1. Good article on ride-hailing firm Ola's factory outside Bangalore which builds electric scooters.
2. Jahangir Aziz on why India's recovery may have a long way to go.
3. Bari Weiss has a very good account of the wokeness gone too far in the United States in the context of the pervasive climate of political correctness on racism across schools and colleges.
4. FT argues that the $1.9 trillion stimulus in the US, American Rescue Plan, is a sign of definitive swing away from Reganism to embrace big government. A better description may be that it's a correction to the excessive marketism. However, like with all such course corrections, this one too is likely to end up resulting in excessive government. And like earlier, it too will, in due course, invite its course correction.
The NYT has this description,
While providing an array of benefits to the middle class, it is also a poverty-fighting initiative of potentially historic proportions, delivering more immediate cash assistance to families at the bottom of the income scale than any federal legislation since at least the New Deal... In the eyes of its backers, the law is not just one of the most far-reaching packages of economic and social policy in a generation. It is also, they say, the beginning of an opportunity for Democrats to unite a new majority in a deeply polarized country, built around a renewed belief in government. “Next to civil rights, voting rights and open housing in the ’60s, and maybe next to the Affordable Care Act — maybe — this is the biggest thing Congress has done since the New Deal,” said Senator Sherrod Brown, Democrat of Ohio and a longtime champion of the antipoverty efforts included in Mr. Biden’s plan.
It remains to be seen as to how many of these schemes, especially those like child tax credit, will become permanent.
The $1.9 trillion stimulus follows the $2.2 bn CARES Act in March and a $900 bn stimulus in December.
5. On a related note, the FT has this article about the apparently diverging fortunes of Europe and US arising from the latter's more generous fiscal policy stance.
I am not in agreement with the unambiguous tone of the article advocating European countries to follow the US with fiscal accommodation. There is a very strong case that the US approach borders on fiscal recklessness and its consequences will be felt in the years ahead. In contrast, as the graphic shows, the Europeans were more generous with their immediate post-pandemic stimulus and have been restrained with their subsequent responses.
6. Dani Rodrik has a very good oped which points to the limitations of forward causal inference (starting with cause to identify effect) based economics research.
The most highly prized empirical research is that which demonstrates that an exogenous variation in some underlying cause X has a predictable and statistically significant effect on an outcome of interest Y... It merely provides evidence on one of the causes, which may not even be one of the more important factors. Worse, because economists are trained only in the forward-induction approach, they often present their research as if the partial answer is in fact the more comprehensive one, further raising the ire of scholars from other disciplines... In their quest for statistical “identification” of a causal effect, economists often have to resort to techniques that answer either a narrower or a somewhat different version of the question that motivated the research... economists’ research can rarely substitute for more complete works of synthesis, which consider a multitude of causes, weigh likely effects, and address spatial and temporal variation of causal mechanisms. Work of this kind is more likely to be undertaken by historians and non-quantitatively oriented social scientists. Judgment necessarily plays a larger role in this kind of research, which in turn leaves greater room for dispute about the validity of the conclusions. And no synthesis can produce a complete list of the causes, even if one could gauge their relative significance. Nevertheless, such work is essential. Economists would not even know where to start without the work of historians, ethnographers, and other social scientists who provide rich narratives of phenomena and hypothesize about possible causes, but do not claim causal certainty.
6. The South Korean e-commerce leader Coupang listed at NYSE in a triumphant offering, rising 41% on the first day to close at $49.25. The IPO raised $4.6 bn and valued the company at $85bn, the second largest valuation for an Asian company after Alibaba Group. Coupang's value proposition is its cheap prices and fast delivery, coupled with large products offering.
India's much hyped startup entrepreneurs in a country with more than twenty times the population with tens of e-commerce copycats, cannot hold even a candle to what Coupang has achieved in a country with just 52 million people.
As one more illustration, why doesn't India have even one world-beating start-up like Stripe, the online payment system started by Patrick and John Collinson, sitting in tiny Ireland.
7. Some links on Special Purpose Acquisition Vehicles (SPACs) which are the rage in financial markets. SPAC sponsors float shell companies to raise money and then scout for private companies to invest, usually within two years. In other words, they are "blank check" companies. SPACs raised $26 bn in just January. Businesses find it more convenient to sell themselves to SPACs than comply with onerous IPO process.
The Times writes,
Typically, a SPAC’s sponsor — the person putting up the initial capital — invests a nominal amount in return for a 20 percent stake, so long as the SPAC finds a target company and completes a merger. In other words, if a Wall Street executive or celebrity raises $400 million from public investors, that person also gets a stake worth $100 million, regardless of how well the company performs after the merger. This is not pay for performance. It is pay before performance... Companies are racing to go public via SPAC because the sponsor, unlike an I.P.O., can guarantee them a precise amount of money. Just as important, some of those companies could never bear the scrutiny that comes with an I.P.O. When a company goes public through the traditional I.P.O. process, it must show potential investors its prior financial records. It is not allowed to make projections about its earnings, because regulators have long worried that companies could mislead investors with unrealistic forecasts. In a SPAC transaction, which is a merger instead of a listing, companies can publish their financial projections, many of which will prove to be inflated. Since many companies merging with SPACs have no earnings, this has become a useful feature.See also this primer in Business Standard. And this by Ananth, and this in FT.
If this idea catches on, it could lead to greater financial and social stability worldwide. Decades of loose central bank policy have done less to generate growth in the real economy than in the financial markets — and those gains benefit mainly the rich... Research looking back 140 years in 17 major nations has shown that before the second world war, only one in four recessions followed a bubble in housing or stocks. But as banking, particularly mortgage lending, grew to assume a pivotal role in modern economies, the dynamics changed. Since the war, more than two out of every three recessions followed a housing or stock bubble. Housing bubbles are the worst. The $220tn global housing market is more than twice the size of the global stock market and complicated by debt. When prices fall, it can take years to clean up failed mortgages, drawing out a recession. In general, recessions that follow debt-fuelled housing booms are the longest and deepest.
10. Business Standard questions the contracting model for the railway station development projects.
11. A new working paper examines whether India's economic growth is services-led or services-biased,
At the core of our identification strategy are consumers’ preferences, in particular, the income elasticity of aggregate service demand. The higher this elasticity, the more service-biased economic growth is. Conversely, if the income elasticity of consumer demand is limited, rising employment in the consumer service sector is a sign that growth was service led. Given the importance of this parameter, we infer it directly using Indian household data. Importantly, we show that the income elasticity of consumers’ observable demand system over final expenditure coincides with the one defined over value added that is relevant in our theory.Our analysis delivers two main results. First and foremost, Indian growth was to a large extent service led. Quantitatively, productivity growth in sectors such as retail, hospitality, or transportation account for one third of welfare growth between 1987 and 2011. Second, the welfare impact of service-led growth was strikingly unequal and benefitted mostly wealth individuals in urbanized locations. The reasons are that service productivity grew particularly fast in urban areas and that richer consumers care more about the consumption of services owing to nonhomothetic preferences. We also document that productivity growth in consumer services was the main driver of the structural transformation and accounts for almost half of the decline in agricultural employment. By contrast, technical progress in agriculture, did not promote structural change.
12. Scott Galloway excoriates the corporate bailouts in the US
The rescue package should protect people, not businesses. From 2017 to 2019, the CEOs of Delta, American, United, and Carnival Cruises earned over $150 million in compensation. But, now … “We’re in this together” (i.e., “bail our asses out”)... Since 2000, U.S. airlines have declared bankruptcy 66 times. Despite the obvious vulnerability of the sector, boards/CEOs of the six largest airlines have spent 96 percent of their free cash flow on share buybacks, bolstering the share price and compensation of management … who now want a bailout. They should be allowed to fail. Bondholders will own the firms. Ships and planes will continue to float and fly... Just as death is a key part of life, so is the demise and reinvention of firms that can’t endure tropes. Covid-19 is no more historic than an 11 year-long bull market. With dangerous disregard for future generations, we’ve decided that hundreds of thousands of people dying is meaningful, but the NASDAQ going down would be worse. The rescue package is $2.2 trillion. The annual CDC budget — $6.6 billion.
13. Morgan Housel has a stunning graphic which highlights the importance of long-term in investing.
Ten years is perhaps the least investment period likely to reward investors.
This is just utterly brilliant,
Nassim Taleb says he’s a libertarian at the federal level, a republican at the state level, a democrat at the local level, and a socialist at the family level. People handle risk and responsibility in totally different ways when a group scales from four people to 100 to 100,000 to 100 million. In the same way, a management style that works brilliantly at a 10-person company can destroy a 1,000-person company, which is a hard lesson to learn when some companies grow that fast in a few short years. Travis Kalanick at Uber may be the best example. No one but him was capable of growing the company early on, and anyone but him was needed as the company matured. I don’t think that’s a flaw; just a reflection that some things don’t scale.
1 comment:
No. 12 is how it always has been, how it is and how it always will be. That shows the limitations of aiming for the golden arch wherein a CEO or a leader is able to transition from one state or one set of desirable attributes to another as the context keeps changing. That is next to impossible or, simply, impossible.
If that is the case, change will never be defined as the only constant. Peoples, institutions and firms can, in theory, continue indefinitely. After all, if a human is able to make that transition, he/she can transmit that knowledge and process to other humans too.
There won't be change, renewal - for better or worse.
So, in short, 'we are like this only' and 'we will be like this only'.
So, the belief that humans can analyse situations, come up with solutions, set up benchmarks, evaluate solutions, make course corrections and keep improving and solving problems, etc. is simply inconsistent with history. It is simply false.
Problems will find solutions when they reach a critical point and humans are forced to adapt. Then, that equilibrium prevails for a while, underlying changes keep silently changing, humans are slow to notice or are in denial and, over time, another crisis point is reached.
Elsewhere, in your posts, you have talked about calmness (Housel?) leading eventually to complacency and crisis. That is a re-statement of Minsky hypothesis.
So, sometimes, the best answer, at an individual level, for one's own evolution, is to simply observe. It is pretentious to think that humans can solve problems. If they sometimes do, it is a combination of many things, several of which would have been beyond their control or what they intended but they would not acknowledge that. That is what sets them up for the eventual failure.
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