Spare a thought for the poor Iranians

There is economic cataclysm going on in Iran. What guns and rhetoric have failed to do might be achieved by grubby old economics - the downfall of the nut cases who have been ruling Iran for sometime.

The Iranian rial has plunged into free fall. It declined by 25% in one week in October against the US dollar. Since the beginning of 2011 it has fallen by 70+%. It was some 10,000 rial to the US $ in 2011. Its now around 30,000 rials to the US $. The rial is now virtually worthless. Inflation by official estimates is some 25%, in reality more like 70%. There is economic chaos.

Why is this important ? You only have to look towards  the street protests that have sprung up in Iran to see how this is affecting everybody in Iran - the rich, the poor, and yes, even the mullahs. But, wait a minute. Iran is oil rich, right ? It should be rolling around in wealth. And yet, the country  is in deep crisis and the population is suffering.  Why ?

If ever there was an example of how a rotten government can destroy its people, it is Iran.  By all rights Iran should be a rich country. It is an ancient and rich culture and full of extremely bright people. And above all, it is swimming in oil. But unfortunately it has a government that must surely compete with North Korea and Zimbabwe for the title of the worst government in the world. It exports terrorism, it dips its fingers into every trouble spot in the region - it finances the Hezbollah in Lebanon, it backs the Syrian regime, it supports the Hamas in Gaza........ It is trying its best to build a nuclear bomb.

Consequently it has pissed off the world. Crippling economic sanctions have been the result. Nobody bar Russia and China, and to some extent India, is trading with it. It has been kicked out of SWIFT - the international banking settlement system. Therefore everybody, including Russia and China have to deal with it via the back door.  If anybody trades with Iran he has to virtually receive suitcases of cash in return. That's not easy to do on scale. So even exporting oil has become difficult.

End result is that the rial is plunging like a stone. So everything becomes incredibly more expensive. Food prices are doubling. Luxuries, which might even be necessities in other parts of the world, are becoming unthinkable. The common Iranian, like most others in the world, cares two hoots about religious purity and dogma. He wants to fill his stomach. And then wants to buy a mobile phone. After that he wants to post on Facebook. Simple.  If you deny that from him for too long and make him slide backwards, his patience will break and he will burn the beards of those who are stopping him. 

So for Israel and the hawks in America, here is a pleasant thought. You don't have to nuke Iran to stop them from acquiring nuclear weapons. The rial is doing the job for you brilliantly. With a bit of journalistic license I say, the bill is mightier than the bomb !

A political addenda to the economic blueprint

Politicians will do anything to win elections; even good things ! You can't blame them , for after all that is the objective in politics. As I observed in the previous post, an economic blueprint is of no use unless a political way can be shown as well. So the task is to show that an economic plan will win an election. Or at least not lose one.

I believe the time is ripe for that in India. The Congress government is almost certain to lose in the next general elections due in 2014. They have no plan to win it. No amount of cash doled out to the voter is going to help them win. Therefore they have nothing to lose. Ideal conditions to try something drastic.

Make a fresh beginning. Manmohan Singh should retire and a grateful nation should say thanks for a lifetime of public service. Pranab Mukherjee can be kicked upstairs. Chidambaram, Anthony , Pawar etc are to exit with a 21st century Kamaraj Plan. For the lack of any other leader, Rahul Gandhi should take over as Prime Minister. He should form a new cabinet - 50% from the political class and 50% from technocrats and experts who are complete strangers to politics (imagine Sreedharan as Railway Minister). Form a government of national unity, giving a couple of Ministerships to the BJP and the Left as well - this may not happen, but no harm trying. This government has a two year mandate to do things .

Bribe the states to fall in line. No state is opposing any of the measures on grounds of ideology or conviction - every opposition is simply politics. The best way to overcome them is to bribe the states. Every state that wholeheartedly supports the entire agenda of the government will get say Rs 2000 crores as a dole. Fund this by running a one time deficit. States that still do not want to toe the line are welcome to stand alone, but the rest of the nation will go ahead.  If and when they join, they won't get the Rs 2000 crores.

Form a "conclave of experts". From all walks of life - social workers, businessmen, government officials, environmentalists, politicians, etc etc. Say about 50-100 eminent Indians. Appointed; not elected. The government should "sell" the plan to them. Debate and incorporate the sensible changes they recommend. Make them inclusive in the plan. Appeal to their nationalism that single point agendas (like say an environmentalist opposing any dam whatsoever and not  taking any responsibility for economic development) cannot work. There are no easy solutions. Some tradeoffs must be made. The governing principle is 75% agreement (since all cannot agree), but 100% commitment once the plan is finalised. The plan then goes through Parliament for adoption.

For two years banish any strike or agitation against any aspect of the plan. The conclave of experts have to commit that they will not agitate outside the conclave (that's what 100% commitment means). Opposition or ruling coalition parties who wish to strike are welcome to do so; the government simply ignores them and goes on ahead, daring anybody to bring down such a young, new, active government. It is unlikely that Mamata Banerjee or Mayawati or any of the usual trouble makers will increase their seats in a new election; so what's the joy in bringing down the government. The one likely gainer can be Jayalalithaa who will probably have to be "bought" by more dole to the Tamil Nadu government.

The government fully backs the bureaucracy and the judiciary to take quick decisions and implement like crazy( a bit of Sarkozy style hyperactivity would help). No bureaucrat would be punished for taking risks or taking a wrong decision - he would only be in trouble if he was corrupt. Sack the current grandstanding Comptroller and Auditor General who sees a scam in going to the loo and replace him with an eminent person from industry. Equally judiciary is "bribed" with doles to take a fast track for economic issues. The principle would be that its OK to get it 20% wrong , but quick, rather than hoping for the mythical 100% right and getting nothing done. Create a frenzy of activity - it tends to be self fulfilling and gathers a momentum of its own.

What about corruption ? It will never go away anywhere in the world. In India, contrary to public opinion, personal enrichment is a small part of corruption. Much of corruption is to create the war chest to fight elections. And the bulk of the spend is not in campaigning like in the Western world. Most of the spend is doling out cash and liquor to voters. But that has never won anybody an election. Everybody does this; so you can only lose by not doing this, but will never win only because of this. This can be lessened by moving towards proportional representation, instead of the first part the post system. Something to do immediately after winning the next election. This is an idea I wholly borrowed from Dr  Jayaprakash Narayan, an extremely impressive politician from Andhra Pradesh, where he is a MLA. For those interested, you can watch to him eloquently arguing the case here - incidentally it will also be an eye opener that such politicians also exist.

Meanwhile the current government just says no to building a war chest for elections. The Congress breaks ranks and refuses to bribe the voter with cash and liquor (remember it cannot win by doing this). Instead it tries to stand on the planks of freshness, action and two years of solid work.

Will this win Rahul Gandhi the next election. Maybe, maybe not. But he's not going to win it currently and he has nothing to lose. And maybe, just maybe, it might win him the election . The Indian voter is not an idiot. In the absence of any other compelling reason, he votes on caste lines, or whoever bribed him or sheer anger at the incumbent or fractures his vote. But give him a compelling reason and he votes in a wave irrespective of any other considerations. Remember 1977 after the emergency. Remember 1984 and the Rajiv Gandhi wave. Even the last elections in West Bengal is an evidence of the wave.

A fresh competent government may create a wave. Somebody trying this may lose, but will still go in a blaze of glory. Really worth a try.

An economic blueprint for India

It isn't enough to just criticise. A critic must also state what is the alternative.There have been lots of criticism of India's economic performance in recent times and the government's seeming inability to do anything right, economically. The blogger has been one such critic too. But precious few have really laid down a comprehensive argument of what needs to be done , and equally how this can be done; for we cannot, and should not,  wish away political realities.

Government action should be for sustained long term economic development - not short term fixes. Improving "sentiments" , like trying to bolster the stock market, is a waste of time and should not be anywhere in government's priorities. Issues like FDI in retail, fiddling with tax laws, which are getting a disproportionate amount of airtime, are all side shows - they won't make or break India.

This blogger is no expert on anything. He is just a concerned citizen. So here's one citizen's blueprint of what can be done and how it can be done. This blog is not a research paper, so there are a few ideas but no space to present data and research to back this

Stimulate agricultural growth:  Right through the last two decades, agricultural growth has lagged way behind GDP growth. This is unsustainable in a country where the majority depends on agriculture and therefore do not see the country's growth as inclusive. Some thoughts

• Significant investment in agricultural research and wholehearted acceptance of genetically modified crops . In doing so, insist on clear labelling of genetically modified crops and let the consumer choose - take on the environmental lobby and stand firm.
• Large investment in the power and water sectors of infrastructure referred to in manufacturing is also important for agriculture. Remove the freebies like free power (what use is free power when rural India has 14 hour power cuts).
• Revamp the APMC rules that distort trade and let the agricultural sector freely export - there is a massive opportunity to feed China.
• `Drive cooperatisation of agriculture ( a al Amul model) and even allow corporotisation without allowing any of these entities to acquire land.

Arrest the fall in manufacturing :   India's growth story is stalling primarily due to the decline in manufacturing. In Jan-Mar 2012, Manufacturing actually declined by 0.2 %. Manufacturing growth is the only route to creating jobs for the large population of India. Here's what can be done to drive the manufacturing sector

• Setting a land acquisition policy that is sensible (the current one is not). This is an incredibly difficult thing to do; no country, including China, has managed this and there is unfortunately  no easy way. The current attempt in India is a step backwards. We must learn from states like Gujarat which have managed this well.
• Decide on mega projects that require high level government approval quickly. Today every large project is in complete paralysis as the government is terrified of doing anything for getting dragged into controversy and accusations of scams. You can't be accused of a scam if you do nothing !
• Significantly step up investment in infrastructure. The government has actually done a great job in two sectors - roads and telecom (although the misguided courts are trying their best to reverse the gains in telecom). It has performed abysmally in Railways, Power, Water and Urban Development. These are the four sectors for concentration
• Implement the Goods & Services Tax, Direct Taxes Code and the new Companies Bill.
• Do nothing else and let both private and public sectors drive the growth 

Fiscal Responsibility : Both central and state governments have to adopt fiscal responsibility. Do the following

•  Statutorily fix a ceiling (low) on deficits as a % of GDP . Neither the Centre nor the states can breach this under any circumstance.
• Phase out subsidies slowly - it is impossible to phase them out in one shot, but over 5-10 years they can be phased out. In order of priority, they should be petroleum , fertilizer and then finally food. Some component of food subsidy can never be phased out and should always remain as an anti poverty safety net.
• Reduce significantly doles such as the Rural Employment Guarantee Scheme
• Increase tax revenue by broadbasing tax - remove the exemption for capital gains and agricultural income and go after taxing property transactions

Fight Inflation : Fighting inflation must assume almost religious proportions (a la Germany).

• Make RBI truly an independent Central Bank and task it with monetary policy. The government must abdicate its right to tinker with monetary policy. In the current environment, RBI is completely right to keep interest rates high
• Fiscal responsibility referred to above, will automatically reduce inflation
• Fight inflation supply side; boosting GDP growth is a good way to fight inflation.

Inclusive Growth : Mere GDP growth, without benefiting most (all is impossible) is not sustainable in any society. Growth must touch a large proportion of the population.

• That is why, agricultural growth is at the top of my list
• Invest massively in education. Inequity must be tackled at the level of opportunity. It is NOT an objective to achieve equity of outcome.
• We should establish a social security net. No Indian shall starve and nobody will go naked. No child will be unable to go to school. Everybody will get basic medical care (note the word basic). Anything more than this is an agenda item after 10 years.

That's it. Do nothing else. Results come from doing a few things very well rather than lots of things poorly. 

None of this is new, and I am not vain enough to believe that this is an earth shattering blueprint. Wiser minds exist in government who know all this and more. The problem is the political will for implementation. Politics and economics cannot be divorced. So how do we make all these things happen politically ?? That's for tomorrow's post.

A cross post

Should we worry about India's economy ? Yes says Sriram, a friend and a most prolific and versatile blogger. He makes two or three posts a day  and has wide and original views on a number of issues.  On India's economy, he says

"Less than a fortnight into the hundred days in India, the more I observed, the more I wondered whether India's economic "success" story was more hype than real.  That line of thinking morphed into to this column in which I wrote that "the economic health of India is not looking good."

Every day, evidence seemed to pile on to further reinforce the impression that India could run into some serious economic troubles really soon.  I was particularly concerned that the country was not paying enough attention to the long-term requirements of resources, energy, and infrastructure."

You can read his full post here.

Yes there's much to worry and despair about. We have made some progress, but make disproportionate noise about it. The real tragedy is that India is capable of so much more - Oh what a huge unfulfilled potential there is. With this much poverty around, its a crime to let potential go unfulfilled.

Yes, we can

To many, the year gone by was a bad year. Natural disasters took their toll - the earthquakes in Japan & New Zealand, the floods in Thailand, Brazil and the Philippines,  Irene slapped the US earlier in the year, and just as the year was slipping by, Thane kicked Tamil Nadu. Unemployment remained rampant in the developed world ; there is nothing more demoralising than losing your job and not having a hope of getting another one. Large parts of Europe are in crisis. Austerity measures are hurting badly, especially in Greece, and now Italy. Inflation has hurt people in China and India and growth slowing down in both countries is ominous. The Arab world had a new spring, but winter seems to have set in somewhat prematurely.  You could be forgiven for ushering in the new year in a somewhat sombre mood.

But there is every reason to look forward with hope. Adversity often brings the best in man. We can find strength that we did not even know we possessed. The Euro zone will hold together and the crisis will pass. Belt tightening will be required, but with courage and fortitude, there will be less suffering. Joblessness in the developed world will start to reduce as a slow recovery happens . There is no better a mood lifter than getting and holding a job. Inflation will ease in India and China - signs are there already and more and more people can lift themselves out of poverty. An encouraging part of the world is Africa. Long abandoned as a basket case, many countries are showing good growth and the Asian achievement of lifting people out of poverty is slowly, but surely, being replicated in Africa.


The year ahead is going to see significant elections in France and the US and a generation change in leadership in China. Each one of these is going to be momentous - none more so than the change looming in China where for the first time, such a change is going to happen without a strongman like Mao or Deng lording over it. Perhaps a leadership change might happen in India too.

We can look forward to 2012 with hope. I am surmising that the worst is over economically. The upturn might be slow, but upturn it is going to be. We can do much better this year and when the time comes to ring out the year, we can be in a much more cherful mood than we are today. Yes , we can.

Angola or Mongolia ?

Is Gils living in Angola or Mongolia ?? He isn't, but he very well could be. He is in the state of Tamil Nadu in India, but in terms of GDP he would be no different to living in Angola and in terms of per capita GDP, he would be the same as a Mongolian. This, according to a lovely chart by the Economist, which you can see here. They say a picture is worth a thousand words (something this blogger evidently doesn't believe because he regularly inflicts 1000 words on the reader, without a photo in sight). Surely a chart like this is worth 10,000 words. Brilliant, as the Economist usually is.

Vishal can chose between Turkmenistan and Latvia. Sandhya can opt for Croatia or the Philippines. When she goes home, Reflections , who is now wonderfully active in the blogosphere after extensive bouts of laziness, can chose to be a Tunisian or a Papua New Guinean. Wow. All of a sudden, India doesn't seem to be that great an economic powerhouse, does it ? Each state by itself seems fairly insignificant.  Nagaland, for example, is no better off than the basketcase of the world, Zimbabwe (Naga National Council, please note). And the assorted , unwashed, Islamist groups might want to ponder that the jihad and shaheeds will all lead to either a Bahamas (without the sun and the sea) or a Gambia.

Of course the one number India has in plenty, is population. If Uttar Pradesh were  separate country, it would be the fifth most populous country in the world. Zeno could be a Thai and kiwibloke, when he is not a kiwi, could be a dapper, handsome Italian.

The Economist has published a similar map of China here. Tony Chen  could be in Kazakhstan. Carol Chan (grrr; she's made her blog private) is from Azerbaijan. Zhang Dan could be in Turkmenistan, when she is not actually in the UK.

Very helpfully , The Economist has also published a similar map of the US here. By this token, Hopfrog is a Peruvain, and J has become a Thai. Deepa is really a Begum in nearby Dubai, but I am not sure if Mark is a Kiwi or a Finn.

Interesting, isn't it ?

Succession at the IMF

Unless you have a visceral hatred of the IMF, you could not have missed all the media coverage of Dominique Strauss Kahn, its boss. The affair has exploded like a nuclear bomb on a number of fronts. Firstly there is the IMF itself, currently deeply involved in the European bailout situation. Secondly it has blown open the French Presidential race - he was the front runner and it was quite possible that Sarkozy would have lost to him in the elections next year. It has called into question Continental European tolerance for sexual profligacy of its leaders - surely the Italian Prime Minister Silvio Berlusconi is at least a bit worried.

But this blog must remain a strictly non political one. This post is about the appointment of the new IMF chief - DSK has just resigned today and even if he is acquitted, is unlikely to get his job back.

It has been an utterly shameful arrangement that a cosy understanding exists that the World Bank chief is an American and that the IMF chief is an European.  This is a throwback to the post World War II days when only America and Europe mattered. Its a different world today and yet the old boys club still remains. Its a multi polar world these days, in case you have not noticed. But then old foggies in gentleman's clubs are rarely wont to look outside the window until its too late.

That the head of a major international body is chosen for reasons of nationality rather than merit is simply an unacceptable position. But then, alas, head of major international bodies, are indeed chosen that way. Witness the position of the Secretary General of the United Nations  a succession of colourless personalities have graced this chair. Witness the boss of the EU - can anybody even remember his name. Such are the contortions of world politics. So its futile to expect that merit alone will decide the next head of the IMF.  But there is no harm in at least stating the obvious, however unlikely the chance of it happening.

This is a time to change. The new head of the IMF must simply be the best man for the job. In a time of unprecedented financial and economic challenges, it cannot be anybody but that. Irrespective of whether he is from Timor Leste or from Tuvalu. He must be a world renowned economist and also somebody who has worked in the IMF before - after all its a huge and complex organisation.  He must have a track record of major economic policy achievements on the international stage. He must be a heavyweight - not a puppet who can be strung along.

Step forward Montek Singh Ahluwalia.

Om namo GDP aya namaha

“This house believes that GDP growth is a poor measure of improving living standards”. That’s the proposition in the live online debate being currently run by The Economist. You can access this debate here. At the time of writing this post 68% of the online voters agree with this proposition.

It seems rather the in thing to agree with the proposition. You can plausibly argue that there’s more to life than GDP. Gross National Happiness, first conceived by Bhutan the world leader in this concept, sounds appealing. Climate Change, Civil society, reduction in inequality – all seem to be nice concepts equally important to “living standards”. You can almost visualize the wrinkling of the nose at GDP, a very base and mercenary measure.

An opinionated blogger, such as this one, has a view, obviously ! And the view is largely based on the marvelous example of China.

The answer in China would be very clear. There is only one measure. GDP. Or rather growth in GDP. Full stop. Nothing else matters. Nothing will come in the way of achieving this. And look at what China has achieved with a single minded devotion to growth – a devotion so profound that it has replaced Taoism, Confucianism, Buddhism, etc as the predominant religion in China. I am not being flippant – the dominant religion in China is GDP.

There are some big advantages to achieving clarity, simplicity and strength in objectives. Deng Xiao Ping’s great contribution to humanity (not just to China but to the entire world) was this. Go for growth. Go for GDP growth. Go hell for it. Once this was clear, everything else flew from it. Dismantle state controls. Dismantle the awful consequences of the Cultural Revolution. Build Infrastructure. Allow migration of labour. Provide incentives to industry. Focus on exports. Keep costs low. Drive employment. I can go on and on. The ability of China to act and implement in such a breathtaking way is not just because of the political system they have chosen. Its also because they are very clear on what they want.

The end result is there for anyone to see. By any yardstick you want to invent, China will score higher than any other developing country. Some 200-300 million people have been lifted from abject poverty to a standard of living that would be the envy of every country in the developing world. And if you compare any yardstick you want (even ephemeral ones such as “happiness”) in terms of change over the last 20 years, arguably China will beat every country in the world including the US.

Back to the proposition – the proposition does not say "where" ? My response could be different based on which country or region we are talking about. The vast majority of humanity lives in the developing world. Therefore if I interpret the proposition to mean for the world as a whole, then it must be more applicable in a developing country setting.

My opinion is clear and unambiguous. GDP is the best measure for improving living standards. Even more than that, it is the ONLY measure. Its all fuzzy, warm and nice to talk about all sorts of objectives. For many many countries, especially India, they should forget about everything else. Just focus on GDP. That’s the only way to improve the living standards of your people.


PS - For the benefit of non Indian readers of this blog; the title of the post is a take on a Hindu religious chant to imply that GDP should be given an almost religious status !

The awfulness of food price inflation

Inflation, of any sort, is bad. Some stability in prices, is necessary for orderly economic activity and for growth. Countries which have experienced hyper inflation recall it with absolute horror. But the most awful form of inflation is when there is huge inflation in food prices. In non food products, one can curtail demand if prices rise. But what do you do with food ? After all, you have to eat.

In the last few months, food prices in India have gone through the roof. If you are living in India, you are experiencing it first hand. If you are abroad, you would have surely heard about it. The official food price inflation figure is 20%. In many key food items, the inflation has been much higher than that.

The first hint came in pulses, a vegetarian Indian’s main source of protein. A kilo of arhar dhal (pulses) has apparently touched the unbelievable level of Rs 100/kg. Then came vegetables. Onions at Rs 35/kg, potatoes at Rs 40/kg, and so on. Sugar is now at Rs 50/kg. Name a food item – prices are at levels never before seen.

Indian stoicism is legendary. Families simply tighten their belts more. Those who cannot afford it, just forego “luxuries” such as vegetables. Thankfully wheat prices haven’t gone up by too much, but rice prices have soared. Where does the poor man go ?

Economic growth is all very good, but some fundamentals have to be ensured in any country. Foremost amongst them is that food is affordable. The surest way to social unrest is through inflation in price of food. In the past, governments have been voted in or out of office, most famously on the price of onions.

Why is this happening in India now. Combination of circumstances unfortunately. This year the weather has not been kind to agriculture – both floods and drought have been significant factors in different parts of the country. Rising fuel prices is another cause. Supply demand mismatch, always the bane of agriculture, has been acute this year. A series of misguided policies have not exactly been helpful.

But I fear, food price rise is a structural thing and not easily reversible. While such a sharp increase will be reversed, I think the long term trend of significant price rises is, perhaps, inevitable. As populations grow, and agriculture declines as a profession of choice, the pressure on food availability will increase. The oil price rise will inexorably result in higher food prices as I have argued before in this blog.

What can be done ? I don’t know. I know very little of agricultural policy and economics. What I do know is that dhal at Rs 100/kg is neither sustainable nor acceptable.

If something is too good to be true, it is too good to be true

Since the beginning of the year, the prices of all sorts of risky assets – shares, oil, etc have increased by fantastic proportions. Take equity. In virtually any market in the world, you would have made returns of 50% plus, even if you are an idiot. Did somebody say we were in the midst of a huge crisis ? Here was massive money to be made, by just being there. Sounds too good to be true ?? As the old saying goes, when something is too good to be true, it usually is.

I read a very interesting article by Nouriel Roubini, the highly respected Professor from New York’s Stern School of Business, in today’s Financial Times. Its somewhat technical, although very readable. I commend even a layman to read this. At the risk of extreme oversimplification, I will paraphrase his argument as follows

- Interest rates are extremely low and will be maintained at very low levels by the US Fed to stimulate the economy
- The dollar is falling. Because it is falling, everybody is short selling the dollar.
- Short selling the dollar essentially means that you can borrow at negative rates of interest, as long as the dollar is falling .
- Invest this in any risky asset – say shares in Hong Kong. Prices of those shares will rise as demand for them increases.
- One month later (or whatever), sell the shares and make a tidy profit. Now these are worth much more in US$ terms as the US$ has fallen. Settle your short sale of the US$ and make a huge profit.
- Repeat step 1 to 5 again.

This is what Prof Roubini is arguing is happening. Of course, this cannot go on for ever. One day the dollar will not fall. Then like a herd on stampede , everybody will sell the risky assets and cover their short positions on the dollar. The bubble will truly burst.

That’s what usually happens to bubbles. When asset prices rise by 70% in 9 months, it is a bubble. The bigger it gets, the worse will be the explosion.

If you want any more evidence that Prof Roubini’s views must be taken seriously, read what he said

“In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions”

The date ? Sep 7, 2006.

Just because somebody was right once, it does not mean that he will be right again. But it would be completely foolish not to listen to him.

Gross National Happiness

President Sarkozy of France has proposed “Gross National Happiness” as an alternate measure to GDP in measuring progress of a nation. He was releasing the report of a study he had commissioned by two Nobel Laureates – Jospeh Stiglitz and Amartya Sen - on this subject.

Now even for the flamboyant Sarkozy this is something. Presumably it is an attempt to push the French higher up on the world rankings as 35 hour week, August month long holidays, fine wine and such other niceties contribute to happiness, but perhaps not to GDP.

This is not a new concept. The world leader in this is Bhutan – its former King was the originator of the idea and Bhutan has been adopting this for many years now. Click here for the Bhutanese logic of this – it makes an impressive read. The trouble is 99% of the world population cannot point to Bhutan on a map. Therefore it remained as an isolated concept which the irrepressible Sarkozy has caught on to.

Of course there are many problems with GDP. A common criticism is that it does not measure anything which is not paid for – for example a stay at home mom running the house and bringing up kids does not contribute to GDP, but if a nanny or a maid was employed for the same purpose, it does. Sure GDP can be improved, but the problem is one of doing it in an objective manner that can be followed by every country in the world. The current definition may be having holes, but at least its objectively measurable.

The new assessment will reportedly include figures relating to work-life balance, recycling, household chores and even levels of traffic congestion. Now how on earth do you measure such stuff from Andorra to Zimbabwe ?

Despite all the rhetoric of Sarkozy, this is unlikely to catch on. And in any case Monsieur le President needs to be wary. It is by no means certain that France will be higher up on the table of Gross National Happiness than it is on GDP. God Forbid – it may even be demoted to the ranks of the developing countries in the “GNH rankings”. And surely there will be war if French wine’s contribution to GNH scored lower than that of the Napa Valley in the US !!

Which alphabet shall it be ?

When will the world come out of recession ? How will the recovery look like ? Questions that are in our thoughts all the time.

Self appointed experts are falling over themselves predicting the answers to these questions. The flavour of the month seems to be to characterize the recovery after an alphabet.

Some economists are predicting a ‘V” recovery – a straight rise after the steep down. Other think it will be a “U” – down, flat and then up again. Nouriel Roubini, an economist noted for being one of the few to have thought a recession was coming before it came, thinks it will be a “W” . As economists have to invent a term for everything, this will be a “double dip” recession. Now Sir Martin Sorrell, chief executive of WPP, an advertising giant, thinks it will be a “L”.

Unfortunately, humility has not been a particular virtue of economists. The least they can do, after failing en masse to see a recession coming, is to keep quiet in penance. No. They are loudly proclaiming their ability to forecast the recovery. They talk about seeing “green shoots”.

At least the Economist was contrite enough to write a cover story – “What went wrong with economics”. It defends the science and its practitioners, of course, but it does accept the profession went so far wrong that it has virtually discredited itself.

Now I have some aspirations to being a “guru” myself – hence all the pontification in this blog !! I have an alphabet to predict the future too. Actually three.

World – please arise and take note. The recovery will be a 经济学 . This will be the exact shape of the recovery. For after all, this is Chinese for economics.


PS - If you see three squares instead of an alphabet in my prediction of the recovery, it means two things. First it means you are not sufficiently economics trained to understand my intricate prediction. Secondly, your browser settings are not set to see Chinese characters !