Idea Summary : Minsky's money theory etc

Since all money is created as debt, every unit of money outstanding is A's asset and B's debt, someones surplus and someone else's deficit. In any particular economy, all government deficit will be equal to private sector surplus unless their is trade imbalance (current account mismatch). If it is able to run a trade account surplus then both private and public sector can run in surplus. But if there is a trade deficit then either or both public and private sector will be in deficit. This is not sustainable. Once Private sector runs in deficit it leads to recession.

Situation is different for US because it can pay the rest of the world in its own currency. In this case it can just pay the currency and record it as a liability in a computer and forget about it (until the money comes back to the US to be used). Hence the ability to sustain a deficit is maximized by having a currency accepted by the rest of the world. Of course the rest of the world loses by accepting the currency that is continuously being diluted.Naturally, countries will try to limit their holding of the USD, unless they have other reasons to hold USD, eg. to keep their currency suppressed for active Mercantilism. This is possible by trading with each other without going through the USD. This could be one of the reasons for emergence of the Euro block. It is an attempt to by pass the USD, by having one currency so that the individual holdings of the USD can be minimized.

Having rest of the world accept your currency is a major reason and manifestation of USA's global hegemony. All the world accepts its currency and so it has greater ability to spend. Greater spending power results in big military power used to control the world. That is not to say it is the only reason. The ability to deliver innovation and leading the world forward technologically is probably a bigger reason. But what sustains it all is the economics, which is tremendously skewed in USA's favor.

Book Summary - Guns Germs and Steel

This book is an inquiry into human history. It seeks the answers to some basic and important questions. Why did Europeans come to dominate the world and subjugated people all over the world - Aztecs, Incas, African Blacks, Zulus, Pygmies, Khoisan,  Australian Aborigines etc.? Is it a co-incidence or are Europeans a superior race than all other? Jared Diamond presents an overwhelmingly convincing argument which should be a deathblow to racists and white supremacists everywhere.

When Europeans reached America, they dominated the battles eg. when Pizarro faced the Aztecs in South America - 168 Spanish soldiers defeated thousands of Aztecs in a quick and dirty battle. They had horses guns and cannons, technology that was far superior to anything natives had. Generally more than 90% of native population was wiped out even before the battles took place by coming in contact with the germs that Europeans were resistant to while natives were not. Why was it that Europeans had better technology and germs? Why not the other way round?

The key event in human history, from which all the development followed - was start of food production. This started in fertile crescent area around 10000 years ago.  This area was particularly suitable because it had the temperate climate, wild forms of the crops which are were developed for farming, wild ancestors of animals suitable for domestication. Nearly everywhere else in the world, this technology was imported along with the seeds, animals etc. Food production enabled mankind to support higher population density and emergence of organized society.This led also to invention of writing in the fertile crescent , which was also adopted by all other civilizations over the world. Germs and germ resistance developed as a result of humans living in closed societies and close to domesticated animals (like Influenza virus came from the domesticated pig)

Everywhere else in the world, no suitable crops were available. For example in America, only suitable crop was corn , there was no wheat, rice, millet, barley etc. and even the wild ancestor of corn was 6 cm so it took thousand of years of selection to develop corn to its modern form. Also there were no animals worth domesticating. Only Llamas, which could not be used over all of america but only some specific parts.

Technology traveled faster along the east west axis in Asia. Because same crops could be used in similar climate. While on the north south axis the propagation of technology was very slow. America and Africa being aligned North-south was also a big disadvantage.

Human brain is similarly developed in all major races. Brain evolution stopped around 40000 years ago.It was only a matter of chance and circumstances why these technologies were developed in Asia and traveled to Europe through land. Everywhere else humans showed same kind of ingenuity in understanding their environment - crops and animals. But it was not possible to achieve a lot with what was available, so a lot of races did not develop or even went back to hunting gathering lifestyle.

Technologically, most of Asia and Europe was at a similar level at around 1500 AD. For the rest of the world, differences in technological development can be explained purely from the variables outside human control. Since then Europeans made amazing progress reasons for which have not been explained as convincingly as for period before that. Reasons presented are mostly idiosyncratic - as in Europe benefited from being fragmented and plural while China was unified and not plural. Diamond proposes that there is an optimum fragmentation/unification level.  In any case, it is not the main purpose of the book to explain the differences created in the last 500 years, which have already started to be normalized and probably will disappear in next 500 years. The book presents a very long term view of human history, one which has presented insightful arguments and enriched me immensely. 

FDI in Retail - Why now?

Yesterday the Indian government surprised a lot of people by allowing a 51% FDI in retail. While Congress had wanted to do it for some time now, it had been stopped in the past by its now famous coalition dharma and general public fear of foreign competition. What prompted this policy move now?

Congress has distinctly been a party without an ideology. In Nehruvian times it was a left leaning Fabian socialist party. But there has been clear lack of ideology in last two decades. Since 1991 it has been credited with ushering in economic reforms, ending the licence raj and putting the country on the track of growth. Although it was an act of a desperation once there was no other choice left, congress did not shy in taking credit even for what was thorough capitulation. One would be tempted to think that after such a drastic move   Congress would have aligned itself away from what it stood for in pre-1991 era. But NREGA showed that they are not shy of populist policies. For congress winning the next election is the new ideology. But why then is the Indian junta now supposed to believe the Manmohan Singh rhetoric that "If we are going down, we will go down swinging". Where does this sudden surge in courage come from? Or more importantly what is the strategy behind this move and why is congress willing to risk its government for FDI in retail?

Skeptics might be motivated to find a corruption motive. I do not believe there is any truth in that. This is a no transaction policy decision which is political in nature. It will help congress fare better in the next election. Popular middle class opinion in the nation is emphatically against the congress, but middle class never determines the election in India. It is the poor masses that determine the winner. And for the masses - Inflation is the biggest issue. At the right moment congress can provide some freebies to the masses (like mobile phone or laptop) to sway the opinion or pull out another NREGA like scheme out of the hat. But that won't be sufficient if the inflation that is breaking the poor man's back does not come down. Since inflation in India is structural in nature, this step was required.

Yes, the FDI will bring efficiency in retail, weed out middle man and make thing cheaper for the consumer, but that will take years to happen. This effect will probably not be seen before the 2014 election. Doesn't that defeat the purpose?  How does it help congress in 2014 election then? To understand this you have to understand the root cause of inflation in India and the reason why rupee fell 25% in a short while.

After the NDA was pushed out of power, for a few years the country was on right track of growth and surplus due to a number of reasons. Effect of the infrastructure spending for prior years were showing and the global economy was doing very nicely. In the second term congress was not so lucky. The global economy had plunged into a recession, but effect on India was not so pronounced. The real shocker came later. Monetary policy was accommodating and  government had started the NREGA which was costing the government forty thousand crores every year and was directly released to the poor. Exports were down but domestic consumption was high fueled by the increased money supply through the system. Current account balance crashed, luckily the rupee was saved due to capital account surpluses. Capital account surplus was temporary in nature - Indian corporates were borrowing heavily in US markets in trying to take advantage of record low dollar rates. But the dollar had to be paid back. Current and capital account both turned red and second half of 2011 was mayhem for the rupee as it lost 25% of its value in short time. There is a significant possibility that this trend of high inflation and rupee depreciation would continue in the future.

Given the government deficits and global economic scenario, there were very few options left. Government tried to fix its deficit by raising fuel prices, it helped. But that did not help the Foreign exchange problem. If the economy remains structurally weak and exports fail to pick up, then somehow Dollars have to be arranged to stop the rupee decline. India has to see some foreign investment and corporates are not ready to borrow after being screwed badly. So in another act of desperation congress has decided to allow FDI in retail. The money that will come in will stay in India for long and stabilize the Rupee. It will be a boost to growth and productivity. It will be atleast a decade before Walmart etc. start repatriating anything back home. Then it will be somebody else's problem to plug that hole. For now, congress can again be a hero, but the truth is that if they did not do this now, there would have been nothing left to save. It is a calculated political risk, and a potential masterstroke.

History

Is History a science or an art? I would argue it is much more a science than we realize.

Science functions as follows- inquisitive folk observe a natural phenomena, which they do not initially understand. They set out on a quest to understand that and related phenomenon. To that end, the inquisitor creates plausible hypothesis. And then starts the collection of evidence to support the hypothesis. This is done through experimentation and keeping sense perception heightened to what they are looking for. If the evidence collected allows the inferring of correctness of the hypothesis, it becomes an accepted theory. One more brick in the wall of Science. Another milestone.

Through the history of mankind science and human knowledge has followed this path to growth. Be it Galileo, Copernicus, Edison , Darwin or innumerable others.

There are some experiments where carrying out of the experiment is hard part and inference is self evident. For example when Edison was inventing the bulb, he had to create different prototypes and then switch on the bulb. If the bulb lights up the experiment would be successful and hypothesis would be theorized. However there are some experiments where  inference is not as simple as toggling a switch and watching for light. For example the Large Hadron Collider experiment. Constructing the experiment and carrying it out was no easy task, but neither is the inference. After all you are trying to find the Higgs Boson, which can not be seen. So large amount of data is collected, which are electrical signals generated from collision of particles, and computer programs go through that data looking for a signature. If the data would pass statistical tests - hypothesis would become the theory. With time if more and more data confirms the hypothesis, scientist would be able to assert with more statistical significance, the correctness of their conjecture.

A close examination would reveal parallels between the act of inference in scientific inquiry and the quest to understand human society and its history. We have a huge number of people on this planet, existing co-dependently for very long, where individuals change through time and ideas that bind them also change through time. Society resembles a mutating organism in that way. It can also be seen as a diversified scientific experiment happening as we breathe. The tough part is Inference. Like a biologist a historian tries to understand the organism that is our society. If we can study our own behavior on a giant scale and through time, and take some knowledge from it, we will have much greater control over our destiny.

History, and the act of writing and re writing of it is not just a statement of facts, but our attempt at inference. History is an attempt not just to create a theory which is an end to itself, but an understanding of individual and collective human nature which itself would evolve over time. The distinction between art and science probably comes from the fact that there is no well defined objective in this exercise, but it resembles science in so many other ways.

Marketing@Olympics and other things

Yesterday while I was watching the 200m race, i saw Usain Bolt grab a camera from a Sports journalist and click away. Later it was all over the news. Many thought he was exploring the photo enthusiast part of his persona, but I wondered - How much would he have been paid for this? I mean top sportsmen who have worked hard to be where they are, don't even drink a cola for free on the street (they can actually be sued if they are photographed drinking a rival cola anywhere) why would he grab a new Nikon D4 introduced in January, on one of the biggest nights of his career and do the best kind of advertisement (one that looks natural) in one of the most watched moments around the world.

Marketing runs so deep in the system that you can never be sure if you really want some thing or you have been subconsciously suggested to want it. If you see the expression "The Beast" of Yohan Blake, that he does when he is being introduced at the start or during celebrations, he almost resembles the Puma which is his sponsor. Now that is some clever shit, and I wouldn't be surprised if that celebratory stance is actually paid for( how it works is it draws your attention to the logo he is also wearing on his jersey while he is on the screen and so registers it on your brain).

I see so many amateur photographers, who all incidentally have found out that photography is a good hobby to have and develops you artistically just when the digital camera technology was becoming economically feasible and companies needed a market now that they had the product. That maybe partly true, but I am sure a tabla or painting offers equally satisfying artistic experience, but they have no takers.  World is full of people who have little idea of what they want, they are just being manipulated everyday.

I am skeptical to an extreme (from experiences of course), to be aware of what i really want and what is being pushed by some party. I did not even read the Harry Potter series when it first came out and became a hit (well that was my loss), because even mainstream literature is usually shitty, like Chetan Bhagat or a Fifty shades of Grey. I let it grow stale and if it is any good it will stand the test of time. And then I will read/consume it when I am sure it is not me who is being monetized. Also the body of literature is so vast out there that if you are reading the best sellers, you are probably just lazy not to find out where all the good stuff is.

Monetizing everything runs very deep in capitalist culture. For example in many countries marijuana was not banned until few decades ago. It was a policy pushed by the US because as a vanguard of capitalism it is principally opposed to Marijuana as it is very hard to monetize. Of course Alcohol is much more harmful than marijuana, but that is legal. Because you can grow marijuana at your home and be satisfied, it is illegal. It is not good business and it is also not  good for business.

Cute Penguins?

Penguins are probably considered one of the cutest creatures around, with their shiny smooth skin and the way they waddle and slide on the ice. They have captured popular imagination in the movie Happy feet and also as a mascot of the Linux kernel. I recently read on a FB status how when a male penguin falls in love with a female penguin it searches the whole beach to find the perfect pebble to present to her. So cute and romantic right?


Let me tell you some things about Penguins that might change your opinion. 


Emperor Penguins are known to push each other in water to test if the water is safe and free of predators. When the penguins are hungry they gather around the shore and wait for somebody to go near the water. Eventually the hungriest one does and at this time they take the liberty to push him with a light nudge into the water. Then they watch his fate intently, and only when they are assured that the coast is clear they take the leap to find some food.


In the early twentieth century on an expedition to south pole, George Murray Levick studied the Adelie penguins, their habitat, reproduction etc. What he found about their sexual habits was so shocking that the information could not be published at that time and was under censorship for nearly a century. He reported acts of Homosexuality among the Penguins. And to that if you say - "Well, that is why homosexuality should not be illegal as it has been documented in around 1500 species, it is safe to say it is totally natural" what do you have to say about the acts of Pedophilia reported among the cute creatures down south?


And it does not stop there. Mountaineers who are reported missing in expeditions are sometimes found buried in ice 50 years later and identified by their photos. This is possible because ice preserves the flesh. The same happens in Antarctica and you can find bodies of penguins dead over a hundred years ago if you dig beneath the new layers of ice. It is not hard to find a perfectly preserved Penguin corpse in the Antarctic and it is also not hard to find a living Penguin over it. Those cuddly penguins have been reported to carry out the most depraved act of all - Necrophilia.


So much for cuteness! And I am sorry if I ruined that penguin stuffed toy you like so much for you.

The Politics of IITs

It first came to my notice in early 2003. I was a first year student at IIT Kanpur then. On winter mornings sipping tea at MT and going through local hindi news papers like Aaj and Dainik Jagran, I would find small articles about IITK somewhere on sixth or seventh page. Usually they would be about cultural or technical festivals (Antaragini and Techkriti) or sports festivals. Or about some project that was completed or announced by a lab in collaboration with some corporation or government body.  This sort of news was not present in Lucknow newspapers. But over the course of time I could see more news about IITs in Lucknow news papers as well.

Then they during the placement season they started publishing the details of job offers students were bagging with top offers being emphasized. Over the years these top job offers news started making to front page in Kanpur and started being reported in Lucknow newspapers as well. The feel good nature of these kind of news stories was identified and exploited by mainstream media outlets nationwide. The emotions it generated in the public were similar to the likes of "Mukesh Ambani 3rd on the Forbes List of 100 richest people". Somehow media fools you into being proud of what shouldn't concern you at all and probably isn't even news worthy. IIT stories are also popular because it represents class mobility. Most lower middle class Indians consider IIT a door to upper middle class and they like to be reminded that despite their current predicament, there is a way out.

Being continuously fed stories about IITs for years, general public feels involved with them. A bit like people generally having views about the saas-bahu soaps they follow. Public is enamored with good news and disturbed by what they perceive to be bad news much more then they should be if their involvement was only at a rationally justified level. And whenever public feels strongly about something, politicians emerge on the scene to exploit those feelings.

Since becoming the Education minister Mr. Sibal took upon himself the crusade for making the IITs socially inclusive.  The entrance test was to be changed to a format which would eliminate or significantly reduce the relevance of coaching classes. Because coaching classes are an unfair advantage to a certain strata of the society and also the formal education system gets sidelined. Marks obtained in class 12th board examinations were to carry 40% weight.
 
Thankfully Mr. Sibal was not very successful in his bid and the final arrangement looks nothing like his original plans. Only top 20 percentile of each board will be able to appear for the JEE, which is a reasonable rule although if it were up to me, i would rather not have that as well. If you believe otherwise,  a few stories of injustices dealt by UP and Bihar boards can easily convert you.

What was amazing though was the magnitude of the effort Mr. Sibal put in his endeavors. With a population of 1.2 Billion, of which majority of households do not have access to decent primary education and the university education is in ruins, he is most worried about reforming a system which takes in less than ten thousand students an year and is probably the best performing institution in the country.

When will we see similar zeal from the minister to reform the primary education system? If he really wants to make higher education socially inclusive, shouldn't the school system be reformed first so that the quality of students increases. Instead his preferred solution is to twist the rules of the game. The JEE is in my opinion is one of the fairest systems in India (barring the externals ) and it is best if it remains fair.

But tinkering with the IITs offers Mr. Sibal much more political mileage than reforming the school system. First reason is that reforming school system could be a costly affair for the government which is already missing its fiscal targets under the weight of its welfare programs. The second and the more important in my opinion is that a shrewd politician like Mr. Sibal has recognized the irrational fancy the Indian population has taken to the IITs over the years. Populist moves regarding the IITs give him most "bang for the buck".  He is implicitly promising a bigger share of the pie to his vote bank.

I can only wish luck to the IIT system which is now on the radars of  politicians playing class and caste politics, partly due to its own success.