Economics – Page 3 – Brown Pundits

Beyond the Bangladeshi basket-case

Coronavirus has been an economic disaster all across South Asia. But, beyond that, there are changes that have occurred before the pandemic and will continue after. For example, Bangladesh’s per capita GDP now higher than eastern and northeastern India:

Bangladesh’s per capita gross domestic product (GDP) is now higher than most Indian states in eastern and northeastern India, with the exception of small hill states such as Mizoram and Sikkim. According to the data from the International Monetary Fund (IMF), Bangladesh’s per capita GDP was $1,905 in 2019, against West Bengal’s $1,566 in 2018-19 (FY19) — economically the most developed state in eastern India.

Bangladesh is not really comparable to India, which is a diversified economy that is more than an order of magnitude larger. But, it is comparable to West Bengal. On economic matters, I am broadly sympathetic to right-liberal economics, so I’ll spare you my interpretation of what’s going on.

Economic data on South Asia

So what are the reasons for various differences statistically?

The Ambition of the Emirates

For a large part of history, the inhabitants of the Arabian peninsula were on the fringe in the rise and fall of empires. They alternated raiding and trading as this wheel of fire rolled on across the dunes. But eventually, the Arabian caravan would be equipped with both sword and word to make haste across the Old World in a relentless raid that would change both history and humanity.

Yet just as quickly as the prized Arabian horses would gallop into newly conquered lands, the Arabs would soon scatter leaving their language, faith, and the prestige of their roots behind in strange lands. Tribalism trumped their newfound unity and the Arabs would once again retreat into their wildernesses and pilgrimages.

That is until wealth erupted from its wastelands. The old elites of the Middle East would now return from their desert exile to begin another round of a game of thrones.

Continue reading The Ambition of the Emirates

On Indians in East Africa

The Indian diaspora is said to be over 30 million. While the popular tendency is usually to talk of the diaspora in the West (which is recent in formation), Indians have played a far more important role in East Africa if we take a long historical view of the past 150 years

Thomas Sowell’s very fine book “Migrations and Cultures” is an eye-opener in this respect as it sheds a great deal of light on the Indian engagement in Africa since the middle of 19th century. This short post dwells briefly on the Indian contributions in East Africa (particularly Uganda / Tanzania / Kenya) drawn mainly from Sowell’s work.

Let’s take the Tanzanian island outpost of Zanzibar off the African east coast. While the Indian presence in Zanzibar today is not much to write home about, this island was one of the first African territories to be settled by Indians. There was a phase in history when Zanzibar was practically run by Indians. In 1860, a report mentioned – “All the shopkeepers and artisans at Zanzibar are natives of India”!

The numbers of Indians in Zanzibar weren’t great. Only about 5000 in the 1860s. But nearly all foreign trade was conducted by them. As of 1872, an American trader owed Indian financiers in the Island $2MM and a French firm owed these financiers at least $4MM.

While in mid 19th century, Indian presence was largely in Zanzibar and some coastal areas of East Africa, the interior was opened up when the British constructed the great railroad that connected Mombasa port in Kenya to Lake Victoria in Uganda in late 19th century. 16000 laborers were involved in the construction of this great pioneer Railway project. Of which 15000 were Indians.

What’s interesting is that these coolies were pretty expensive compared to the indigenous African labor. Yet the expensive indentured Indian labor from thousands of miles away was preferred as they were more valuable and productive than locally available African labor. The railroad construction proved the trigger for much of the Indian migration to the African mainland – particularly Kenya and Uganda. Much of the migration was from Gujarat.

The Indian settlements in these parts were a momentous event in Africa’s long history. In Sowell’s words, the Indian shops in East Africa were the first commercial retail establishments ever encountered by these African villages in their entire history. The Indians in East Africa were the first to import / sell cereal. Sowell credits them for “transforming East Africa from a subsistence and barter economy into a money economy” in the late 19th / early 20th century.

As an example Taxes in Uganda until late 19th century were paid in kind. Starting in 20th century they were paid in money and the currency was rupees!

In 1905, a report in Kenya declared – “80% of the present capital and business energy in the country is Indian”. In 1948, Indians owned over 90% of all cotton gins in Uganda. In the 1960s, when the Indian population peaked in Uganda, their share of the population was about 1%. But as per some estimates the “Asian” contribution (mostly Indian) to the national GDP ranged from 35% to 50%.

In 1952, there were twice as many African traders as Indian traders in Uganda, but the Indian traders did 3 times as much business as the Africans! Despite Govt regulations which hampered Indians from setting up shops (again as per Sowell).

Resentment against Indian dominance eventually got a lease of life when most of the East African countries became independent in the 60s and 70s. The dictator Idi Amin’s expulsion of most Ugandan Indians in the early 70s was a notorious episode at the time when the Asian population in Uganda dropped from 96K in 1968 to ~1000 in 1972.

The case in Kenya was not very different from Uganda. Indians dominated the Kenyan economy. Yet post Kenyan Independence, the pressures to “africanize” meant that the Asian (mostly Indian) numbers in Kenya dropped from 176K in 1962 to 25K in 1975.

Today Indians play a more marginal role in the region than they once did. .While we tend to diss imperialism a lot, we sometimes forget that imperialism was also a driver of such unlikely inter-continental migrations which brought commercial culture to hitherto unexplored regions.

Political independence to the region did not work out very well for the enterprising Indian diaspora. The Indian businessman who had played a large role in building these economies was driven out of it, with little gratitude.

The story of Indians in East Africa is a much unheralded one, that ought to be celebrated more in India, and must be taught in Indian textbooks. This was not a political colonization driven by kings. This was a mission undertaken by hard working ordinary Indians who shone with their probity, enterprise and sweat.

All the more reason to celebrate and commemorate it.

The author tweets @shrikanth_krish

Browncast Episode 108: Harsh Gupta on the India-China Conflict and Going Long India

Another BP Podcast is up. You can listen on Libsyn, Apple, Spotify, and Stitcher (and a variety of other platforms). Probably the easiest way to keep up the podcast since we don’t have a regular schedule is to subscribe to one of the links above!

You can also support the podcast as a patron. The primary benefit now is that you get the podcasts considerably earlier than everyone else. This website isn’t about shaking the cup, but I have noticed that the number of patrons plateaued a long time ago.

I would though appreciate more positive reviews! Alton Brown’s “Browncast” has 30 reviews on Stitcher alone! Help make us the biggest browncast! At least at some point.

Harsh Gupta | The Indian Express

This episode features Omar, Mukunda, and Akshar talking to Harsh Gupta, an investor and author. We discuss the big picture geopolitics of the Galwan clash in Ladakh, Indian civilization, and why Harsh is going long on India. Some positive vibes in a trying time for many!

What Changes Needed for the US

Start with a quote from Matt Stoller (2011)
Change needs to happen—and it will happen, either through good leadership or through collapse.

The US has choices, most other countries dont.

With all the chaos and rioting there are no specific goals to make the US equitable, specially for the lower rungs of society. My thoughts of specific goals.

What should be done immediately

a) Give aid to direct individuals
This includes free testing and health care

b) Debt Jubilee, i.e. forgiveness of debt.
Rent, Mortgage forgiveness based on income/job.
NOT a deferral with a huge amount coming due in the future

Electoral Process

The President, Congress and Senators need to be more answerable to the public. The way the current system works, public votes and President, Congress and elected officials do the bidding of their paymasters, the big money Multinationals and Military Industrialist. This change is imperative for a proper functioning democracy.

a) No lobbyists, period. Caught lobbying or accepting lobby, at least a few years in Jail.
Lobbying is legalized bribery and corruption.

b) Campaign Finance: I would prefer only a govt funding, equal to all contestants.
Or only donations by individuals with cap on amount.

c) Two term limit for Senators

Finance Specific*

a) Let Too Big to Fail companies/banks go bust if they are not profitable ,
instead of propping them up with more and more trillion dollar handouts.

b) Stop derivatives being used for speculation/betting.
Can be used as hedge against asset on the books.
If the asset is sold, the derivative needs to be unwound.

c) Share buybacks be made illegal.

I dont think USD 6 Trillion injection into financial markets will solve the Covid19 pandemic or the chaos in the US.

To put the 6 Trillion into perspective. US GDP is USD 19 Trillion. Public debt is USD 18 trillion Interest public debt USD 479 billion/0.5 Trillion (10% of Budget)

*Some suggestions by VijayVan

Manufacturing

Its not about cutting costs per se. Think the Henry Ford saying, workers should be able to buy what is produced. For that the US must first throw out Free Trade and embrace protectionist. Start Manufacturing and give Price protection to what is manufactured. Same for Oil, the US is self sufficient.

But all of this means ditching the Petro dollar, and the global monetary power that comes with it. So very unlikely those changes will be by choice.

Society:

A push for polices that re vitalize small towns with self reliant economies. Not just a suburban enclave dependent on commuters working in a nearby big city. Coupled with small or medium manufacturing. i.e. Supply chain is mainly within the US.

Maybe even a partial break up of Big Ag and land distribution (100 acres or so) specifically for Agriculture. I think subsidies for small scale farmers is fine. Much better that trillion dollar bail outs for Big Ags.

Wars

The US will have to make some serious decisions about being the global policeman, and conducting wars. (I doubt will happen without change in Campaign Finance/Electoral Process). The US Might has turned to “might happen”. Trillions on war, has not made the US safe. Never ending Wars and nary a benefit except debt and death.
This does not mean disbanding the military. Any country needs to defend itself against invasions. The choice is wars of aggression in distant lands or developing the economy.

US Spending on wars Iraq War: +1 Trillion Afghan War: 1 Trillion Military: 500 billion/year

Browncast Episode 103: Abhijit Iyer-Mitra on Indian Defense, Economics, and History

I would though appreciate more positive reviews! Alton Brown’s “Browncast” has 30 reviews on Stitcher alone! Help make us the biggest browncast! At least at some point.

Abhijit Iyer-Mitra (@Iyervval) | Twitter

This episode features Omar, Mukunda, and Akshar talking to Abhijit Iyer-Mitra, a defense and policy analyst, about his evolution of political thought with highlights on his former communist affinity, evolving feelings on Modi, and passion for Indian nationalism. We also get into the continued inefficiencies of India and how it has been so detrimental to its development, plus possible reforms to remedy it. The wide-ranging conversation also includes insights into Abhijit’s time in jail, Kashmir, and “Frugal Indian” cooking tips!

Covid-19 Fault Lines and Consequences

Note: This was drafted alt least a month before and posted on 23rd May 2020, two days before the Floyd killing occurred (25th May 2020). I have pointedly left off the US, because it was inevitable. In other countries mentioned, instability ranged from possible to probable.

Is this the Big One as they say for Economy, Finance and Society

Since 1998 was working in Wall Street. A lot of my work involved Risk in billion dollar portfolios. Most people, look at the upside, but because of my work started looking at the downside and its effects. By 2003 or so there was some focus on what is called fat tail risk, a higher than normal probability of the downside. By about 2005 or the chatter was about a collapse of the housing market, i.e. Mortgage Backed Securities (MBS). Then 2008 Financial collapse happened. However, the underlying economic structural issues were not fixed. The Too Big to Fail Bankers (TBTF) and oligarchs were bailed out and the average joe hung out to dry. Those who predicted the 2008 Financial crash, once again warned of a knock on on Finance/Economy would make the dominoes fall and much bigger financial crash. The Covid-19 Pandemic is a sledge hammer, shattering the dominoes.

As seen financial collapse was expected and predicted. Even the pandemic was not unexpected. These are not Black Swans, i.e. unexpected events.

To quote from 2011 article by Matt Stoller

And while this may not be hitting the elite segments of the economy right now, there will be no escape from a flu pandemic or significant food shortage. The re-engineering of our global supply chain needs to happen—and it will happen, either through good leadership or through collapse.

Couple of Points/Factors to think About

The Virus War: Make no mistake, this is the real war on Terror. The enemy is invisible, insidious and within. Normally wars have some breathing space, bombs fall and then a few days of respite. This war is like water torture a continuous drip drip of sickness and death. Eventually fatigue sets in, and many become immune to the daily numbers of sickness and death. The Stalinist “A single death is a tragedy, a million deaths is a statistic” becomes the reality, with the death of humanity.

Nation State: Democracy, mature or not is not a panacea in this kind of crisis. The nation state with the population vested in sacrifices for their common good and destiny is the most well placed to ride out this crisis (eg Korea, Taiwan). Unhappily, globalization has eroded the common purpose of a nation state. At the upper end of society, the educated and high wealth are vested in the nation coming together. The fault lines are at the lower end of society. Semi-skilled and unskilled are pitted against immigrants. The poor are divided by racial lines. This part of society has no vested interest in a democracy or a nation state.

eg. Singapore Fault Lines: The unskilled immigrant low paid labor (1.1 million, 20% of the population) were out of sight, and out of mind. Singapore seemed to have stopped the spread as of March 23, 509 cases and 2 death. The numbers started then exploding, April 23 a single day, the new cases were 1,037. 55 Singaporeans and 982 low skilled immigrants.

Supply Lines: As the unskilled and semi-skilled, low wage workers start to fall sick, expect supply line disruption. That is food and essentials delivery from warehouse to the local grocery store or supermarket. Maybe an essential pin to fix your motor is no longer available. Workers in distant Banana Republics, working for multinationals like Dole are going to fall sick and no longer work.

City vs Rural: Cities are dependent on food supply lines, power and water to name the least. Resources are dependent on City/Local govt. Sense of community, is questionable. Rural communities on the other hand for the most part can be self sufficient assuming they have one critical resource, water available locally. Obviously, suburban are intermediate, once again the critical factor being locally available water.

Now to look at a few countries, and their strengths or vulnerabilities based on the above four factors.

NOTE: These are NOT PREDICTIONS. Factors and issues to think about,

Sri Lanka (my Home country)

Positives:
80% Rural with most rural having locally available water. Even meat, i.e. hunting (against the law) is becoming quite common (supply lines). Older generation (over 60’s) has been thru this in 70-77 i.e. Economy collapsed, and we had to be self reliant.

Middle
Nation State: In 2009 a nationalistic govt ended a 30 year separatist war. After loosing elections in 2015, the nationalistic govt is back in power in Nov 2019. I think they will ensure Nation State, by jack boot if necessary.

Negative:
City dwellers, specially in the high rises (6 -10 floors I think) for former slum dwellers. Will there be power to supply water to the overhead tanks. Will this part of society fracture.

To me the biggest threat is nearby India. not as in the Govt sponsored invasion. What is to prevent a couple of hundreds of fishing boat making a concerted rush to Sri Lanka. This not without historical precedent, in the 50’s to 70’s there were many illegal immigrants from India.

Positives
An economy and reserves, with right policies can mitigate the economic downsides.
Suburban towns that border large estates. i.e sheep and other food sources.
Negatives
The cities with immigrants and non English citizens not buying into the nation state

New Zealnd
The perfect place to wait out the Pandemic

Positives
Far away from the rest of the world. Self sufficient in food. More sheep and cattle than people.

Negatives
The Maori (15% of population) + Pacific Islanders (5% ?). The Haka is the cool dance of NZ/Maori and the All Blacks. But many forget that Maori are warlike, and the Haka peruperu is a war dance.
If things go bad, are the Maori going to buy into a Nation state run by the Pakeah. (The cracks are there already)

Hedging Your Risk

Since 2005 I have advised friend and family specially in the US not to rely on house value, 401K, but to go for gold and rural property with own water source.

It is still not too late for gold as a hedge. That is even with the price of USD 1,800/oz (May 23 2020). Not much can be done with house, unless you are able to get a home equity loan. The same with a 401K, take out a loan. Buy gold, maybe if nothing really happens, sell the gold and pay back loans. At worst, a small loss. If the economy collapses, declare bankruptcy and hang onto/sell the gold.

Tried to keep this short as possible. Once again much is what I have been reading since 2005. Most or all predicted the 2008 Financial Crisis. Post 2008 they have been warning of a much larger financial crisis, possibly caused by pandemics or break in global supply lines. To name most Nouriel Roubini, Raguram Ranjan, Satyajit Das, Matt Stoller, Matt Tabibi, The blogs, CalculatedRisk (pre 2008 with Tanta. From Tanta’s posts learnt more about MBS than from text books), NakedCapitalism and ZeroHedge often highlighted these authors/finance analysts giving an alternate view of finance and economy. Much of their predictions are in play now.

To conclude, as I started.
Is this the Big One as they say for Economic, Finance and Society

Too many references. So just two.
The Big Cycles Over The Last 500 Years, Ray Dalio May 21, 2020

The Collapse of Complex Societies: Joseph Tainter 1988
Tainter lays out his theory of decline: as societies become more complex, the costs of meeting new challenges increase, until there comes a point where extra resources devoted to meeting new challenges produce diminishing and then negative returns. At this point, societies become less complex (they collapse into smaller societies). For Tainter, social problems are always (ultimately) a problem of recruiting enough energy to “fuel” the increasing social complexity which is necessary to solve ever-newer problems.

I had not read this prior to the current chaos in the US or when I wrote above.
For the uninitiated, Nature is the top most science journal. If you can get even a letter published, equivalent to 10 peer reviewed journal articles
Peter Turchin in Nature* 2010, predicting instability in the US by 2020

Sereno Barr-Kumarakulasinghe
May 2020, WilpattuHouse.com

India and industrialization

The question: why does China produce and export so much more than India does ? At the coarsest granularity, the answer comes down to demographics, distance and war.

Demographics: India and China may have similar populations today, but the size of China’s labor force is still around twice that of India’s. This is because of the different ways in which the two countries transitioned to low fertility. China had a huge surge in population growth after WW2, but its fertility fell dramatically in the 1970s. This has given it a huge pool of workers, nearly a billion, but their number will fall off equally rapidly in the coming years.

In contrast, India will never as many workers as China does today, but will have the largest workforce of any country for a long time. India’s transition to low fertility has been steady and smooth. Basically India’s labour force time series will be flatter with a lower peak, as compared to China’s sharp curve with a higher peak.

Distance: Distance matters. A lot. Within India itself, villages within 5km distance from an urban area became 20% richer between 1993 and 2005, whereas those more than 10 km away became 2% poorer in the same period. Wealth clusters, rich countries tend to clump together in Western Europe and East Asia. The same is true for the rich states of the American North East.

China benefited enormously from being proximate to Japan, Korea and Taiwan (total population 220 million). They were already plugged into the American led rich world, and China entered this network via its contacts with them. For India, the rich countries nearby were the oil rich Gulf states, and we did benefit from them via remittances. But these desperately underpopulated countries cannot be compared to places like Japan that experienced massive industrialization in the early 20th century.

War: Among the top industrial powers in the world, China ranks first, but this is mainly due to low tech goods and high tech reexports. But after China, the countries are the US, Japan and Germany. In fact, they were the leading industrial powers since WW2. (India, by the way is sixth after Korea).

The American economy expanded by a factor of 3 in the decade of the WW2. Even though Germany and Japan were devastated, the hysteresis effects from the large scale industrialization that fighting modern, mechanized wars remained. They had the will and memory to industrialize again.

India has also seen military conflict, but this has remained confined to its margins. We have just never experienced ‘war time’ economy and discipline for long periods of time.

If Indians wanted large scale industrialization, they would demand it. But they dont. They demand everything from reservations to train routes to temples. Perhaps, the payoff from industrialization for workers is not as great as our chattering classes like to think. Foxconn factory workers in Sri City make half the salary of a maid in nearby Chennai. For many families, a second child is a better investment over the long term than the temporary boost in income from the woman working a factory job.

Trying to become the ‘next China’ is not desirable at all, we have to find ways of increasing our service exports, and improving our agro productivity.

The Consequences of Coronavirus

A couple years back, I spent my down time playing a video game called Plague Inc. The game starts off with you playing as a bacteria, parasite, fungus, or of course as a virus. Your objective is to spread yourself across the globe infecting as many humans as possible, eventually leading to the culling of all of humanity. To win, you must silently evolve and spread, careful to not alert too many humans nor remain too isolated. On the way, you cause travel bans, mass hysteria, political clashes, etc… Sound familiar?

**Screenshot of Plague Inc – A Popular Disease Simulator Game**

Now, we are seeing an eerily recognizable reality to the fantasy of that game. Coronavirus-19 has become the modern plague of our times. And while it is no where near the level of Plague Inc’s apocalyptic end game, COVID-19 threatens to upend many of our society’s given structures and force the world down a new path.

Continue reading The Consequences of Coronavirus