Perspectives on the global economic meltdown

arnab · Post by **arnab** » 11 Dec 2008 07:43

ss_roy wrote:I could not resist taking a few more shots.

I can also buy some expert to "prove" that you are an idiot. Does that make you an idiot?

We have reports saying that barely a fifth of our college graduates are actually employable in industry.
At least, they are honest. The west has screwed up by promising its aging citizens lifestyles that they cannot deliver (once the baby boom gets older).

The state has abdicated its responsibility towards health and social security (compared to the very limited social security that the US provides. Europe and Australia are far superior).
Yes, I know. But guess what, it creates jobs- primary, secondary, tertiary. It is easier to tax working people than corporations. I think that such actions reflect well on our politicians. Maybe they are learning something.

Think of it with this example- A state government gives 10,000 crore in subsidies. Plant creates 1 lakh primary jobs, 2-5 lakh secondary jobs, and helps support 5-10 lakh tertiary jobs. Do you think that the increased revenue does not cover the initial subsidy (often in as little as 5 years). Tata and Ambani can escape taxes, their workers cannot!

Bailing out the rich is not the exclusive preserve of the US - India does it and more often (our honourable President is the beneficiary of such bailouts). The Tata project in Singur was provided at such attractive terms - that in reality the Government was paying them for acquiring the land. The benifts provided to Reliance need no exposition.
Because they choose to! Do you realize that over 20% of all scientists in major pharma and biotech companies (in the west) are indians. Almost every biotech company has a few indians on its board of directors. Why can't they do that in India? Attitudes?

Pharma cos like Dr Reddys and Ranbaxy chose to free ride on research provided by the West.
Yes, but we can learn from the mistakes of others.

It does not mean that India is the only nation that does it - Japan, China, South Korea all do it including the West.
I don't think you fully comprehend the extent of the our current problems. There are approximately 1000 Trillion dollars (notional value) of derivatives based on a global GDP of about 60 Trillion Dollars (real) . Even a small fraction of these derivatives or even their underlying financial instruments can destroy the worlds economy - if we start honoring those bets.

Look at the body language of Hank Paulson and Ben Bernanke- compare their interviews/ testimony from 2005 and 2008. They are s**t scared!

It is also a fact that various Ponzi schemes continue to flourish in India (chit funds).
1 Trillion = 1 x 10 to the power 12 or 1,000,000,000,000

So the crux of your argument is that when the west subsidises it is wrong and a scam but when India subsidises - it is creating jobs? How fast do you think India has to keep growing to employ the workforce that we keep adding each year, given our demographic profile? What do you think of the huge NPAs which sit in our bank's books ? or the fact that currently pensions, interest payments and administrative expenses account for 100 % of State's revenues ? So for any schemes they borrow from the public on debt guaranteed by the Central govt. How long do you think this scam is going to last?
Incidentally - the fact that subsidies by Government to help create jobs is also a western paradigm of growth (Keynesian - It is a good idea if the Government employs people to dig holes and fill them up again)

So - bottomline. India is doing the same things that the West is. The only thing that governments can do in this situation. India has the added burden of higher poverty, poorer governance and crony capitalism. So I do not see how India comes to the head of the class due to this crisis.

ramana · Post by **ramana** » 11 Dec 2008 09:42

ss_roy, Arnab has tried to point out his views. You can correct him but you don't have to assume an air of superiority. Water flows downhill. People are asking as its all new stuff. Just because you have some gnan/realization doesn't mean you become an "Argumentative Indian".

Thanks, ramana

ldev · Post by **ldev** » 11 Dec 2008 11:23

There are approximately 1000 Trillion dollars (notional value) of derivatives based on a global GDP of about 60 Trillion Dollars (real) . Even a small fraction of these derivatives or even their underlying financial instruments can destroy the worlds economy - if we start honoring those bets.

ss roy,

Since you read widely, you must know by now that the estimated value of CDS contracts outstanding on Lehman Brothers was $400 billion. After the auction, and after offsetting trades, the estimated total payout by sellers of protection was about $6 billion i.e. 1.5% of the notional amount outstanding.

That part of the derivative market linked to fixed income instruments is/was causing the quakes in the financial markets and that amount outstanding is now estimated at $47 trillion down from about $55-63 trillion when the crisis began. Given that the US Federal Reserve has already expanded its balance sheet by about $2 trillion in the last 3 months, it seems reasonable that they can expand it another $750 billion in the event that the entire CDS market collapses. It is another matter whether that step will be beneficial in the long term. A large part of the rest of the derivative market is exchange traded and hence has margins built in.... what is/was worrying was the OTC market and CDS contracts are OTC now, though there are hectic efforts by the Fed/SEC to get them traded on exchanges asap.

Also, if the West is sunk and China is toast and everyone else is dead on arrival and the only great hope for the world is India, you must make tracks for India asap. Ten years is long enough to spend in the big bad west which is going down the tube no?

Singha · Post by **Singha** » 11 Dec 2008 11:56

"Do I really look like a guy with a plan? You know what I am? I'm a dog chasing cars. I wouldn't know what to do with one if I caught it. You know, I just ... do things. The mob has plans, the cops have plans, Gordon's got plans. You know, they're schemers. Schemers trying to control their little worlds. I'm not a schemer. I try to show the schemers how, pathetic, their attempts to control things really are."

— The Joker, The Dark Knight

ss_roy · Post by **ss_roy** » 11 Dec 2008 12:45

Yes, I am aware of that. However you should know that-

1] The ideal solution for CDS and derivatives in general is disarming/ imploding derivatives simultaneously. While that would be the best course of action, it appears to be unlikely (http://www.ft.com/cms/s/0/8979777c-c591 ... 07658.html)

2] Hedge funds have far more collateral backing their derivatives. Many financial institutions do not have any collateral. Such defaults will trigger a fresh wave of derivatives and synthetic derivatives. The settled CDS in the Lehman auction involved mostly hedge funds as counterparties.

3] If the Lehman CDS fiasco was wound up in that auction, why is lehman derivative exposure still a problem? Ask AIG, GS, JPM, many VCs (http://www.ft.com/cms/s/0/c08ecbc8-bb40 ... fd18c.html).

4] The collapse of MBSs, SIVs, ABCPs market can alone bring down the system. The derivatives merely amplify that effect.

5] You have not factored in synthetic derivatives, AIG lost 10 Billion last week in fresh synthetic derivative exposure. (http://online.wsj.com/article/SB122887203792493481.html)

6] Deleveraging destroys notional capital and confidence.

7] It is likely that many muni and state bonds in the US will default.

8] Geithner (rubin's protege) is trying to pump the system with sterilized money to settle CDS swaps and prevent further deterioration.

9] They have pumped over 8.5 Trillion in the system. (http://www.nytimes.com/2008/11/26/busin ... odayspaper)

10] THE GDP of US is about 15 Trillion (over 90 % is recycled money and 10% is fresh debt).

11] There is no historical precedence for these actions.

12] The credit market is still frozen up and the economy is in a deflationary death spiral.

13] CreditSuisse expects over 20% of mortgages in the US to enter foreclosure- optimists! //The analysts projected this could be as low as 6.3 million in a mild recession, with a somewhat successful loan modification program (re-default rates at around 40%), and as high as 10.2 million in a more severe recession//

14] The real unemployment rate - U6 is at 12.6 % in the US right now! It reached around 25 % during the great depression. Of course we now have food stamps, severance pay and unemployment insurance. But for how long?
(http://2.bp.blogspot.com/_nSTO-vZpSgc/S ... 8-11.png15)

15] One in every 10 adults in the US receives food stamps right now (over 100% increase in a year). I would not be surprised if that number did not reach 30-50% before this is over.

16] If this goes on for more than a couple of years, there will be incredible misery throughout the world.

17] I am appalled at Indian politicians not using this opportunity to negotiate favorable contracts- Remember that france requires the jobs and money from selling you nuclear reactors more than you need them. In many industrial sectors, India might be the only big functional growth market for a few years. What is the PM doing? What are our financial types doing? What are our bureaucrats doing? NOTHING!!! This is a travesty- This is the best opportunity for India in more than 60 years and everyone is intent on blowing it again!

ss roy,

Since you read widely, you must know by now that the estimated value of CDS contracts outstanding on Lehman Brothers was $400 billion. After the auction, and after offsetting trades, the estimated total payout by sellers of protection was about $6 billion i.e. 1.5% of the notional amount outstanding.

That part of the derivative market linked to fixed income instruments is/was causing the quakes in the financial markets and that amount outstanding is now estimated at $47 trillion down from about $55-63 trillion when the crisis began. Given that the US Federal Reserve has already expanded its balance sheet by about $2 trillion in the last 3 months, it seems reasonable that they can expand it another $750 billion in the event that the entire CDS market collapses. It is another matter whether that step will be beneficial in the long term. A large part of the rest of the derivative market is exchange traded and hence has margins built in.... what is/was worrying was the OTC market and CDS contracts are OTC now, though there are hectic efforts by the Fed/SEC to get them traded on exchanges asap.

When we have a government that is not ineffectual, many will see India as a destination.

Also, if the West is sunk and China is toast and everyone else is dead on arrival and the only great hope for the world is India, you must make tracks for India asap. Ten years is long enough to spend in the big bad west which is going down the tube no?

ss_roy · Post by **ss_roy** » 11 Dec 2008 13:10

Ramana,

I am simply trying to get people out of this state of learned helplessness. I am trying to get them to think beyond their usual horizons.

When faced with any big opportunity indians tend to-

1] Feel that they are not worthy.
2] Feel that they cannot do it.
3] Feel they have no right to do it.
4] Feel inferior to others.
5] Feel that their efforts will be in vain.

Unless these attitudes change, there will be no real change! This is both a crisis and an opportunity for India, beyond anything it ever had since the 1950s. It would be very unfortunate if we as a people did not profit from it. How often does fate throw you such an opportunity?

Mark my words, you will see internal strife in china at levels not seen since the cultural revolution. The western world is desperately looking for new consumers/ workers. We still have a functional and transparent banking system and a country that functions inspite of its government. India is seen as in important player in this emerging world.

Do you realize that we could be a first world country (with some poverty) by 2020. When I lived in India, I saw so many bright, competent people waste their lives doing c**py jobs just to put food on their tables (if they had a table). This is a terrible and unconsciencable waste of human talent. I do not care which region, jati or religion a person comes from- human talent is a terrible thing to waste!

I play the devils advocate to get people thinking, asking questions about their long held beliefs, maybe even reassessing them. I am not looking for fame or respect- I have use for neither. But if even one person reading my comments unlearned their helplessness- it would be worth it.

ss_roy, Arnab has tried to point out his views. You can correct him but you don't have to assume an air of superiority. Water flows downhill. People are asking as its all new stuff. Just because you have some gnan/realization doesn't mean you become an "Argumentative Indian".

Thanks, ramana

ldev · Post by **ldev** » 11 Dec 2008 13:37

3] If the Lehman CDS fiasco was wound up in that auction, why is lehman derivative exposure still a problem? Ask AIG, GS, JPM, many VCs (http://www.ft.com/cms/s/0/c08ecbc8-bb40 ... fd18c.html).

ss roy,

I dont have time right now to respond to your every point. But as an illustration lets talk about point 3 quoted above.

The people who bet on Lehman bonds i.e. those people who sold and bought protection via CDS contracts on whether or not Lehman would go bust have settled their outstandings via a net settlement of $6 billion.

Similarly, what has also been settled in the CDS market are those CDS contracts for which Lehman was a counterparty.

However, Lehman Brothers was also a brokerage, a prime broker. All kinds of people, including hedge funds used to trade via Lehman. Its those accounts which are in limbo which the FT article that you have linked is talking about and that is because its taking time to differentiate between Lehman's assets available to settle creditor claims and client assets. That has nothing to do with the systemic risk in the OTC derivative market and everything to do with sloppy regulation relating to segregation of client assets.

Satya_anveshi · Post by **Satya_anveshi** » 11 Dec 2008 20:17

On a different note, it is surprising and galling that none of the so called Indian "experts" in the 4th estate has talked or talking about the bailouts that are happening in the west. How the so called "successful" and "great" american companies are nonchalently going and begging for doleouts and equally dramatic and comic way the US congress is providing the so called rescue.

Not a pipsqueak is heard from the likes of Gurucharan Das who will not miss a chance to puke over all the press about how public sectors are a drain on the Indian economy. I am not saying they are wrong to talk about "reforms" in Indian context but at the same time they base their view as "better" than prevailing upon the success of the west. It is dishonest and opportunistic of these $hits to stay quite at this time and not stand for what they believe is right and be vocal about it.

Singha · Post by **Singha** » 11 Dec 2008 20:37

they know their worth in the west if they call emperor

ss_roy · Post by **ss_roy** » 12 Dec 2008 03:40

Ok, So tell me why are new biotechs in the USA are going bust at record rates (credit problems linked to direct/ indirect exposure to lehman brothers)? Why has funding for new startups in energy dropped? It is is not just lower energy prices as lehman also was directly/ indirectly responsible for VC-type funding.

You are missing the big picture, loss of leverage + insolvency has crippled the financial system. No funding = more closed companies= more unemployed = less consumption = more job loss (deflationary spiral).

This is not the great depression 2.0, this is the great unraveling 1.0.

ss roy,

I dont have time right now to respond to your every point. But as an illustration lets talk about point 3 quoted above.

The people who bet on Lehman bonds i.e. those people who sold and bought protection via CDS contracts on whether or not Lehman would go bust have settled their outstandings via a net settlement of $6 billion.

Similarly, what has also been settled in the CDS market are those CDS contracts for which Lehman was a counterparty.

However, Lehman Brothers was also a brokerage, a prime broker. All kinds of people, including hedge funds used to trade via Lehman. Its those accounts which are in limbo which the FT article that you have linked is talking about and that is because its taking time to differentiate between Lehman's assets available to settle creditor claims and client assets. That has nothing to do with the systemic risk in the OTC derivative market and everything to do with sloppy regulation relating to segregation of client assets.

ss_roy · Post by **ss_roy** » 12 Dec 2008 04:27

The short answer is

1] Subsidies per se are not evil. Indeed, they are often required. However subsidizing something that is incredibly inefficient is a bad idea.

Example- Subsidizing the development of a jet engine factory is not a bad idea. However if you cannot deliver an international quality jet engine after, say, 10 years of adequate funding and assistance- it is a waste of money. That is why adequate funding and assistance is necessary for subsidies to work

So the crux of your argument is that when the west subsidises it is wrong and a scam but when India subsidises - it is creating jobs?

2] India has to aim at a growth of above 7% (but less than 20%, yes 20%). It is quite easy to sustain these levels for a couple of decades.

So the crux of your argument is that when the west subsidises it is wrong and a scam but when India subsidises - it is creating jobs?

3] The % NPAs on our banks balance sheets are miniscule compared to china (upto 50%) and the west (reaching levels in excess of 10%). China was able to hide large NPA with strong growth.

What do you think of the huge NPAs which sit in our bank's books ?

4] Increase revenues, but also increase services covered by revenues. Easier said than done! but can be done. People do not mind paying taxes as long as they get good roads, uninterrupted electricity, good quality water and efficient sewage systems.

or the fact that currently pensions, interest payments and administrative expenses account for 100 % of State's revenues ?

5] Economics is a giant scam. The only reason we play this scam is that it keeps people employed, allows upward mobility and gives them hope for a better future. As long as we invent better and less risky scams, we will have a functional society. Otherwise, its over..

So for any schemes they borrow from the public on debt guaranteed by the Central govt. How long do you think this scam is going to last?

6] Kenynesian economics is not about employing people to dig up and fill holes (rojgar yogana). It is about creating employment by building meaningful infrastructure that facilitates the creation of new private business and wealth.

If you really want to follow keynesian economics, do what FDR did- build power plants (coal, and now gas, nuclear), irrigation projects, rainwater management, rural electrification, water treatment plants, waste management plants. Give loans to small enterprenuers, but demand accountability. Don't let poor and unemployed people starve or go without healthcare, give them jobs that create something that they can build on later.

Keynes never intended to create a perpetual welfare state. He merely wanted the government to step in and stop societal collapse until an economic recovery occurs.

Incidentally - the fact that subsidies by Government to help create jobs is also a western paradigm of growth (Keynesian - It is a good idea if the Government employs people to dig holes and fill them up again)

No, it should do more!!

So - bottomline. India is doing the same things that the West is. The only thing that governments can do in this situation.

Do you think white people were any more honest, richer or smarter, have a look at the history books, pictures and photos of the average lifestyle in the west till the 1940s.

Until the 1940s, entire neighborhoods in NY has slums and tenements with shared and poorly maintained toilets and illegal electric connections! Toronto had slums and tenements right upto the early 1950s. Sweden was once so poor (1850-1890) that the government gave 40% of its population one way boat tickets to america to avoid starvation! Now you know the minnesota has so many swedish names in the phone book. Have you ever read "grapes of wrath" or "the jungle"? They were real depictions of life in pre-1940 west. A majority of the first whites who settled the western part of the US (1830-1880) died from starvation and dysentry before they were able to settle. Kidnappings and white slave labor were once the second major business in ports like Seattle and Portland. Chicago had private underground tramways for smuggling items.

Until WW1 supplying substandard food and other stuff to western armed forces was standard practice.

So what happened? Did they stay that way or did they change? Why?

India has the added burden of higher poverty, poorer governance and crony capitalism. So I do not see how India comes to the head of the class due to this crisis.

If you think about it, life has no real meaning or purpose, it our our wants and needs that give it purpose.

arnab · Post by **arnab** » 12 Dec 2008 06:06

ss_roy wrote:The short answer is

1] Subsidies per se are not evil. Indeed, they are often required. However subsidizing something that is incredibly inefficient is a bad idea.

Example- Subsidizing the development of a jet engine factory is not a bad idea. However if you cannot deliver an international quality jet engine after, say, 10 years of adequate funding and assistance- it is a waste of money. That is why adequate funding and assistance is necessary for subsidies to work

So the crux of your argument is that when the west subsidises it is wrong and a scam but when India subsidises - it is creating jobs?
2] India has to aim at a growth of above 7% (but less than 20%, yes 20%). It is quite easy to sustain these levels for a couple of decades.

So the crux of your argument is that when the west subsidises it is wrong and a scam but when India subsidises - it is creating jobs?
3] The % NPAs on our banks balance sheets are miniscule compared to china (upto 50%) and the west (reaching levels in excess of 10%). China was able to hide large NPA with strong growth.

What do you think of the huge NPAs which sit in our bank's books ?
4] Increase revenues, but also increase services covered by revenues. Easier said than done! but can be done. People do not mind paying taxes as long as they get good roads, uninterrupted electricity, good quality water and efficient sewage systems.

or the fact that currently pensions, interest payments and administrative expenses account for 100 % of State's revenues ?
5] Economics is a giant scam. The only reason we play this scam is that it keeps people employed, allows upward mobility and gives them hope for a better future. As long as we invent better and less risky scams, we will have a functional society. Otherwise, its over..

So for any schemes they borrow from the public on debt guaranteed by the Central govt. How long do you think this scam is going to last?
6] Kenynesian economics is not about employing people to dig up and fill holes (rojgar yogana). It is about creating employment by building meaningful infrastructure that facilitates the creation of new private business and wealth.

If you really want to follow keynesian economics, do what FDR did- build power plants (coal, and now gas, nuclear), irrigation projects, rainwater management, rural electrification, water treatment plants, waste management plants. Give loans to small enterprenuers, but demand accountability. Don't let poor and unemployed people starve or go without healthcare, give them jobs that create something that they can build on later.

Keynes never intended to create a perpetual welfare state. He merely wanted the government to step in and stop societal collapse until an economic recovery occurs.

Incidentally - the fact that subsidies by Government to help create jobs is also a western paradigm of growth (Keynesian - It is a good idea if the Government employs people to dig holes and fill them up again)
No, it should do more!!

So - bottomline. India is doing the same things that the West is. The only thing that governments can do in this situation.
Do you think white people were any more honest, richer or smarter, have a look at the history books, pictures and photos of the average lifestyle in the west till the 1940s.

Until the 1940s, entire neighborhoods in NY has slums and tenements with shared and poorly maintained toilets and illegal electric connections! Toronto had slums and tenements right upto the early 1950s. Sweden was once so poor (1850-1890) that the government gave 40% of its population one way boat tickets to america to avoid starvation! Now you know the minnesota has so many swedish names in the phone book. Have you ever read "grapes of wrath" or "the jungle"? They were real depictions of life in pre-1940 west. A majority of the first whites who settled the western part of the US (1830-1880) died from starvation and dysentry before they were able to settle. Kidnappings and white slave labor were once the second major business in ports like Seattle and Portland. Chicago had private underground tramways for smuggling items.

Until WW1 supplying substandard food and other stuff to western armed forces was standard practice.

So what happened? Did they stay that way or did they change? Why?

India has the added burden of higher poverty, poorer governance and crony capitalism. So I do not see how India comes to the head of the class due to this crisis.
If you think about it, life has no real meaning or purpose, it our our wants and needs that give it purpose.

With respect - what you are describing is a wish list for India which nobody can quibble with. Yes we need revenues, we need infrastructure, people would love to pay taxes (5% of Indias population pays income taxes), people would return to India if we had a 'good' government (non-congress and non-commie). The issue is - how to play with the hand you are dealt with - which means dealing with competing demands from different lobby groups where everybody wants a slice of the pie. Yes India can grow at 7% p.a because currently it is so far behind the developed countries, so is coming from a low base. The difficulty arises as iIndia approaches the western level of development - This is called growth convergence. The problem for India is whether there would be an 'absolute' convergence or whether there would be a 'conditional' convergence. That India would be a very big economic power in GDP terms 40-50 years down the line is probably not in doubt. What is in doubt is the quality of life that it would afford.

The issue of spending in 'good' projects like infrastructure is fine - it is also extremely relevant in developing countries. For developed countries (which already have fairly good infrastructure) - it becomes an issue. Typically in most cases involves tearing down perfectly decent infrastructure and replacing it with marginally better stuff - so in your words - a scam

Historically, once the infrastructure and other core economic bottlenecks are sorted - nations look at social security. Australia's medicare, education and income support policies evolved in the 1970s (US I believe was in the 1930s). India still has to traverse down that road. No global economic crisis is going to give India that leverage. See the global crisis for what it is - greed, regulatory failures and strange accounting rules agreed to by the SEC. The 'unravelling' will cause widespread distress perhaps but the western nations are much more geared to realign their economic priorities than India currently is. In India the 'differences of opinion' are far more fundamental. We still do not have agreement on whether 'social justice' is more important than economic well being. Should you throw more money in primary health care or advanced health care, should you invest more in primary education? Should you have a public sector or should you privatise completely?

In the US there is broad consensus on the basic fact that 'wall street and main street' are intertwined. So yes there will be pain - but there will not be a collapse.

Keynes theory of employment talked about boosting aggregate demand (when the market fails) and to do it even by making people 'dig holes and fill them up again'.

Why the US or Europe evolved and colonised most of the world and created better institutions is a whole different set of arguments and is not really explained by the global financial crisis.

ss_roy · Post by **ss_roy** » 12 Dec 2008 15:00

Arnab,

You still don't get it.. you believe the world is deterministic (like almost all humans). You seem to believe that the future holds only a few sets of known possibilities, whose relative probability can be calculated and 'hedged'.Determinism works only if all of the properties of all the components in the system are known. However with the exception of a few theoretical systems, we know very little.

For example- Would the european renaissance has occurred without the black death that preceded it? Without the epidemic, the church would have not lost its position and could therefore have suppressed science for much longer. Without the epidemic, social mobility in europe would also have not occurred to the extent it did immediately after the epidemic. But what caused the crop failures and cold weather that preceded the black death? the best explanation today is that solar cycles caused an abrupt cooling after a warm period (900-1300) which in turn caused conditions that favored epidemics.

But could a very clever person in the 1350s have been able to predict the true extent of its impact on the european view of the world? or even the proximate cause of the epidemic? The honest answer is - NO.

You see the european renaissance required the black death, a particular population density, technology level, contact with the east, solar output, and a particular set of pres-existing religious/ social outlooks to rebel against. It was the result of a series of random events that had no purpose or direction. It was not the most likely event, but it changed history.

When you say "x is likely" or "y is less likely" you assume that there are a given number of possibilities. What I am saying is that you will never know what something will turn out like till you go down that road. However if you talk yourself out of trying a different approach you will never explore other roads and your prophecy will be self fulfilling.

If you start with a perception filter- 'difficulties are insurmountable' and then use every bit of information your brain perceives to justify it, ignore contrary bits of information- you will see what you want and feel vindicated. You will however never question the very validity of your assumption. Almost every single clever person in history has fallen into this trap, which is why every expert prediction is almost certain to fail. I can give you tons of examples.

The reality is that you have the choice to act, but the results of that choice can never be accurately predicted (if this sounds like a modern interpretation of the central message of a famous indian scripture- it is)

SwamyG · Post by **SwamyG** » 12 Dec 2008 19:22

arnab wrote: Very true. But then somebody has got to buy the goods that your massed arrays of 'productive manufacturers' are going to produce. So how does India replace the west? The current global system is geared towards US being the engine of consumption and China being the engine of production. What do you want India to be?

The economy like anything else was created by mankind for the sake of mankind. Trading and consumption exists for us, we do not exist to trade. After 9/11 attacks, the US citizens were encourage to go and spend. Wow. One consumes what one needs, and a little more. How much more depends as one needs to look at the cost - monetary and non-monetary. It is not easy determining that. But looking at the West it is clear they pushed it far enough to impact the entire globe.

Credit is the lubricant that helps the Economy engine. Too much or too little lubricant is never good. The West lost the balance. Consumption driven economy pushes innovation faster and we get to enjoy the benefits. But we have a price to pay for too much materialism.

ss_roy wrote:
arnab wrote: Boss, I'm sorry - I do not understand what your argument is. Is consumption good? or is it a 'scam'?
Yes and Yes. But on our terms!

SS_ROY: If there is a lesson for India from this crisis - that is one of the best lessons. India should engage with other countries on its own terms. Hopefully it never gets into the habit of encourage its citizens to keep buy because companies have to survive.

Artha comes after Dharma.

paramu · Post by **paramu** » 13 Dec 2008 06:46

ss_roy,

Could you please write your point more like a thesis, rather than a set of rhetorics.

ramana · Post by **ramana** » 13 Dec 2008 08:00

paramu wrote:ss_roy,

Could you please write your point more like a thesis, rather than a set of rhetorics.

paramu, Let him write the way he wants. Or else the tap might be turned off. If you want you can put it in essay form.
Right now its all ideas and forcing structure will stop the flow.

vina · Post by **vina** » 13 Dec 2008 16:49

ss_roy wrote:You still don't get it.. you believe the world is deterministic (like almost all humans). You seem to believe that the future holds only a few sets of known possibilities, whose relative probability can be calculated and 'hedged'.Determinism works only if all of the properties of all the components in the system are known. However with the exception of a few theoretical systems, we know very little.

Try telling that to commies esp those from Bengal of the ISI, JNU, DSE stripe . The ones who have read Uncle Mao's Lil red book (the Hafeez-e-lal kitaab) and Marx and Lenin. Those guys have a millenarian certainty of the future of society and a sense of "inevitability" of how things will pan out, experience and reality be damned.

For example- Would the european renaissance has occurred without the black death that preceded it? Without the epidemic, the church would have not lost its position and could therefore have suppressed science for much longer. Without the epidemic, social mobility in europe would also have not occurred to the extent it did immediately after the epidemic. But what caused the crop failures and cold weather that preceded the black death? the best explanation today is that solar cycles caused an abrupt cooling after a warm period (900-1300) which in turn caused conditions that favored epidemics.

But could a very clever person in the 1350s have been able to predict the true extent of its impact on the european view of the world? or even the proximate cause of the epidemic? The honest answer is - NO.

Try telling that part to our "marxist" historians, especially of the Romila Thapar and the PN Pannikkar kind of "scientific" history and how since it is "analyzed" via the "scientific" marxist class and "economic" framework and hence infalliable and "right".. Ms Thapar, got an award just a few days ago from the US Library of Congress, which I am sure she gladly accepted, while she rejected the Indian govt's award a few years ago.

What you are saying is that the big forces of history are determined by a series of totally unpredictable random events, whose outsize effects predominated and determined the course of history. This is what Nassim Nicholas Taleb calls as Black Swans and there are tons of examples in his book where he uses his greek orthodox background and 'Levant' background to illustrate a couple of examples

Just think of this. How would the history of India looked like if Hemu was not killed in battle by a random arrow. Akbar had already been thrown out of Delhi and Hemu was in the saddle in Delhi!. Mughal Rule would have ended right after Babar and Humayun ! The entire history of India and the rest of the world would have been different. . Oh no, JNU ding dongs and "eminent" historians that Arun Shourie excoriated in his book wouldn't have any of it. If you ask them, it would have been all deterministic and based on class structures and unit value of labor and all the rest of it to explain how Mughal rule perpetuated from Babar to Bahadur Shah Zafar . Now when you know that those "eminent historians" dont have the brains , intellect and honesty to look beyond the noses, (same with the planning commission ding dongs, who "planned " all those 5 year plans), you know that they basically are numb skulls with zero originality and the IQ of a table.

Yawn.. So coming back to economics, I think the best economic possibility is to invest in our people and hope that the risk takers and contrarians and the out of the box thinkers really take a shot at the slim opportunities that give outsize results... Just invest in the bread and butter basics and leave the rest to chance and the skill, genius and capabilities of the Indian people. Get the babu monkeys out of business !

The IT/Vity guys did that !. Who the hell in their right minds thought that IT/Vity was going to be a great thing ?. No , NR Narayanamurthy thought that, not Azim Premji, why not even Bill Gates himself when he started Microsoft !. Why when Infosys, IPOed in the early 90s, the grand total they raised from the market was all of just 13 crores. Yes Infosys IPOed for Rs Thirteen Crores only some 15 or so years ago!.. And the shocker is Infy IPO was not fully subscribed . There was the guy who today runs GTV ventures , who picked up the unsubscribed portion and made his fortune!

So who had more sense ?. The guy who today runs GTV ventures or the babu monkeys in the Industry Ministry and Planning Commission and the JNU/ISI ding dongs who were wanking away on their econometric models on industrial sectors and coming up with grand plans of 3% economic growth ? Food for thought that.

vsudhir · Post by **vsudhir** » 13 Dec 2008 19:48

Since spring 2008, as US investment banks sold off assets, imposed margin calls, and used access to unsegregated wholesale assets in custody in the rest of the world to upstream liquidity to their US-based parents and affiliates, the dollar has strengthened relative to other currencies. The media reports this as a “flight to quality”, but it is more like a last looting of the surrounding countryside before dangerous brigands hole up in their hilltop fortress. The brigands appear temporarily wealthy compared to the peons left stripped and penniless and facing winter. When the brigands have eaten all the stolen grain and livestock, however, they will have no means to replenish except to use force to raid the countryside again. The peons can always hunt, forage, farm and carefully husband a surplus to gradually increase their wealth. If the brigands raid too thoroughly or too regularly, the peons have no incentive to grow crops or keep herds (negative savings returns) and everyone starves (deflation).

In the meanwhile, the peons just might wise up, hide any surplus more securely and organise mutual defense against further attacks to ensure that their peon children prosper and the brigands die off. That would be the end of Bretton Woods II, and the rise of China, India, the Gulf and other productive and/or resource rich states which invest surplus in domestic productivity and regional growth...

Only when that deflation has played out and rational policies that reward market-based management and returns are restored will it be worthwhile to invest again. In the meanwhile, any wealth saved securely from state seizure will "swell" to buy more assets in future - a key aspect of deflation and a key means of restoring the control of the economy into the hands of more farsighted savers and investors.

I have quoted Mr John Mill before, but it bears repeating: ““Panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works.” The extent to which capital has been betrayed in the past quarter century under Bretton Woods II, bank deregulation and the Basle Capital Adequacy Accords is unrivalled in the history of fiat banking. The bankers, lawmakers, regulators and academics who collaborated in the betrayal still hold power, like the well-armed brigands in the fortress, and their continued collaboration to prevent accountability must inevitably discourage honest savers from risking further loss. Even so, it is the savers/peons who hold the ultimate power as they can starve the brigands.

Some day soon savers will revolt at financing further depredations. They will refuse to buy even government securities, gagging at the quantities of issue forced upon them under terms of only negative return. When that final massive bubble bursts, deflation will follow its harsh corrective course and clean out deficit-financed “unproductive works”.

When that happens, if reason is restored in markets with effective oversight, I might consider investing again, very selectively, in whatever productive works might then be on offer and only when secure in realising - and retaining - a positive yield.

Deflation has become inevitable

Victor · Post by **Victor** » 14 Dec 2008 09:19

The Americans and Chinese could be in open conflict if things spiral out of control in the next year or so as seems likely. Permanent damage could be done though probably not militarily (much to lose). India can expect to attract the wrong kind of attention from China when the Nike factories shutter down (nothing to lose). We need to be ready to inflict massive loss of face in return, not just bleat defensively at the UN. It could actually be a great opportunity and a turning point but this is the worst possible time to have non-leaders at the helm.

ss_roy · Post by **ss_roy** » 14 Dec 2008 12:54

Vina,

That is precisely what I am talking about. When I read Taleb's first book (Fooled by Randomness) in 2002, I immediately saw that he was saying out aloud, what I had come to realize a few years ago. Of course it took the "grey swan" of the market meltdown for Taleb to become a celebrity.

I can give you hundreds of pages of examples from drug discovery, electronics, chemistry, physics, politics that show that it is unexpected random events that shape history. Having said that, those who try, learn and understand this fare better than those who do not. Determinstic thinking is the surest way to lose in the game of reality. However deterministic thinking is deeply embedded in the indian (and asian) psyche, and represents the single biggest challenge for us to take our rightful place in the world (not be accepted by them but make them accept you by not caring about them). Curiously the vast majority of whites are also deterministic, however circumstances suppressed that determinism enough for them to profit from 'good mistakes', 'bad chances' and 'random walks'. However they believe it was preordained and I believe it is their greatest weakness.

I have no illusions about changing this self-defeating behavior by writing a few articles on BR. The way I see it, I have two choices-

1] Keep my ideas to myself (does not change the probability of change)
2] Write it down, so that maybe someone can read it and look at the world differently (a very negligible increase in the probability of change)

I chose option 2]. I am doing what I see as the "right thing to do", however I am not overtly attached to the outcome.

I feel the best way to change this self-destructive behavior is to expose it and make it "visible". As long as determinism is not perceived as a choice, people will keep on going down that path as they see no other option.

What you are saying is that the big forces of history are determined by a series of totally unpredictable random events, whose outsize effects predominated and determined the course of history. This is what Nassim Nicholas Taleb calls as Black Swans and there are tons of examples in his book where he uses his greek orthodox background and 'Levant' background to illustrate a couple of examples

ramana · Post by **ramana** » 15 Dec 2008 01:26

ss_roy and vina,
I opened this thread so we can capture such thinking. So please contribute regularly. We need to unbound our minds(pun on Gurcharan Das) and not just the economy!

If we can get rvaidya also to participate here I will then move it to strat forum and reduce the burden on the admins in Tech Forum.

Tanaji · Post by **Tanaji** » 15 Dec 2008 02:11

Thanks ramana for this thread. I dont have anything to contribute but I will watch this with great interest. We need more of these new perspectives now.

FWIW, I dont think the US or the EU will take this lying down so easily as ss_roy suggests. Similar doomsday situations were predicted when Japan was on the upswing. Look what happened of that. And we dont need to compare Japan of the 80s with India of now....

arnab · Post by **arnab** » 15 Dec 2008 04:57

I do not think Taleb argued that historical data (or events do) not matter. Taleb warned against over reliance on historical data and making decisions on the basis of poor risk assessment models formulated on an over-optimistic reading of historical data.

I think he believes that outliers (six sigma events, ten sigma events, whatever) in predictive models should be given more importance in risk assessment.

So not really sure. On the whole I do believe that historic data is invaluable for us to understand how financial systems work - at least from a behavioural finance point of view, such data is invaluable.

On the other hand, I think technical analysis and chart reading is basically nonsense and that past stock prices are poor predictors of future stock movements. We’d be better off thinking of it as a memoryless system.

And I would also worry about invoking Taleb in all walks of life. Economic development is far more predictable than - say the stock market. Similarly while I do not discount the successful mavericks in history - it is also a fact that for ever success stories there are hundreds of failures.

I also find the statement - 'economics is a scam' to be slightly absurd (almost as absurd as 'war on Terror'). Economics is a 'tool' to determine the functioning of the world. It is 'positive' economics when it describes the world as it is. It is 'normative' economics when it describes the world as it should be. It is not a perfect science. But then you might has well say physics is a scam because it assumes the acceleration rate of gravity at 9.8 m/s^2 (?) for its calculations - which does not exist in the real world.

So, in a nutshell - yes there are a series of random events which influence the world (often profoundly). However, that does not decrease the predictive power of historical data. As the Chesire cat said - 'If you do not know where you are going - any road would do.'

vsudhir · Post by **vsudhir** » 15 Dec 2008 06:26

And I would also worry about invoking Taleb in all walks of life. Economic development is far more predictable than - say the stock market. Similarly while I do not discount the successful mavericks in history - it is also a fact that for ever success stories there are hundreds of failures.

Gustakhi maaf ho but seems to me that since

1)the current economic crisis wasn't quite 'predicted' either by econ theory or econ practice (since if it had been predicted, it would have been corrected too)

2) the current global econ storm is an outlier in both depth and scope from the 'regular' econ crises that were predicted with cyclical humdrum

3) Taleb talks abt large outliers and their abnormally effect on human socities

Hence, it must be that invoking Taleb's arguments in this case isn't absurd. Quite the contrary....

anyway , what would moi know. No economist am I.

/Have a nice day,

arnab · Post by **arnab** » 15 Dec 2008 07:03

vsudhir wrote:
And I would also worry about invoking Taleb in all walks of life. Economic development is far more predictable than - say the stock market. Similarly while I do not discount the successful mavericks in history - it is also a fact that for ever success stories there are hundreds of failures.
Gustakhi maaf ho but seems to me that since

1)the current economic crisis wasn't quite 'predicted' either by econ theory or econ practice (since if it had been predicted, it would have been corrected too)

2) the current global econ storm is an outlier in both depth and scope from the 'regular' econ crises that were predicted with cyclical humdrum

3) Taleb talks abt large outliers and their abnormally effect on human socities

Hence, it must be that invoking Taleb's arguments in this case isn't absurd. Quite the contrary....

anyway , what would moi know. No economist am I.

/Have a nice day,

Most economic theories (or finance theories) are not in the business of predicting outliers. Which is why Taleb explicitly warns against ignoring outliers in risk assessment models. He claims all risk assessment models currntly used in the financial world are wrong. More so he talks about the impact of such risk falling the fourth quadrant (high risk, high consequenses). The problem arises when people use statistical techniques on stuff where these techniques are not applicable and number crunch their way into glory. Typically MBAs. Taleb calls them statistical charlatans (and rightly so).

I have taught MBA courses in Hong Kong and I know that they are fed on a steady diet of financial econoometrics without teaching (or glossing over) the underlying errors and assumptions behind financial models. So why blame the MBA grad who feels he is armed with 'expert' knowledge after a 3 month course in Financial economics?

Now what SS_roy is claiming is the following - This financial crisis is a cataclysmic event (perhaps it is) and that this will change the economic development levels of nations (I do not think it will). Why? because the 'real' sector determines development levels, not the financial sector.

vina · Post by **vina** » 15 Dec 2008 09:24

Arnab,

With all due respect, please check around in the investment banks in your own Hong Kong . You will find zero /close to zero MBAs in quantitative modeling , more so in the risk modeling desks of any self respecting investment banks. The quants without exception tend to be mostly PhDs (PhD tends to be a hard requirement) in hard sciences (Physics, Math, andhttp://forums.bharat-rakshak.com/posting.php?mode=reply&f=2&t=4551&sid=1908bb82254412346b12e58cb0f04b5e Engg) or math heavy fields like Economics and Finance. The few MBAs that tend to be there are usually engg/math background types with heavy quantitative background.

Those guys know their math, unless you want to create a myth of some basic financial modeling /one course MBAs going and building out those models. It would do everyone good to disabuse themselves of the notion that it was half baked folks doing this kind of things and that if it were "experts" aka "scientists" with Phds in Physics, Math etc who did these, this wouldn't have happened. Fact is , it was exactly the same people who did it and it happened.

The problem is not ingenues going and building stuff they dont understand. The problem is the hubris of learning and the sense of omniscience that one gets out of hard mastery off a limited subset of the of the problem. The lay man/ the sterotypical rickshaw wallah in the Hindi movie knows it and says "Upar wala jaane".. But not so the expert. They think they know better, even when they dont.

Now, coming back to Akbar and Hemu, let us look at a classic "Layman"..Islamist explanation of how things could pan out BEFORE THE BATTLE (remember, Akbar faced outsized odds against Hemu, who had a kingdom and a larger army behind him)

"Allah comes to the aid of the faithful, especially in nearly hopeless situations in key battles and seemingly by magic, delivers victory to the momeen".

" Random events of very low probability have the effect of having outsize effect, thereby realizing nearly impossible outcomes, so we cannot discount the possibility of winning even in hopeless situations. We should try to keep all possibilities (especially the improbable) ones open , so that such improbable outcomes may happen".

Translate the second statement, by replacing the word Random event of very low probability by Allah , then you can see that the "layman" has an instinctive understanding of the situation.

Expert speak ".. Akbar had already been reduced to a Vagrant, Hemu had successfully ensconced himself in Delhi and led a large well equipped army of high morale against a rag tag force of Akbar and had chased Akbar from the most of India to a small corner in the boundaries and had won multiple victories against him" . So most probable outcome is of Hemu winning!

Now replace the JNU ding dong/ "experts" view of the scene, with actual event and see how wrong they were ?. True JNU ding dong experts would have been right in a theoretical setting /game, where the battle could have been replayed over 30 times (to have normal distro) , independently, with each win having no effect on the subsequent ones and 'reset' to the beginning after every battle".

It is only when you scope out the JNU/ISI/DSE ding dong's scenario in real life, you see the absurdness of it. And believe me sir, this entire thing of 'most probable' out come business is possible only with an "expert" who knows normal distro and probability and calculates it. The lay man knows, if you lose , your neck gets chopped and there is no game after that!.

arnab · Post by **arnab** » 15 Dec 2008 09:59

vina wrote:Arnab,

With all due respect, please check around in the investment banks in your own Hong Kong . You will find zero /close to zero MBAs in quantitative modeling , more so in the risk modeling desks of any self respecting investment banks. The quants without exception tend to be mostly PhDs (PhD tends to be a hard requirement) in hard sciences (Physics, Math, andhttp://forums.bharat-rakshak.com/posting.php?mode=reply&f=2&t=4551&sid=1908bb82254412346b12e58cb0f04b5e Engg) or math heavy fields like Economics and Finance. The few MBAs that tend to be there are usually engg/math background types with heavy quantitative background.

Those guys know their math, unless you want to create a myth of some basic financial modeling /one course MBAs going and building out those models. It would do everyone good to disabuse themselves of the notion that it was half baked folks doing this kind of things and that if it were "experts" aka "scientists" with Phds in Physics, Math etc who did these, this wouldn't have happened. Fact is , it was exactly the same people who did it and it happened.

The problem is not ingenues going and building stuff they dont understand. The problem is the hubris of learning and the sense of omniscience that one gets out of hard mastery off a limited subset of the of the problem. The lay man/ the sterotypical rickshaw wallah in the Hindi movie knows it and says "Upar wala jaane".. But not so the expert. They think they know better, even when they dont.

..
It is only when you scope out the JNU/ISI/DSE ding dong's scenario in real life, you see the absurdness of it. And believe me sir, this entire thing of 'most probable' out come business is possible only with an "expert" who knows normal distro and probability and calculates it. The lay man knows, if you lose , your neck gets chopped and there is no game after that!.

Hi Vina,

The point I was trying to make is that nobody can 'predict' certain types risk (typically systematic risks). My point was that Investment bankers/ risk analysts feel pressured to provide an intellectual veneer for their decisions to hedge against certain risks. They do it through quant modelling - most of which is cr@p. Unfortunately it comes across as if they know what they are doing. The layman does not even try to understand. The 'experts' are much more culpable in this crime.
I remember early this year when I was in India, an investment banker wanted my mum to invest a substantial amount in some mutual fund by confidently predicting (based on past experience) a 25% rate of return !!

Your Hemu, Akbar e.g is interesting - though I still think Talebs e.g captures the essence of what I was trying to say:
a turkey is fed increasing amount of grains for a 1000 days leading the statistics deptt of the turkey to conclude that humans were interested in the turkey's welfare. On the 1001st day the turkey has a surprise

Moral of the story: irrelevant or wrong usage of statistical techniques may be dangerously misleading (but we do not wish to say that all statistics is cr@p and throw the baby out with the bath water).

vsudhir · Post by **vsudhir** » 15 Dec 2008 16:10

Now what SS_roy is claiming is the following - This financial crisis is a cataclysmic event (perhaps it is) and that this will change the economic development levels of nations (I do not think it will). Why? because the 'real' sector determines development levels, not the financial sector.

Again, disclaiming great econo-gyan, lemme still venture to say the above doesn't strike me as exactly right. The 'real' economy needs regular funds infusions (capital, at least working capital) to keep going. The broader finance sector - which includes raising capital, securing credit etc becomes critical for the smooth running of the real economy.

Technically, nothing much really changed in terms of 'real economy' planst and machinery on the ground between, say, Nov 2007 and Nov 2008 in the USA but the change in terms of output and outlook don't suggest that is the case. With the credit taps dry (the FIs are re-ploughing TARP funds back in T-bills apparently, which briefly turned negative-returns last week), consumer demand is low => business and retail demand is falling => production is being scaled down => folks are being laid off => consumer sentiment sinking lower and so on. OTOH, harder credit is hitting many, many 'marginal' and small cash-and-carry ops off the existence charts. Raising capital through either debt or equity is a nonstarter. Many venture funds will close the tap on funding requests from their many startups also in the coming months. All in all, the finance sector mess is spreading into the real sector with real ill-effects on real people. Sure, some may disagree and I being a non-teacher of financial economics would probably be wrong somewhere in my simplistic reasoning, admittedly.

But that is how I see things. Shall all them as I see them. ss-roys arguments struck a chord. No more, no less.

/Have a nice day.

adityaS · Post by **adityaS** » 15 Dec 2008 17:36

ss_roy, Arnab, all: great posts, great gyaan.

Could you recommend reading material so that a beginner at economics can learn more (and hopefully understand better)?

John Snow · Post by **John Snow** » 15 Dec 2008 22:13

1] Keep my ideas to myself (does not change the probability of change)
2] Write it down, so that maybe someone can read it and look at the world differently (a very negligible increase in the probability of change)

I chose option 2]. I am doing what I see as the "right thing to do", however I am not overtly attached to the outcome.

"Suppression of Expression is the end of Liberation" Spinster

Great vigyan, I will join forces with my agyan shortly...

svinayak · Post by **svinayak** » 16 Dec 2008 06:22

arnab wrote:I do not think Taleb argued that historical data (or events do) not matter. Taleb warned against over reliance on historical data and making decisions on the basis of poor risk assessment models formulated on an over-optimistic reading of historical data.

The historical data is no really historical in nature. The last 150 years the econonmic data was based on western population and industrialization.
The last 50 years the countries which were left out of the data are becoming industrial and the economic data from the "historical" perspective may not turn out to be accurate,

ldev · Post by **ldev** » 16 Dec 2008 10:43

Ok, So tell me why are new biotechs in the USA are going bust at record rates (credit problems linked to direct/ indirect exposure to lehman brothers)? Why has funding for new startups in energy dropped? It is is not just lower energy prices as lehman also was directly/ indirectly responsible for VC-type funding.

You are missing the big picture, loss of leverage + insolvency has crippled the financial system. No funding = more closed companies= more unemployed = less consumption = more job loss (deflationary spiral).

This is not the great depression 2.0, this is the great unraveling 1.0.

ss roy,

When lenders are uncertain about the credit worthiness of a borrower or investors are uncertain about future prospects of an investee company they will not lend/invest and that is what is happening in today's market.

As far as energy projects, specifically oil projects are concerned the primary reason is:

1. Current oil prices which make certain projects unviable and that brings us back to the point I raised above i.e. uncertainity by lenders/investors about prospects of an investee company/project.

Loss of leverage and insolvency is the effect. To try and figure out what has happend you must look for causes. And the causes go back a few decades, IMO, to primarily two events:

1. The large scale transplanting of the US industrial base to other countries, especially China which reduced consumer price inflation inspite of credit/debt growth and hence created inflation in asset classes which became proxies for current income savings.

2. The original Basel 1 accord whose good intentions of ensuring minimum capital adequacy standards for banks spurred the innovation of securitization by Soloman Brothers.

These two events by themselves did not cause the current problems, but one could call them the fertile soil on which fell the seeds of:

1. Less then stellar rating agencies.

2. Quants who did not really understand what they were doing in quantifying risks in packaged securities.

And hey presto, you have the current credit wildly overgrown forest.

But, while this may be so, it does not in any way IMO translate into the apocalyptic scenario that you have spoken off in your initial posts by saying that the West is doomed, China is toast, all other countries are dead on arrival ..... and only India is great. I would like you to go back to your original premise and explain why a credit bubble which IMO will be brought under control with some amount of pain is in your opinion an apocalyptic event for all nations. Ofcourse, if you think that you have used superlatives inadvertently, please indicate that also by all means.

abhischekcc · Post by **abhischekcc** » 16 Dec 2008 13:04

I had posed a query in the beginning of this thread - saying whether the discrediting of the idea of an 'invisible hand' mean the demise of democracy as well?

Since no one is taking that up, let me do the honours myself.

As Europe was De-Christianizing during the Renaissance, there was a big problem of finding the guiding principle for society. Earlier, the Churches fulfilled this role by providing guidance on all sorts of matter.

Deciding not to choose a moral guiding principle was a deliberate step to counter the Church's excessive moralistic position. It aided creation of a new moral paradigm - utilitarianism - the idea that something is 'good' only when its usefulness is proven.

This is directly opposed to the dominant Christian idea that something (in their case- God) is useful even when unproven. Salvation only possible on death, when it is too late to do anything about it

.

In a typical Christian setting, the priest has all the power (to grant salvation, at least in the eyes of the faithful).
The 'invisible hand' concept promoted the idea that 'good' can be created even when people pursue their self-interest. - Selfishness is good, or at least, not bad.

Franchise based democracy is based on the idea that - something is 'good' only when its usefulness is proven. That's why elections take place, because the government has to prove its 'usefulness'.

With the failure of the markets, and the heavy state intervention in the erstwhile free market of USA

, it is now an open secret that 'invisible hand' does not work. Democracy has thus lost its centre of gravity.

So, what next?

The roaring twenties were followed by the fascist thirties. Do we see a collapse of democratic principles and states across the world?

Indian democracy has already proven itself to be an utter failure - it can provide neither security nor prosperity nor equality nor justice. Absolutely nothing. Only the farts in the parliament get money.

abhischekcc · Post by **abhischekcc** » 16 Dec 2008 14:02

The movement that started in the renaissance reached its zenith with Ayn Rand and her objectivism. And guess what, Alan Greenspan was an avid follower of that 'philosophy'.

Rahul M · Post by **Rahul M** » 16 Dec 2008 19:18

Indian democracy has already proven itself to be an utter failure - it can provide neither security nor prosperity nor equality nor justice. Absolutely nothing. Only the farts in the parliament get money.

what's your take ?

will a non-democratic govt be better ?

Singha · Post by **Singha** » 16 Dec 2008 19:41

we already have/had numerous semi-democratic regimes in the states like Amma, Mayawatiji and so on. Plus the gandhi family tolerates no opposition in the kangress. so we have already tried out hand at semi-democracy - its results are no different from phool-democracy.

the only other modes of Governance left as Shariat based theocracy, Mushocracy aka jarnailocracy and Han-raj aka Danda-raj

take your pick boys and pass the vaseline

abhischekcc · Post by **abhischekcc** » 17 Dec 2008 12:14

Rahul M, I have no take on this, except stating the obvious.

All I am saying is that the principles/systems guiding the world (as least the westernised parts of it) have been shown to be hollow, and are now in the process of dying.

I don't claim to have an answer, only a question - what next?

vsudhir · Post by **vsudhir** » 25 Dec 2008 17:51

Fiscal Insanity Virus contagion spreading to Canada, Sweden, Italy....

Hilariously funny piece. Sadly the subject matter is dead serious onlee.

IMVVHO, Worth a full read, folx.

Yogi_G · Post by **Yogi_G** » 25 Dec 2008 23:08

Singha wrote:we already have/had numerous semi-democratic regimes in the states like Amma, Mayawatiji and so on. Plus the gandhi family tolerates no opposition in the kangress. so we have already tried out hand at semi-democracy - its results are no different from phool-democracy.

the only other modes of Governance left as Shariat based theocracy, Mushocracy aka jarnailocracy and Han-raj aka Danda-raj

take your pick boys and pass the vaseline

Singhaji, who said Mayawati is sem-democratic, dint you see the recent democratic participation for her bday....all the people collectively pooled money to celebrate her bday...whether it was voluntary or not is another topic

vsudhir · Post by **vsudhir** » 28 Dec 2008 07:47