

Ever since I read Martin Ford’ ‘The rise of the robots’, I have been following his Twitter handle, from time to time. I am not on Twitter. Over the last two days, I had a rich harvest of articles to read. Just finished reading them. I am yet to comprehend the full import of all that I had read. Perhaps, it is not just possible.

The article about driverless trucks and the consequences of automation on the rise of extreme sentiments is of a garden-variety nature compared to the other articles that I read.

Prof. Tyler Cowen has a piece in which he expresses considerable disquiet about what the robotics/AI revolution holds. He presents evidence on what the Industrial Revolution wrought in terms of real wages. He is right that it has caused real pain to many, many people. Time has airbrushed them out of our collective conscience. More importantly, some of us never really experienced the fallout. So, it is easy to sound academically rational about it or as a techno-optimist.

Yet, he contrives to conclude on a note of ‘full steam ahead’. I am not able to understand that one. His choice. Useful to know the name of an economic historian, Gregory Clark, at UC Davis.

Then came the MIT Technology Review article. That too invoked an economic historian: Joel Mokyr at Northwestern University. His understanding of the problem seems very reasonable:

has spent his career studying how people and societies have experienced the radical transitions spurred by advances in technology, such as the Industrial Revolution that began in the late 18th century. The current disruptions are faster and “more intensive,” Mokyr says. “It is nothing like what we have seen in the past, and the issue is whether the system can adapt as it did in the past.”

But, his answer?

Mokyr describes himself as “less pessimistic” than others about whether AI will create plenty of jobs and opportunities to make up for the ones that are lost. And even if it does not, the alternative—technological stagnation—is far worse.

But, again, a good description of what a loss of a job means in the modern society:

There is no question that in the modern capitalist system your occupation is your identity,” he says. And the pain and humiliation felt by those whose jobs have been replaced by automation is “clearly a major issue,” he adds. “I don’t see an easy way of solving it. It’s an inevitable consequence of technological progress.”

Past is no guide to the future but is our recollection of even the past accurate?

Sample this:

Personal computers, the Internet, and other technologies of the last several decades did replace some bank tellers, cashiers, and others whose jobs involved routine tasks.

The full impact of the computing and internet revolution is being felt now. They enabled outsourcing and offshoring. Those who lost their jobs or income or both now want to shrink the world back to the familiarity of the past, in their own ways. Can we say that thse technologies simply replaced routine jobs and did nothing more in terms of damages?

Again, the same facile conclusion:

if we fail to use the technology in a way that benefits as many people as possible (see “Who Will Own the Robots?”), we risk fueling public resentment of automation and its creators. The danger is not so much a direct political backlash—though the history of the Luddites suggests it could happen—but, rather, a failure to embrace and invest in the technology’s abundant possibilities.

This is a short one but more of an introduction/summary of the BankUnderground blog post. BankUnderground is maintained by the Bank of England staffers. The header makes sense. To me, that is.

The Bank Underground article is a very important read because it shows – a bit like Tyler Cowen’s article above – how ‘this time it might be different’ – in terms of the time the latest wave of technology affords humans and societies to adapt – it could be far less. Telescoping of the pace of change – ask Alvin Toffler. Well, we cannot. He died last year but, who knows, technology might enable us to do so sometime in the future.

This is a series of articles in ‘Scientific American’. The lead article is a MUST READ. It touches upon all aspects such as personal liberty, our abilities to think, our freedom to make choices, etc., all those that will become playthings of technology. The page is not well formatted because headers of the subsequent sections merge into previous paragraphs.

Interestingly, the word, ‘complexity’ occurs eight times in these articles. Some of the sentences that bear them are interesting.

  1. But one look at the relevant scientific literature shows that attempts to control opinions, in the sense of their “optimization”, are doomed to fail because of the complexity of the problem. The dynamics of the formation of opinions are full of surprises.
  2. In a rapidly changing world a super-intelligence can never make perfect decisions (see Fig. 1): systemic complexity is increasing faster than data volumes, which are growing faster than the ability to process them, and data transfer rates are limited.
  3. Centralized, top-down control is a solution of the past, which is only suitable for systems of low complexity. Therefore, federal systems and majority decisions are the solutions of the present. With economic and cultural evolution, social complexity will continue to rise. Therefore, the solution for the future is collective intelligence.

This is an important point:

Collective intelligence requires a high degree of diversity. This is, however, being reduced by today’s personalized information systems, which reinforce trends…. Reducing sociodiversity often also reduces the functionality and performance of an economy and society. This is the reason why totalitarian regimes often end up in conflict with their neighbors. Typical long-term consequences are political instability and war, as have occurred time and again throughout history. Pluralism and participation are therefore not to be seen primarily as concessions to citizens, but as functional prerequisites for thriving, complex, modern societies.

If technology is tailored to reinforce and exploit what we like, then…. we lose the ability even to tolerat the ‘other’, let alone have an understanding of and accept them.

Thanks to Big Data, we can now take better, evidence-based decisions. However, the principle of top-down control increasingly fails, since the complexity of society grows in an explosive way as we go on networking our world. Distributed control approaches will become ever more important. Only by means of collective intelligence will it be possible to find appropriate solutions to the complexity challenges of our world.

There is a long NYT article on how Universal Basic Income is being experimented with, in a  village in Kenya. The idea of cash transfers is very appealing in such situations. But, it might prove to be wholly inadequate to the problems that AI/Robotics would be throwing up. For now, it is gaining traction because of the conscience salve that it is, for the technology industry. When Bill Gates said that one should tax robots, clearly, the technology companies that are unleashing them should pay for the externalities they are going to create. Taxation is the best instrument for it.

Just as banks have to create living wells and take up insurance to guard against economic consequences of their failures lest taxpayers are on the hook for collectivisation of losses while gains were kept private, technology companies have to do the same.

However, one good thing with UBI or Cash transfer is that the aid industry, as we know it, would be dead and that is a good thing.

Another NYT article says that with the recovery in oil prices, oil production is back on track in the United States but not the jobs. Nearly one third to one half of the jobs lost won’t come back. Why? Automation.

This may sound like a somewhat relatively lighter article about robots delivering sharing space with pedestrians but it would put delivery workers, drivers out of their jobs.

So, in the end, are we wiser? Yes. Are we confused? Yes. Are we worried? Yes. Do we have answers? No, except ‘tax the hell out of the companies that develop these’. For now, that is my only answser. One blogger is not going to stop the relentless march of humans to extinction in whichever manner it is achieved – hand to hand combat, animals, spears, arrows, swords, guns, bullets, missiles, bombs and technology.

It is time to remind the readers of the man who tried to redeem the world with logic. That is what these companies are trying to do with their technology. If you had not read that article, you should. If nothing else, it should make us humble, at least for a while.

Inflation and interest rates – a BIS primer

I have been wanting to write this for quite some time ever since I read the chapters of the BIS Annual Report, 2015-16 recently (in January). BIS question the judgement that bond markets are efficient and that low inflation of the last quarter century was a product of central bank policies and their independence. First, on inflation:

Inflation is a highly imperfect gauge of sustainable economic expansions, as became evident pre-crisis. This would especially be expected in a highly globalised world in which competitive forces and technology have eroded the pricing power of both producers and labour and have made the wage-price spirals of the past much less likely…. international supply chains can be a powerful mechanism through which global factors impinge on domestic inflation, regardless of domestic capacity constraints.

In the highlighted portion above (my emphasis), BIS economists have spelt out their model of inflation determination. In other words, low inflation does not meant that the prevailing economic and financial market performance is a sustainable one.

On long-term interest rates set in and by the financial markets (Emphasis mine):

All estimates of long-run equilibrium interest rates, be they short or long rates, are inevitably based on some implicit view about how the economy works. Simple historical averages assume that over the relevant period the prevailing interest rate is the “right” one. Those based on inflation assume that it is inflation that provides the key signal; those based on financial cycle indicators – as ours largely are – posit that it is financial variables that matter. The methodologies may differ in terms of the balance between allowing the data to drive the results and using a priori restrictions – weaker restrictions may provide more confidence. But invariably the resulting uncertainty is very high.

This uncertainty suggests that it might be imprudent to rely heavily on market signals as the basis for judgments about equilibrium and sustainability. There is no guarantee that over any period of time the joint behaviour of central banks, governments and market participants will result in market interest rates that are set at the right level, ie that are consistent with sustainable good economic performance. After all, given the huge uncertainty involved, how confident can we be that the long-term outcome will be the desirable one? Might not interest rates, just like any other asset price, be misaligned for very long periods?

It is hard to visualise such (well justified) scepticism of markets coming from any advanced country central bank head.