Tuesday, 24 September 2019

Climate action

You have stolen my dreams and my childhood. People are suffering, people are dying, entire ecosystems are collapsing. We are in the beginning of a mass extinction and all you can talk about is money and fairy tales of eternal economic growth. How dare you?
- Greta Thunberg at the UN on 23-Sep-2019. 

  • This is her best speech.  It captures the anxiety of a generation and those living on the front lines of famines, heat waves, droughts, and sea level rise.
  • They whispered to her, “you cannot withstand the storm”. She whispered back, “I am the storm”!  You go girl.
  • Why is Trump there? He doesn't believe in Climate Change. 
  • On 26-Nov-2018 asked about the findings in a report warning of devastating effects of climate change that unchecked global warming would wreak havoc on the US economy, US President Donald Trump said: "I don't believe it." 
  • I feel no need to meet President Trump. My message to President Trump is just listen to science, and he obviously doesn't do that. - Greta Thunberg
  • Pro-tip: Yielding to the demands of a catastrophizing 16 year-old who has no experience with unintended consequences is a bad idea. We are not beginning a mass extinction. Both mankind and nature can and will adapt to the modest increases in temps. Don't fall for the drama. - Doug Sheridan
  • We have taken planet stability for granted and our stable, reliable planet no longer exists. What we do in the next few years, will determine the next few thousand years. - David Attenborough. 
  • She is amazing. The only reason people can make fun of this statement is because they still feel safe and their bellies are full. In about 20 years nothing will be funny anymore. The older people will die but millennial's have the possibility of horror.
  • Greta has done more in 16 years to raise climate awareness than you or I have in our lifetime.
  • Rich people will be ok. Poor people will not.
  • We have to look for a solution, because she is right - people are dying and ultimately the planet will die if we don’t do something fast.
  • The earth will fix itself by killing off as many humans as it can. That’s the only way balance will be restored.
  • Everyone, can fight, climate change every day,  just by making the right choice of food.
  • No one is willing to live without modern luxury and necessities to deal with it.

Tuesday, 10 September 2019

Financially supporting adult children

It is not uncommon in India for adult children to live with parents. There is both convenience and complaint about this practice. In the west, independence at the age of 18 was the norm. But parental financial support to adult children even in these societies is common. Parents may pay off education loans of grown-up children; fund a holiday or a birthday party; take on payment of bills, EMIs and insurance; bail out credit card dues and defaulted loans; volunteer down payment for the house or car; offer a monthly allowance; or subsidize health costs. Growing up is about making choices and facing the consequences of those choices. What drives parents to continue to support adult children who should be responsible for their own lives? By offering to “help”, parents actively impede their adult children from being responsible for their own actions. There can be serious consequences.
  • Parents could be jeopardizing their finances by enabling adult children. They may be putting their health and retirement at risk; liquidating their assets at unfair valuations; unevenly dividing their wealth or compromising on goals. Financially supporting a grown-up child while imperiling one’s future is not wise.
  • Child centric family structures make parents believe they exist for the well-being of their children and therefore, have do what it takes. 
  • The earlier primitive societies were driven by the basic instinct to reproduce and further the species.
  • The modern society has made a child a completely emotion-driven cohesive family unit; the craving for being loved, needed and validated; the compulsions of succeeding and doing better than one’s cohorts; and the burden it places on parents to hold themselves responsible for their child’s success, happiness and progress in life.
  • This obsession has triggered a generation of helicopter parents who have to know and solve every one of their children’s problems, shielding them from the adverse consequences all their lives. Even if these arose from conscious choices the adult child willingly made.
  • Think about politicians and business people who accumulate wealth for many future generations. There are children who do not take their adult lives seriously, making careless choices, blaming everyone but themselves for their situation.
  • It is tough to see merit in this system of extended subsidy. What can parents and children do to keep the financial transactions sane and sensible? It is important for both parents to agree that they need to limit their support to children. Financial support that is finite, measured and clearly defined is less burdensome on the provider. Do not get into arrangements that are tough to discontinue. 
Reinforce the power you wield on your assets and money that you have earned and you have the right to spend it in a manner you see fit. You may want to give it away in charity; create a fund for your grandchildren’s future rather than let your children spend it; you may need it for your own retirement and use. You have to express these needs clearly to prioritize how to use your money. Whenever an adult child asks for a favor the standard answer should be: “let me think about it and come back to you.” Do not force yourself to agree immediately. Buying time will reduce the burden and provide the space to say no if you have to. 

Monday, 9 September 2019

Donate money to charities, not to beggars

We all want people to work, not beg. Working is productive; begging is at best neutral and often a burden and a nuisance. There is no guarantee that the beggar who receives the money will spend it in ways that increase the quality of his life. He might well spend the money on alcohol or drugs.
  • Few coins that we give to a beggar, doesn't make begging a lucrative activity and promotes laziness.
  • Giving money to beggars, you are helping the wrong people.
  • Think in social context: if I don’t help the beggar, who will? 
  • You are likely to give your money to the beggars who already get the most from other givers. Like everyone else, you are also likely to give the most money to the ones with the locations, looks, and tricks that prompt people to give.
  • If you give money to beggars on impulse, chances are that you end up giving to wrong people but not to the poor men and women whose appearances have less power to elicit sympathy and guilt in passers by and who occupy less favorable spots in the city.
  • The vast majority of beggars living in the developed world have a quality of life that millions in the developing world can only dream of. 
  • If our aim is to benefit ourselves, then giving money to beggars is sub optimal. If our aim is to benefit others, then giving money to beggars is also sub optimal. Either way, giving money to beggars is wasteful.
In seeking to help others, we should not merely give to those who are geographically close to us and whose appearance elicits our sympathy. Rather, we should give to those who are the worst off, who can be helped the most, and who are the least responsible for the situation that they’re in. To achieve this, we should (i) consciously decide how much of our money we are willing to spend on helping others, (ii) find the most efficient charity, (iii) donate money to that charity, and (iv) say no the next time a beggar asks if we can spare a dime.

Aid should go where it will help most.

Beggars are very unfortunate lot deprived of wealth, health, nutritious food, shelter, clothes, education and almost everything we are blessed with. Expecting from the beggars things which we and our friends doesn't follow in day to day living is height of hypocrisy and speaks poorly about our empathetic abilities. Dropping coin into the beggar's bowl and expecting divine results is stupidity. Dropping few coins in beggars bowl neither makes receiver rich nor impoverishes the giver. Hence dropping coin in beggars bowl must not be analysed too much. Just give and forget. By dropping few coins, we are not doing any great thing or any reason for the beggar to be grateful. Beggars have no right to create any kind of public nuisance.

Wednesday, 4 September 2019

Public sector banks merger is not a reform

On 30-8-2019 Finance Minister Nirmala Sitharaman announced a mega plan to merge 10 public sector banks into four as part of plans to create fewer and stronger global-sized lenders as it looks to boost economic growth from a six-year low. After the mergers, the country will have 12 public sector banks, including State Bank of India and Bank of Baroda.
  • Except PNB, all anchor banks had exposures of over 10% of their loan book to NBFCs.
  • Merging of two weak banks into another weak bank is a decent  idea, under normal economic conditions. But to pass it off as a major reform on a day when the economy hit a six-year-low in growth (~5%) rings hollow.
  • Given the limited flexibility on restructuring and rationalization, meaningful cost synergies from PSU bank mergers are unlikely. Core profitability for these banks is likely to remain weak and hence they will continue to depend on external infusions.
  • Until the year 1995, the best candidates from IITs and the best universities wrote IAS exams, State Bank entrance exams and the national recruitment exams of the PSBs. But after the liberalization of the Indian economy in 1991, private sector companies grew aggressively and  attracted away the cream of the talent. 
  • In the face of this competition, the PSBs with their moribund processes and stagnant salaries have attracted mediocre talent. Any bright spark, despite these service conditions was usually poached by private banks and NBFCs.
  • In 1992,  the government realized it doesn’t have the money to capitalize them and started listing them so that they may raise funds from the capital market. But the design of the Act is still intended to serve government goals and not compete on commercial lines.
  • True reform will require what financial sector giants like YV Reddy and PJ Nayak have long recommended: Abolish the Banking Companies Act, bring PSBs under the Companies Act, so that clauses like section 49 (ensuring truly independent directors) apply to PSBs as well. This will fix governance somewhat. Then as soon as the capital markets permit, government stake in these PSBs needs to be brought below 50%. This will enable them to recruit competitively and run on market-based principles.  That’s what you call reform.
  • For now the PSBs are going to be completely immersed in their integration issues. Past experience showed deep gashes in the merged banks for few quarters after merger. The merging banks have barely recognized the bad loans created before 2013, when a new wave of bad loans created after 2014 started emerging. Instead of tackling  this continued onslaught, every senior banker in the merging PSB will be more worried about what will be his or her place in the new hierarchy. Each branch manager will worry about how to tackle customers of the erstwhile competing bank. They will worry about  repainting their billboards and printing new stationary. 
  • And all this chaos with no change at all in governance standards. And at a time when the best PSBs have a net NPA of 6% and capital that just makes it to Basel grade. And at a time when the economy is giving you that sinking feeling.

Tuesday, 3 September 2019


The inequality generated by decades of neoliberalism and the resentment it has caused across the world have in recent times led to uncertainties that only intensify the fear of recession.
  • Growth is decelerating worldwide, including United States which is experiencing 50-year low unemployment rate. China lost momentum with industrial growth at a 17-year low. Prospects for the third quarter are gloomy as well.
  • The performance of major economies affects the rest of the world economy. For example, depressed Chinese demand caused the fall in Thailand’s second quarter growth rate to the lowest since 2014. 
  • Scattered talk has given way to widely expressed fears of an impending recession affecting financial investment behavior, with investors dumping stocks and shifting to government bonds, resulting in a slump in stock markets.
  • The deeper malaise is the depressed demand due to extreme inequality in assets and incomes that has resulted from decades of neoliberal growth across the developed world. Globalization moved productive activities to cheap labor locations had depressed wages across countries with large profits for a few and tax concessions for the rich have accentuated inequality.
  • Incomes in the top percentile have exploded, those in the middle and lower ranges have  stagnated sapping consumption demand. Growth came by finding ways of stimulating demand not depending on current income, but driven by credit. That, beyond a point, is not sustainable and the fear of another recession is likely.
  • The USA-China trade war and other countries responding with similar measures, the world is faced with a proliferation of beggar-thy-neighbor policies that makes a bad situation worse. The unknown consequences of Brexit cannot be anything but adverse. These uncertainties intensifies the fear of recession.
  • The challenge for capitalism was finding an alternative way of reviving demand depressed by underlying inequality. In the past the states used to step in to lift economies out of recession with their spending for a short a time. With neoliberalism that has shrunk the revenues of the state and public spending being is mostly debt-financed, this option was shunned. The only way to drive private demand is with credit in the form of near zero interest rates and getting central banks to hugely increase liquidity in the economy.
  • Capitalism’s current predicament arises because this policy has not worked, though it has been experimented with very low interest rates and in some countries even have turned negative. While this policy has not delivered growth, it has encouraged speculation financed with cheap credit. This has led to accumulation of corporate debt as firms borrowed mainly to speculate in financial markets and pay off their rich shareholders with costly share buybacks resulting in asset price inflation and financial fragility. But with low growth central banks were compelled to continue this policy regime.
  • But as the threat of recession looms, erstwhile advocates of fiscal prudence and austerity such as the IMF are calling for adding fiscal stimuli to the policy mix. Infrastructure upgrades, expanding public housing stocks and targeted tax cuts should all be considered. This is the recipe for a return to more robust growth and inflation.
The recession threat is immediate and policy is likely to respond too slowly. If the recession does set in, it can be devastating. In 2008 China, Germany and India were affected less and this time they are among the countries whose performance could drive the recession. Corporate debt often denominated in foreign currencies at high levels, a recession would find many debtors defaulting on payments and forced to sell assets. That could result in asset price deflation and will have reverberations in an over-committed financial sector. Only a set of freak occurrences can prevent another recession.

Sunday, 1 September 2019

Corrupt anti-corruption campaigns - Kaushik Basu

The Amazon rainforest has been burning for weeks. Yet Brazil’s president, Jair Bolsonaro, mobilized the armed forces to help contain the fires only in the last few days – in the face of European leaders’ threat to suspend a major trade deal and the possibility of a far-reaching boycott of Brazilian products. 
  • Bolsonaro government’s weak enforcement of laws protecting the Amazon are root causes of the crisis, encouraging ranchers to set fires to clear land for agriculture.
  • The crisis in the Amazon is a stark example of the damage that can be done when governments bow unequivocally to business interests. It also highlights the cynical manipulation of anti-corruption efforts to undermine democracy and advance an authoritarian political agenda.
  • Some conservative economists argue that corruption can be beneficial, as it enables economic actors to bypass regulations, thereby enabling markets to function more effectively. The truth is that corruption corrodes markets, protects incumbents from competitive challenges by impeding the entry of new actors, destroys the moral fabric of society, and stunts economic development. There is a strong inverse correlation between development and corruption.
  • The world’s least corrupt countries are Denmark and New Zealand. Both have achieved high standards of living. The world’s most corrupt countries are Somalia, South Sudan, and Syria – all poor and mired in conflict. Ranked from least to most corrupt, the United States is 22 of 180 and, India is 78th, China is 87th and Brazil is 105th.
  • The connection between corruption management and democratic compromise is complex. This is the reason why many leaders who have come to power with a genuine interest in controlling corruption have ended up nurturing cronyism and damaging democracy instead.
  • Some political leaders launch a corruption “purge” that targets rivals or critics for prosecution. In countries that are rife with high-level corruption, leaders can simply begin by taking aim at those who challenge their authority. What starts as an anti-corruption drive ends up as an instrument of cronyism and media control. And by creating a safe zone for loyalists, it often ends up exacerbating corruption.
  • Corruption can implicate even those who would prefer to operate according to the law.

Kaushik Basu, former Chief Economist of the World Bank and former Chief Economic Adviser to the Government of India, is Professor of Economics at Cornell University and Nonresident Senior Fellow at the Brookings Institution.