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Wednesday, November 29, 2006

Growth Without Reforms - Magical UPA

IEB's Edward, an ardent demographic dividend proponent, argues that Economist and Ajay Shah may be wrong to say India is over heating and that there may not be a real worry for a crash or a recession anytime soon. Does second quarter growth of 9.2% prove that Edward is right? I am not so sure.

The current growth is not based on structural reforms of Indian economy. It's most likely based on easy money. With a conducive RBI governor, Dr. Reddy, Chidambaram has been talking up the economy and talking down any action to control easy money. What's wrong with easy money especially if the economy is going strong? Easy money generally hides lot of problems in the economy. Because consumers and companies are highly leveraged, if there is any slow down in the buying binge (from consumers, companies, or exports) the economy will go into a tail spin with a recession at hand. Economist:

In contrast, India's economy displays an alarming number of signs that things have gone too far. Consumer-price inflation has risen to almost 7% (see chart), well above Asia's average rate of 2.5%. A recent report by Robert Prior-Wandesforde at HSBC finds many other signs of excess. For example, in a survey of 600 firms by the National Council of Applied Economics Research, an astonishing 96% of firms reported that they were operating close to or above their optimal levels of capacity utilisation—the highest number ever recorded. Firms are also experiencing a serious shortage of skilled labour and wages are rocketing. Companies' total wage costs in the six months to September were 22% higher than a year earlier, compared with an average increase of around 12% in the previous four years.

India's current account has shifted to a forecast deficit of 3% of GDP this year from a surplus of 1.5% in 2003—a classic sign of excess demand. Total bank lending has expanded by 30% over the past year, close to the fastest growth on record. (Link)

If growth went from mid-8% to low-9% in the past few quarters, it may indicate that the economy is actually heating up increasing the likelihood of bigger slowdown - proving Edward otherwise.
In fact, with no structual economic reforms, slow (to no) infrastructure buildup since UPA came to power more than two and half years ago, it pretty much indicates that the main driver of growth is free/easy credit. And that has consequences.

Economist and Ajay Shah argument is about sustainable growth - ie long term growth. And they may still be right. It appears Manmohan and Chidambaram will enjoy the easy money laurels without taking any hard decisions (there are fellow Communists to please and blame) and pass on the coming economic mess to the next government to clean up.

Cross posted on INI Signal

Friday, November 17, 2006

Milton Friedman dead at age 94

Probably one of the greatest men to promote individual freedom and fight against government economic tyranny against it’s own people died early yesterday. While he was an economist, and probably want people to remember as such, he was very much a public figure promoting the ideas of individual economic freedom and economic choice for individual and family. He fought against socialism and much vaulted wisdom of the few wise men in the government to control people lives.

Friedman's fight was against powerful giants in economic field who were promoting government intervention and take over of economic life of a country – giants such as the doyens of socialism John Maynard Keynes and John Kenneth Galbraith. He build on Adam Smith, Alfred Marshall, and Friedrich. A. Hayek’s economic models, and led the charge at University of Chicago with free market ideas that came to dominate the capitalist economic model (and in the process enable the school to capture lot of Nobel prizes in economics).

The peak of his popularity and message was probably in early 80s during early Reagan era when Thatcher was tearing up socialism in UK and Deng Xiaoping turn the communist China towards the path of capitalism. Washington Post columnist George Will wrote, in 1989, when cold war was over, that Soviet Union collapsed and University of Chicago and General Friedman has won.

Friedman never called himself a conservative, although they appropriated him. He was more a liberal in the classic sense – trying to get to the root of the problem, as he would say – instead on relying in government to solve problems, like the socialists world over do. He would probably call himself a libertarian.

Soon after Indian independence, US offered the expertise of Milton Friedman, a short, less than 5 foot man, with a complex set of idea on private enterprise and monetary policy, or John Kenneth Galbraith, a tall, good looking classic socialist - the government knows best - type of guy. Nehru, who already fell in love with British socialism, during his years in Britain and since, and was under the spell of Soviet collective economic miracle charade, chose the socialist John Kenneth Galbraith.

I think, under the advise of Galbraith, Nehru and Indira combined did more damage to Indian economy since 50s onwards than the British did since setting up East India Company three centuries prior. (Galbraith went on to advise Nehru not to fight the Chinese invaders of J&K (Aksi Chin), which according to him, was a desolate land and where a blade of grass would not grow, contributing to India’s defeat in 1962. One wonder why Nehru and other's didn't think, if that was so, why did the Chinese want that land.)

It would not be an exaggeration to say if Nehru chose Milton Friedman and his advise, India would have lot fewer poor people, superior infrastructure, better people participatory in civic life, and a stronger economy than we have now in 2006.

Here are some articles that Friedman wrote to GOI in the 50s trying to push Nehru and government towards better economic path:

Memorandum to GOI in 1955

On Nehru and Mahalanobis who jointly created the socialist Indian economy

Some bloggers have called for an economic mahatma in India to fight for and to explain better wealth creating economic policies to Indian people. Milton Friedman is the closest economic mahatma that US has had. While I disagree that we have to wait for an economic mahatama to deal with pressing issues, India would greatly benefit from such as person, if there were one.

Milton's last commentary published today in Wall Street Journal (registration needed).

CSPAN – an excellent three-hour In-Depth interview with Friedman in 2000 wherein he talks about his economic theory and philosophy.

IEB post with google and youtube links to Friedman interviews.

With my usual interest in good obituaries here are some:
New York Times (always excellent obits), Economist, and WSJ

And Now For The Tough Part of the Nuclear Deal

US Senate approved the Nuclear Deal yesterday after much debate and several tries to derail it - without much support most members - during the lame duck session. Bush said he'll sign it.

But now comes the tough part for India:

Separate the military and civil nuclear facilities

Keep skeptics at bay in our country

Ramp up civil nuclear reactors approval process and building several of them during the next decade or so

Work with US on important foreign policy issues that impact India but not falling over itself to very whim of US policy by tying itself into knots over non-issues - ie still keeping our national interest and security in mind on policy matters

Working to scuttle a similar deal between China and Pakistan which Hu Jintao will be offering to General Mush in the next few days. I am sure MEA is not thinking about it because it just don't think that way (in fact I won't be surprised if it's working to lend support to it).

Wednesday, November 15, 2006

Depth of Moral Equivalency

I came across an opinion written by Rudrangshu Mukherjee in The Telegraph published in Kolkatta. I have seen moral equivalency in lot of issues but I think this one takes the laddu.

He starts okay with a bold assertion that independent struggle should not be about revenge. But soon it is on a slippery slope to nowhere.

First the apologies to the British:

"The revolt of 1857 has been stalked by silly controversies ever since it began. British officers in 1857 got misled into the controversy about the greased cartridges, which many of them believed in their delusion had caused the huge conflagration. "

Then the muddle:

"One hundred years later, historians became embroiled in a needless debate about nomenclature, what to call the rebellion: mutiny, war of independence, what have you. "

And then the blow - starts off slow...

"Kanpur was the site of three of the worst bloodbaths of the rebellion — on the river at Satichaura Ghat, where the rebels massacred the Britons who had been promised safe passage by boat to Allahabad, the killing of the survivors from Satichaura Ghat in an enclosed room called Bibighur and the subsequent vengeance of James Neill after the British recovered
Kanpur. To commemorate the Britons who had been killed in the two massacres, the British erected a statue — Angel of Mercy — near the well into which the dead bodies had been thrown after the Bibighur killing. In the remembrance of the victors, the Indians who had been butchered by Neill needed no commemoration. Indians and non-Christians were not allowed to go into the enclosed area containing the well and the statue. "

but soon becomes as clear as blue, cloudless, sky:

"One hundred and fifty years after the event, it is important for both Britons and Indians to accept that both sides had perpetrated terrible acts of violence. One side used violence to protect their possessions in India from a real and violent threat from those who had been conquered and dominated by the British. The other side used violence to defy the dominance
and to break it. 1857 is not a moment of which either India or Britain can be proud. The year represents a common legacy of violence. "

This is moral equivalency at its worst - equating fight against subjugation and slavery with fight to impose that imperial tyranny. Now we get the call for equal status to the imperialists and the subjugated natives. Do we not feel ashamed for been subjugated? Is there no pride for attaining independence after bitter, almost a century long, struggle? Are we supposed to forget the discrimination, and ethic and culture cleansing that we are still grappling with and give equal space to the imperialists?

One won't find this kind of muddled moral equivalency anywhere else in the world. We have twisted ourselves into knots during the post-independent socialist historians period when even subjugation was and continues to be taught as a virtue. And we are unable to break the knots.

So now we get calls for building monuments for the imperialists! This after the current prime minister, Manmohan, in his official capacity actually thanked the British for their imperialism and subjugation - you gave us English and that compensates for centuries of the slavery.

Friday, November 10, 2006

Is India-US Nuclear Deal as Good as Dead?

After Democratic Party swept US Congress and got a bear minimum majority in senate, I started to wonder about India-US Nuclear Deal. While most democrats are close supporters of India and want close relationship with India, they also champion, the now defunct, NPT. Many pro-NPT analysts (NPT ayatollahs) have made the case that India-US nuclear deal will pretty much kill the NPT and encourage other nations to pursue nuclear weapons. These ayatollahs got sympathetic ear from democrats.

Will Harry Reid, recent minority, but now majority, senate leader, who expressed reservations about the deal when the senate tried to pass it few months ago after the house passed the bill, kill it?

From post-election news reports it is clear that Bush top foreign policy priority, beyound Iraq, is India's nuclear deal. If democrats want a confrontation with Bush on foreign policy I doubt they would have it over India. There will be calls for change to the deal and may be outright opposition to it from some senators. The senate democratic leadership could put some poison pills to kill the deal. But senior democrat senators with foreign policy experience, like Joseph Biden, have endorsed the deal. If most democrat and republican senators prevail, and I think they will, the deal will be passed some time early next year without any changes.

Relative Sizes of Heavenly Bodies

A friend of mine emailed these pictures. I've never heard of the bigger stars. Enjoy.

Isn't Earth the prettist of all?

Snake Comes to Bite - Terror comes to Roost

A suicide bomber killed 42 Pak soldiers. This was apparently in retaliation to Pak's destruction of a madrassa (using air power), which killed more than 80 people. According to Pak, the madrassa was graduating terrorists (this contradicts most experts who perpetually claims madrassas are benign religious schools).

The first suicide bomber in terror factory Pak is an indication that Taliban and al-Qaeda are stepping up take over battle of Pak or at least working to consolidate a state within a state. If Pak continues to play double game with terrorists with regards to India and Afghanistan, the snake will bite back. It portents a bleak picture for Pak’s future and gathering danger for India, Afghanistan and the rest of the world.

"An anonymous telephone caller told a Pakistani journalist the attack that killed 42 army recruits in the northwestern town of Dargai on Wednesday was revenge for an air strike last week on a religious school in the nearby Bajaur region, in which authorities said 80 militants were killed.

The suicide attack was the first on the security forces outside Waziristan, a tribal region where the army has been fighting al Qaeda and pro-Taliban militants since late 2003.

Bajaur is at the northern end of Pakistan's semi-autonomous tribal belt along the Afghan border, while Waziristan is at the south. Osama bin Laden is believed to be hiding somewhere in the remote, rugged stretch of mountains." (Reuters)