- Sanjeev Sanyal in Business Standard : Building cities for 21st century India, Delhi (which leads you to delhinullahs.org), and Calcutta. Also see: The Sustainable Planet Institute.
- Why investment banks were fated to be roadkill, in Financial Express by Viral Acharya.
- On Mumbai’s Streets, Cabbies Fight To Keep Passengers Uncomfortable by Eric Bellman in the Wall Street Journal. A simple emphasis on law and order would go a long way.
- Green roots of recovery, by Ila Patnaik in Indian Express.
- In Foreign Policy magazine, Steve Coll has a great article on how the US should think about its AfPak strategy. India has a lot at stake in ensuring that this works out right.
- Brian Krebs is a columnist on computer security for The Washington Post. He has recommendations for customers — and implicitly for banks — on how to be safe when doing Internet banking.
- Editorials in Financial Express on the confusion that arises in India owing to the pervasive use of year-on-year growth rates: 13 October and 14 October.
- Andre Beteille, in the Telegraph, on The language of rights.
- Rob Walker in the New York Times, on the frontiers of quantification of Indian music.
- An editorial in the Telegraph on the disappointing perpetuation of censorship in various aspects of the Indian government.
- In response to The museum of innocence by Orhan Pamuk: a review in the New York Times by Maureen Howard, review by Pico Iyer in The New York Review of Books, and Negar Azimi in the New York Times on the museum that goes with the book.
- In the story of Microsoft vs. Unix, Windows 7 seems to have reached the point where, in David Pogue’s words: “Microsoft employees can show up in public without avoiding eye contact”. On another front, Microsoft seems to be losing the cell phone to the two Unixes playing in that space. See Daniel Lyons look back at Microsoft’s last decade, and a great Bill Gates story by Joel Spolsky.
- Baby you were born to run by Tara Parker-Pope, in the New York Times.
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The first message to ever travel between two computers connected via the ARPANET, the computer network that would become the Internet, happened on 29 October 1969. The Internet just turned 40. And 40 is the new 20. It is incredible that Al Gore, born 31 March 1948, was able to invent such an amazing series of tubes at the age of 21. Technology is rapidly changing humans, life and relationships. In fact, the homo sapien is about to become obsolete. Perhaps 300 will become the new 20. Forewarned is forearmed and this article is both objective and persuasive. But while the baton, taser, assault rifle or stealth bomber may be used in lieu of conversation words will always retain their power. As Ludwig von Mises wrote in Socialism on page 460, ‘Only ideas can overcome ideas.’ and in Omnipotent Government on page 210, ‘Both force and money are impotent against ideas.’ Words proffer the instruments to meaning. Equity, freedom, justice, peace and prosperity. These are not mere words; they are vantage points. OPEN SOURCE SOFTWARE One major trend with the Internet is the open source environment. Open source software is where the original source code is made freely available and may be redistributed with or without modification. There are many examples such as Linux, SourceForge or Wordpress. The speed and adaptability of the open source environment cannot be ignored.
For example, in a memo from deputy CIO David Wennergren to top military officials he wrote, To effectively achieve its missions, the Department of Defense must develop and update its software-based capabilities faster than ever, to anticipate new threats and respond to continuously changing requirements … The use of open source software can provide advantages in this regard. The open source environment is the opposite of a classified environment. The source code may be viewed by all. Every single revision may be viewed by all. Transparency is fundamental to the process much to the consternation of some parties. For example, a researcher built at monitoring tool called Wikipedia Scanner for the online open source encyclopedia Wikipedia. The BBC reports two examples: An online tool that claims to reveal the identity of organisations that edit Wikipedia pages has revealed that the CIA was involved in editing entries. Wikipedia Scanner allegedly shows that workers on the agency’s computers made edits to the page of Iran’s president. … “The changes brand Mr Limbaugh as “idiotic,” a “racist”, and a “bigot”. An entry about his audience now reads: “Most of them are legally retarded.” The IP address is registered in the name of the Democratic National Headquarters. Once the taste of such freedom has been experienced it is difficult to extinguish the desire for more. Additionally, the fundamental thinking process spreads over into other aspects of life. OPEN SOURCE VOTING The Wall Street Journal reported 9 September 2009 that Diebold (DBD) Election Services which provides proprietary non-publicly viewable voting software is selling their unit to Election Systems and Software. Senator Schumer is concerned about the sale because it gives about 75% of the market share to a single company. But Diebold Election Services, which has since changed their name to Premier Election Services, has been caught tinkering around with Wikipedia. John Borland at Wired reports, On November 17th, 2005, an anonymous Wikipedia user deleted 15 paragraphs from an article on e-voting machine-vendor Diebold, excising an entire section critical of the company’s machines. While anonymous, such changes typically leave behind digital fingerprints offering hints about the contributor, such as the location of the computer used to make the edits. In this case, the changes came from an IP address reserved for the corporate offices of Diebold itself. What could possibly be at issue? Well, in 2003, Walden O’Dell, CEO and chairman of Diebold, was a top fundraiser for George W. Bush’s Presidential campaign. As Hacking Democracy’s documentary revealed a letter sent by O’Dell to Ohio Republicans stating that he is “committed to helping Ohio deliver its electoral votes to the president next year.“ Of course, this situation would be too funny, if not so sad, for The Onion to leave it alone. With the available technology and open source software why is voting not completely transparent and accountable? Why is proprietary software, owned by private companies and not available for public review, used? GOLD AND FIAT CURRENCIES Fiat currencies are like the common stock of nations. All fiat currencies are in long-term bear markets when compared against gold. This portends civil unrest which has already broken out in Iceland, Greece, China, Iran, the United States and others. Governments may have had a role and been able to function earlier. When the economy was not very complex a thug could tell someone how much they could charge for a cow. But in our current extremely complex society that is riddled with chaotic fingers of instability the distortions that come from government are extremely disrupted to a civil society. At all times and in all circumstances gold remains money. Thus, during this age of turbulence you will know that unlike Bear Stears, Fannie Mae or Washington Mutual stock or Zimbabwe Dollars; gold can never become worthless. Remember, governments only consume wealth. They are parasitic and produce nothing. The only way they gain and maintain market share is through the threat or use of violence against innocent individuals. For matters of morality is a robber’s costume material? But governments, particularly the large Welfare States, are archaic and barbarous institutions that are no longer needed with our more advanced and civil society. Statism is an ineffectual excuse for immoral behavior. Statism is merely a human livestock management practice. GOVERNMENTS LOSING THEIR WHUFFIE Whuffie is the ephemeral reputation-based currency of Cory Doctorow’s science fiction novel Down and Out in the Magic Kingdom and current application to the Internet is explained in the fascinating The Whuffie Factor. The primary goods and services that governments sell are theft, corruption, famine, pestilence and war. Sure, the costumed criminal gangs strut around lying about how they are protecting markets through regulation but who can seriously believe them? The smart kids in school go off and start business while the dumb kids become the regulators because it is the path of least resistance for the immoral. Seriously, the dumb kids are going to regulate the smart kids? After all, the dumb kids think they know how the series of tubes works. As a result, the smart kids often just purchase the dumb kids through bribes, extortion, etc. Is this deep capture any more plain than with Goldman Sachs (GS) and JP Morgan (JPM)? There is a plethora of whistle-blowing that shows up on the open source Wikileaks. Citizens, human livestock, are more productive for their farmers, the elite Wall Street bankers, when they believe the illusion that they are free. Thus statecraft has evolved to be ‘of, by and for the people’. But now the human livestock is realizing their true relationship to the State; they are good only for milk on April 15th and meat in Iraq, Afghanistan or H1N1. They realize that if voting made any difference it would be illegal. They begin to see governments more like an acne infection on the earth’s face that needs to be cleansed. LIVESTOCK RUMBLINGS And so the livestock, awaking to the reality of their being owned, are grumbling and mumbling. Millions have marched on Washington DC. The ideavirus is spreading from hive to hive. What ideavirus? That governments are costumed criminal gangs hired by bankers that are engaged in purely immoral and unethical behavior to lie, steal, cheat, defraud and murder. That their little paper tickets issued by the unaccountable and close-source Federal Reserve are the primary way they fund these nefarious activities. That the psychopathic bankers are able to privatize the gains and socialize the losses. The best possible way to deal with these parastic vampire squids was enacted by the Founding Fathers in Section 19 of the 1792 Coinage Act that provided for ‘any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, * * * every such officer or person who shall be guilty of any * * * of the said offenses, shall be deemed guilty of felony, and shall suffer death.’ As Bloomberg reported on 15 September 2009, James McDonald, chief executive officer of New York investment firm Rockefeller & Co., died Sunday from a single gunshot wound that was probably self- inflicted, officials in Massachusetts said. CONCLUSION Technology is rapidly moving forward. It has enabled ideas to spread at rapid speeds. The spread of these ideas is undermining the current power structures and revealing things are they really are. The FRN$ and all other fiat currencies are evaporating before the heat of gold and the rise of digital commodity currency. But all of the current machinations are nearly insignificant compared to the larger picture that soon a whole new level of species is likely to develop called the Homo Evolutis. Governments have been a constant retardation for evolution and advancements as life struggles from the swamps to the stars. Try to escape from being collateral damage as life will be what it was born to be: FREE AND INDEPENDENT. DISCLOSURES: Long physical gold and silver and no position in DBD, JPM, GS or the problematic SLV or GLD ETFs.  Join the forum discussion on this post - (2) PostsI really got a laugh out of the report from Bloomberg that the Democratic Party of Japan (known in the parlance as DP) won an historic victory in the recent elections, coming to power for the first time in decades with “a pledge to support households battered by two decades of economic stagnation”, whatever that is supposed to mean, but which is, upon even casual inspection, Standard Political Crapola (SPC). The interesting part is that the new prime minister, a guy named Hatoyama, said “he’ll avoid more bond sales, so new spending will depend on his success in shrinking the bureaucracy and public works programs”, which is so laughably, ludicrously impossible, especially in such a corrupt, lopsided economy that it makes me, a stupid American who really doesn’t know what in the hell he is talking about, who lives thousands of miles away, in another country and hemisphere, turn up his nose at the sheer stink coming from that idea! Phew! Of course, this valuable piece of Righteous Mogambo Scorn (RMS) is because it is obviously, obviously too, too late for that. It is too late, just like it is too late here in the USA, and just like it is too late almost everywhere else, too, where years and years of increasing government spending and control means that government IS the economy, and shrinking the size of government obviously shrinks the economy! Hahahaha! Oops! So, to the Japanese, I say, “Hahaha! Too late for that, you dumb Japanese chumps! Now you are going to pay a huge penalty for being such morons with your fiat money, and then especially involving the idiot Americans and their fiat money!” Anyway, crude and rude xenophobic insults and senseless bigotry aside, an example of this is that, here in America, the birthplace of sheer stupidity in central banking (by which I mean the disastrous Federal Reserve), our economic performance as a result of the same kind of constant stimulus is that non-farm payrolls have been falling and are now about back to where they were in 2000, meaning absolutely zero (non-farm payroll) growth for 9 years! A lot more people seeking the same number of jobs is pretty bad, especially when the number of people is still rising while the number of jobs is actually still falling! Yikes! Meanwhile, however, the government has spent its time growing bigger and bigger, like a huge, cancerous, oozing lump that is growing on your neck and already people are being repulsed by both the sight and the smell of it, and now there are 6% more people on “government payrolls” than there were in 2001, which is only the tip of the iceberg. And, as if to add insult to injury, they all make more money than you! Hahaha! For the first time in history, the average pay of a government employee is higher than the average wage of non-government employees! And when you add in their generous benefit packages, they make a lot more, and they are not going to take it kindly that you want them to suffer losses in pay and employment like us average morons out here. So that is One More Big Reason (OMBR) why the government will keep borrowing more and more and spending more and more, which is why the Federal Reserve must create more and more money and credit, which expands the money supply more and more, which makes prices go up more and more, sometimes in bubbles, which must, and always do, bust back to their intrinsic value. And such government and banking insanity as we are seeing today is the One Big Reason (OBR) – perhaps THE One Big Reason (TOBR) – why you must buy gold, silver and oil, apart from it being, you know, so easy that you squeal with girlish delight, “Whee! This investing stuff is easy!” There seems to be increasing skepticism these days about the worth of democracy. The following quote from a post by John Humphreys on the “Thoughts on Freedom” blog provides a good example of what I mean: “Democracy has become a new faith. Simply saying the word supposedly makes an argument stronger, as though there is some inherent morality in two wolves and a sheep voting on what to have for dinner. Democracy has it’s uses — it allows you to change government without any killing and it puts downward pressure on corruption. But I doubt that it leads to better policy, and indeed I think it has a built-in bias towards ever more totalitarian policy controlled by special interest groups …” In my view Humphreys is wrong. There is an inherent morality in democracy when it is perceived appropriately as a system in which all members of the polity have equal potential to influence the construction and operation of the political order. The problem is that it is often seen to be legitimate for some groups to use democratic politics as a means to obtain benefits at the expense of others. Such attitudes should be denounced as immoral for the same reason that the attitude that the market economy exists to enable some people to benefit through opportunistic exploitation of others is widely denounced as immoral. As James Buchanan has emphasised, the viability of a market economy and a democratic political system both depend on norms of mutual respect and reciprocity. The political system in most democratic countries does not have huge problems in dealing with blatant attempts by some people to benefit at the expense of others. Democratic politics can be effective in dealing with corruption (as John Humphreys acknowledges). It is worth noting, however, that corruption often goes undetected for long periods where dedicated institutional arrangements do not exist to detect it. I think that democratic politics are also reasonably effective in dealing with unsubtle attempts at vote buying, for example where a governing party promises additional benefits to residents of marginal seats in a desperate attempt to hold onto or win office. Parties initiating such tactics risk being perceived by voters as acting unfairly – and hence unworthy of being elected to government. It is much more difficult for voters to deal appropriately with complex issues such as those involved in trade protectionism. A recent policy brief prepared for the Lowy Institute by Bill Carmichael, Saul Eslake and Mark Thirlwell describes the nature of the problem as follows: “Most of us have a limited understanding of what is at issue in decisions about protection. Our response to the prospect of opening domestic markets is influenced by the information available to us about the domestic consequences. In the absence of public information about the economy-wide gains at issue for the community as a whole, and in view of the more visible costs to prospective losers, the latter have naturally found support at home. As a result, governments have had difficulty mobilising a domestic commitment to open domestic markets to international competition” (“Message to the G20: defeating protectionism begins at home” p 7-8). The solution advocated by the authors is “a domestic discipline on national decision-making that promotes wide domestic awareness of its economy-wide costs.” Rather than attempt to summarise the proposals here I recommend that people should read them in the context in which they are presented in the paper. The thought that I would like to leave you with here is that there is scope for policy outcomes in democracies to be improved if more intellectual effort is put into constructive efforts of the kind presented in the Lowry paper.  The Chinese concept of the Way, or Tao, was current before Confucius lived or taught; the Books of Odes and Rites tell of Heaven, and reveal beliefs in ancestor-spirits and a supreme being with a human face. However, Tzu-kung reports that “one cannot get to hear [Confucius’] views on human nature and the Way of Heaven. (V, 13, 78) Confucius does not conjecture about the nature of God or Heaven, but he felt the full force of Heaven’s Decree upon him, and suggested that shame is the feeling of falling afoul of the Way of Heaven: “When you have offended against Heaven, there is nowhere you can turn in your prayers.” (III, 13, 69) The subject of Confucius’ teaching is not the nature of man, but man’s conduct. It is not the Way of Heaven in the sense of ultimate truth about the universe, but rather in the most down-to-earth sense of each person and each state acting dutifully, benevolently, in compliance with the Rites, outward form conferring inward grace. Confucius’ Way is in no means mystical. It can be learned, and taught. “The Gentleman . . . goes to men possessed of the Way to be put right. Such a man can be described as eager to learn.” (I, 14, 61) The fact that Confucius’ conception of the Way relies on learned forms rather than mystical revelation does not make it any less a matter of life and death:
When the ruler governs according to the Golden Mean, observes the Rites, and follows the Way, he brings his state to a condition of harmony, for “when the Way prevails in the Empire, the Commoners do not express critical views.” (XVI, 2, 139) In this dialogue with the senior minister of the State of Lu, Confucius asserts that the Way is all the ruler needs, rebuking the Legalist School of philosophy and every gang of thugs and killers to assume power from his own time down through the ages:
With his reverence for precedent and antiquity, his abiding conservatism, and his conception of a hierarchical society led by benevolent example, Confucius could be either an instrument or an impediment to the rulers of China. To some, he was both at the same time. “Societies need subjective indicators of well-being to aid policy makers and ordinary citizens in making decisions.” This is the opening line of the recently published book, “Well-being for Public Policy” by Ed Diener, Richard Lucas, Ulrich Schimmack and John Helliwell. The first three authors are psychologists (Diener has played a leading role in the field of happiness research) and Helliwell is an economist. The final sentence of the first paragraph explains: “Overall, accounts of subjective indicators of well-being will help policy makers make wiser decisions regarding policy alternatives and help citizens be better educated about the choices that affect their lives”. I am in favour of research to enable people to become better informed about the choices that affect their lives. I hope that what the authors mean by “help citizens to be better educated” doesn’t involve anything more sinister than publication of research findings. While reading the book I became irritated by what seems to me to be a naive view it presents of the policy making process. Although the nature of policy making is largely incidental to the purpose of the book, I will devote the remained of this comment to policy making. I promise to focus on the substance of the book in a later post. According to the “public interest” view presented in the book, public policies are made by “policy makers” who would make wise decisions if only they knew what policies would improve the well-being of citizens. In reality, however, the policy making process is a messy business which involves politicians seeking votes and hoping to further their careers, civil servants seeking to expand and protect empires, voters who have little interest in most policy issues and even less incentive to understand likely consequences of the proposals being considered, interest groups seeking to further the interests of the people they represent and electoral rules that may give disproportionate power to particular groups. The process also attracts ideologues of various kinds who wish to advance their particular views of the good society. In my view, rather than attempting to persuade us that more information on the subjective well-being of citizens would help some hypothetical “policy maker” to make better decisions, it would have been better if the authors had sought to persuade us that this information would enable policy processes to produce better outcomes. Would this have made any difference to the book? Although the basic arguments about the validity of subjective well-being measures and their potential usefulness would have been unchanged, I think this change of focus would have made some difference. In particular, it seems to me is that the authors would have had less difficulty convincing readers that they “do not advocate the idea that governments should intervene strongly to move society towards a primary goal of increased well-being” (p209). When most of the book seems to be devoted to telling “policy makers” how they can use subjective information to improve the well-being of citizens it is natural enough to expect readers to be concerned that some “policy makers” might act paternalistically in using this information. Some readers might not be entirely reassured that paternalistic “policy makers” would have regard to the findings of happiness research which show that humans tend to feel most satisfied when they perceive that they have freedom to choose how to live their lives. The problem of how paternalistic interventionists might like to use research findings is placed in perspective once it is recognized that competing interests are involved in policy-making through discussions in a range of different forums. These discussions are about various things, but the matters discussed by vast majority of participants usually relate in some way to the effects of different policies on the well-being of people. The important issue is whether measures of subjective well-being can make useful contributions to the discussion of policy issues. Join the forum discussion on this post - (1) PostsOn Thursday night the government announced it was suspending the Cash-For-Clunkers program. In my twitterstream I reacted as follows:
The doubt this #fail creates is real enough, but there is more, and Hugh Hewitt has expressed it best:
The Democrats never get this. They never believe economic actors respond to incentives. There are alway massive unitended consequences of their great economic projects because they are constitutionally unable to work through all the implications of these projects. Democrats are working on a root-and-branch restructuring of the U.S. healthcare system that cannot work as they have currently proposed, they have passed a Cap and Trade energy restucturing plan that may more correctly be called the China Opportunity Act of 2009, and they think they can raise taxes on producers without limit. In every case they totally fail to reckon with the fact that producers will produce less, arrange their affairs to minimize the tax, or in the limit just bail out — “Go Galt” in the emerging parlance. But the people are sovereign, this is what they voted for, so all we in the reality-based community can do for now is speak out against things we know cannot work and hope they can be changed in process. If you want to understand Democrat fantasies in the absence of financial constraint or common sense, read Reed Hundt’s book, “In China’s Shadow.” Reed Hundt is a permanent member of the American political class, a Yalie, a partner in a high-powered law firm, head of Bill Clinton’s FCC, and a member of Barack Obama’s transition team. Free money is Reed Hundt’s great idea. Muggins, that is you me, the hard-pressed American taxpayer, should buy everyone from Nome to Tierra del Fuego a pension, healthcare, and education. By these means, the United States will win in the economic competition with China that furnishes the title of his book and a small fraction of its other content. No, it’s not a joke. People with power and influence really think this way. The Great Recession has induced a unique setting for Indian economic policy. See India in the Great Recession (April 2009) and The setting for the budget speech (May 2009). These articles emphasise that the dominant story of Indian business cycle fluctuations is the situation with private corporate investment. When this analysis was written (April and May 2009), the problem of a drop in private corporate investment was only a conjecture. Now some data is showing that there is indeed a problem. Here are the two most interesting measures of investment activity, using monthly data. In both cases, I show the average of the four most-recent values of the seasonally adjusted annualised rates (SAAR). This is similar to the familiar year-on-year growth rates of monthly data with one big difference: the yoy growth rate is the average of the latest 12 values while here we’re averaging the latest 4 months so as to pickup the recent action:
This data shows that there is a significant threat of a substantial dropoff in private corporate investment. Fiscal, financial and monetary institutional reformFM says he will `return to the FRBM target for fiscal deficit at the earliest and as soon as the negative effects of the global crisis on the Indian economy have been overcome’. Apart from that, there was nothing on fiscal, financial and monetary institutional reform. Pranab Mukherjee said:
Put together, I did not see progress on fiscal, financial and monetary institution building. Financing of the governmentThere was no statement on using sale of government assets in order to pay down debt. The GST is to be implemented from 1 April, 2010. I do get nervous given the immense complexity of that effort and the lack of accomplishment on the ground. There are five major bad taxes in India: STT, cesses, customs, octroi and stamp duty. The budget speech tinkered with none of these. There was an `abolition’ of the commodities transaction tax (which had never been levied anyway). It is distortionary, having taxation of some kinds of financial transactions but not of others. The `fringe benefit tax’ was abolished. There was no movement towards fiscal austerity that I could discern. Put together, I did not see progress on financing of the State. Core public goodsCore public goods are the genuine business of the State. There seem to be substantial increases of expenditure on defence and home. This might suggest that the fraction of public expenditure on core public goods might have gone up. I am, so far, not able to tell whether this change is significant. InfrastructureThere seems to be more money being spent on infrastructure. There is little evidence of institutional reform. The Ministry of Finance seems to be keen on building IIFCL, which seems worrisome. It is not clear that IIFCL will not suffer the fate of IDBI / IFCI / etc. EducationThe spending on Sarva Shiksha Abhiyan (SSA) has not risen in nominal terms, which is good, but a new Madhya Shiksha Abhiyan has been created. If this ends up being run like SSA, then we’ll know that there is little interest amongst politicians in actually getting India’s children educated. SubsidiesThere are good noises about fertiliser and oil subsidies, but no action. The role of the budget speechMaybe we do wrong in asking for a significant workplan in the highlights of the budget speech. Maybe a lot of good things will get done even though they were not announced. I have an article in Financial Express titled Which type of budget speech is this?. Fiscal numbersHere is a spreadsheet (.ods file) where I have a few years of data, with some value added, from `budget at a glance’. This has no corrections for the off-balance sheet stuff. Tax revenues were at 9.17% of GDP in 2007-08. These dropped to 8.59% of GDP in 2008-09 (RE). The budget projection for 09-10 wisely places this number at 8.07% of GDP. Non-tax revenues are projected to go up a bit: from 1.77% of GDP in 08-09 to 2.39% of GDP in 09-10. This is primarily on the back of revenues from the 3G spectrum auction. Put together, revenue receipts are budgeted at 10.45% of GDP compared with 10.36% last year and 11.3% the year before. These projections seem reasonable to me. Fiscal stress + gloomy revenue projections should have led to belt-tightening on expenditure. This did not happen, partly owing to the 6th pay commission. Non-plan expenditure rose by 21.8% last year and is projected to rise by 12.6% this year. It will go from 10.59% of GDP in 07-08 to 11.83% of GDP in 09-10. Interest payments to GDP – a key marker of fiscal stress – continues to be in troublesome territory, from 3.57% in 07-08 to 3.84% in 09-10. This is despite the dramatic collapse in inflation which should have made government borrowing much cheaper. Plan expenditure is growing exuberantly: from 4.28% of GDP in 07-08 to 5.53% in 09-10. With sombre revenues and a good deal of spending, we have dire deficits. The revenue deficit jumped from 1.1% in 07-08 to 4.45% last year and is budgeted at 4.81% the coming year. In other words, there is not even an attempt at fiscal correction. The fiscal deficit was at 2.65% of GDP in 07-08; this went up to 6.02% last year and is budgeted at 6.82% for 09-10. And finally, we switched around from a primary surplus of 0.92% in 07-08 to a primary deficit of 2.47% last year and are budgeted to have another big primary deficit of 2.98% in 09-10. There is a caveat on all these numbers when expressed as percent of GDP. Nominal GDP is projected to be up in 09-10 by 8.35% when compared with the previous year. It is possible to think of combinations of real growth and inflation which will get this, but I would have been happier with a somewhat lower projection. Other interesting comments: See Jahangir Aziz in Financial Express; M. Govinda Rao in Business Standard; an editorial in Business Standard. Good newsDon’t I have any good news? I do. At NSE, derivatives on Nifty did turnover of Rs.707 billion or $14.7 billion. And, currency futures at NSE did turnover of $1.2 billion. So we’re in good shape on having a strong equity market, and we’re learning how to do currency trading also. I heard a couple of talkers on business news and talk radio note that government employment had exceeded manufacturing employment in the United States. When I looked into it, I found the origin of this meme at a blogpost of Fabius Maximus entitled America passes a milestone!, with interesting charts and analysis. The charts are from subscription site Contrary Investor. Instapundit, Dr. Melissa Clouthier and Citizen Paine are among the analysts who picked up the story from Fabius, and well done to him. But I wanted to see the original data, and I found it on one of my favorite sources for primary material, the website of the Bureau of Labor Statistics, for which the relevant interactive dialog box is here. It is the work of a few minutes to find that, yes indeed, according to BLS, the non-seasonally-adjusted figure for workers employed in the goods producing sector of the US economy was set preliminarily at 21,404,000 for 2008, down from 22,221,000 in 2007, while the comparable employment-in-government figures were 22,457,000 preliminarily for 2008, up from 22,203,000 in 2007. The services sector is bigger than both put together, with a preliminary 115,648,000 employed for the year 2008. It was two days after Fabius’s article that Timothy Geithner had his confirmation hearings in the Senate Finance Committee. One of the hostile Senators, Jim Bunning (R-KY), roasted Geithner over the US-China trade and financial relationship. He got started in his opening statement:
. . . and in questioning he was if anything tougher, blaming Chinese manufacturers and workers, in effect, for the financial crisis in which we now find ourselves. This, I believe, is a dangerous new aspect of international financial and trade relations, as I stated in my posting of January 26. It strikes me that there is a direct line between the manufacturing implosion and the current account deficit with China and certain other trading partners, if anyone just cared to draw it. And there’s not a thing Mr. Geithner could have done about it in his role as a regulator. The capital inflows that so trouble Senator Bunning are just the flip side of America’s trade deficit with that country. It’s a matter of double-entry accounting identities, rather than any cunning device to “keep its currency low.” It can be shown — I have done the work, and will put it here at some point — that a portion of the trade deficit with China is really with American companies who have investments there. Nevertheless, it is clear that the US economy has gone post-industrial. Our trading partners will not buy our manufactures if we do not manufacture. They will buy very little of the output of our large and growing government sector. They will buy some of our services, but of course in these times of financial crisis and straitened circumstances, they too have less need of the financial and creative services in which American business specializes. Our trading partners will buy hardly any of the spa, tanning, psychotherapy, handyman, coaching, self-actualization, pet grooming, personal-shopping, kitchen-designing, dog-walking, SAT-essay tutoring, Search Engine Optimization consulting, skateboard training, party-planning, eBay-auctioning, credit-counseling, baby-sitting and similar personal services in which a huge number of Americans now occupy themselves and try to scratch a living. An entrepreneurial Chinese person might as well try his hand at manufacturing. An entrepreneurial American might as well shoot himself in the head as try his hand at manufacturing. The thought of going into the business of manufacturing a product for sale, with all the nightmares of taxation and regulation that go with that in the United States in the year 2009, is not for the faint-hearted among the business-minded. And that is why perfectly serviceable industrial parks near my home in New Jersey are rented out to ballet schools, medical offices, day care centers, basketball clinics, gymnastics facilities, skate parks, senior centers, art studios, martial arts gyms, fitness centers, churches, mosques, schools, and even government offices, but hardly at all to industry. If this cannot be changed — and if anything the anti-manufacturing tide is still at the flood stage — then how can the US current account deficit be anything but a huge long-term structural problem for us? |
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