Keynesian economics created the illusion…….

Meghnad Desai writes:

• “Hayek, rejected in the 1930s, and feted in post-Keynesian times, did not make the grade in terms of public policy. Hayek had a theory of how it was banks which made mistakes of ‘mal-investing’ if credit was too cheap and how when they realised their error they jacked up the cost of credit and caused a crisis. But even Mrs Thatcher thought that his recipe was too severe. Hayek did not believe in rescuing banks or reflating the economy. He believed that capitalism only works if players are able and willing to take costs as well as rewards of free market. 
  
• Hayek lost but Chicago was triumphant. Bill Clinton and Tony Blair became globalisers. Clinton balanced the budget and Gordon Brown promised some golden rules to avoid booms and bust. There were more converts”.
  

Far from realising stage…………..

Economist Meghnad Desai says Chacha “Manmohan Singh began the new economic policy in 1991 and lifted India out of the old Mahalanobis nightmare.” And “There were doubters at that time whether liberal economic reforms would work or whether India would be signing itself for a new slavery or get trapped in a debt-default saga. None of these happened, and India began a regime of growth rates which never went below 5 per cent when, in the previous 45 years, they had rarely been above.” 

It is not “there were doubters at that time whether liberal economic reforms would work” or not. The same sentiments prevails every economics department in Indian university even today. When will these folks give up their dogmatic marching towards “old Mahalanobis nightmare”.

Provoked Ideas of Meghnad

Meghnad Desai writes few observations on Satyam and politics in India. The following are from his article:

“Like a murderer, who has escaped undetected but can’t keep away from the scene of his crime, he provoked detection. The market, which our intellectuals tell us does not work (hence we need regulators!), smelt a rat and dumped on him. 

The biggest danger right now is that this will be seen as solely a Satyam problem, and be dealt with technically, that is assuming that in Indian context anyone ever comes to judgment. After all, the murderers of 3,000 Sikhs are still swanning around Delhi 24 years later. The roots of the fraud lie —I guess , since we don’t know—in the real estate and infrastructure Matyas firms. Real estate everywhere in India is embedded into corrupt politics. In Mumbai as in Hyderabad, local politicians take their bribes in real estate and in return give fat contracts. This is why Sreedharan, the Delhi Metro boss, smelt a rat about the Hyderabad Metro contract. He called the contract awarded to Matyas ‘a land scam’. 

No inquiry will report before the election of 2009 or even the one after that! Think Lieberhan. Sebi had already been found asleep when someone used its stationery to do an insider trading job. Who could now trust anything Sebi does, if it leaks like a sieve? No one took responsibility, and no one resigned. One cannot have effective regulation in a country with dysfunctional politics, which appoints people to sensitive jobs only after making sure they are not likely to embarrass their masters. What the scandal needs is a wide ranging inquiry, perhaps a judicial one chaired by a reliably independent person, preferably a foreigner, to delve into this murky pool. 

I predict that no such inquiry will be initiated. Raju will be free for decades. Matyas companies will escape undetected. 

That is par for the course and should not shock anyone. But I feel sorry for India Inc. For a while it looked like the Indian private sector would overcome the handicaps placed on it by the politicians it has to genuflect to. I even hoped that the business leaders would reform politics. It seems politics can corrupt any business faster than you can think. Even as recently as August 2008, India was touted as a success story, the next super power with a dynamic economy and vibrant democracy”.

Meghnad Sutra

Meghnad Desai says yes again typical thoughts on Obama Plan of spending.

“India has already been disturbed by his views on Kashmir and he does not speak without forethought. Any idea that he will be a Third World President or Africa’s best friend should be suspended. Obama did not just pretend to be middle of the road to get elected; he is like that politically.

So if Obama is to face the long term challenges, he needs to make Americans tighten their belts; if not now, pretty soon. He has to wean them off cheap gasoline and sub-prime mortgages. He will need to restructure the American economy towards more public transport and public housing, providing greener economy. He will need to dismantle uncompetitive industries like Detroit and launch new industries. He will need to do what Margaret Thatcher did as well as what Al Gore wants. The world is on the cusp of a change in the power balance. Asia will gain and the West—the US and EU—will lose. The first test will be in reshaping the Bretton Woods institutions. Those who set them up and wrote the rules are now debtors and the downtrodden of then are creditors now. The baton has to be passed on and it would require the best brains of the Obama team to manage this transition".

Unending Keynesian phase

Meghnad Desai writes in the FE few observations on current financial crisis with murmuring the Keynes theory. 

•  “Previous booms were confined to the developed world, the Golden quarter century of Keynesianism, for example…. 
  
• with long memories or at least a smattering of knowledge of Marx, Hayek or Keynes or even Charles Kindleberger and Hyman Minsky would know that capitalism has cycles of irregular length. Every boom breeds bad investments, over expansion of credit, over spending by consumers, acquisition of increasingly risky and dubious assets. 
  
• If it does not work then we need a new economics. So far the boom has been a product of the sweetwater economics of Chicago and the cure will come from the saltwater Keynesians of the East Coast of USA. The rest may mutter about market failure or Lenin , but they don’t have any new answers. New economics will require some economist(s), who can think dispassionately, and rigorously leaving sentiments aside. John Maynard Keynes was one such. Another one will come along. How do I know? I know there are cycles in economic ideas just as much as in capitalism”.
  

Mistaken Meghnad Desai

Mr Desai writes in Financial Express Obama and” His economic policy has been sketchy though better than McCain’s”. At what sense Obama policy is better than McCain is unclear. Even the Obama is not holder big bank of confidence to release in the economy as he says “He will have to restore confidence among banks and employers and workers and households that the economy can be made prosperous again soon.”

Desai Deal with Keynes

Meghnad Desai writes in FE “Keynes wanted above all to avoid deflationary policies after the War. So, he proposed a system in which countries with balance of trade surplus would lend freely to those with deficits………… he IMF lost its raison d’etre. But it continued to police developing countries which kept on getting into trade deficits and unstable currencies. It bullied borrowers into macro policies which dismantled public sector activities and caused much misery. Developed countries stopped listening to the IMF once exchange rates became flexible and capital movements unrestricted”.

What the new IMF will do for poorer countries if they don’t have economic freedom to do what they wanted to do for their growth. Of course, the world will have one more murky.

But B. S. Raghavan is asking something else and he praise IMF! “I was happy to notice that the IMF had initiated such a study to measure clarity in communication in the case of the European Central Bank for the period 1999-2007. It has resulted in an interesting paper, titled, Writing Clearly: ECB's Monetary Policy Communications, according to which the ECB's written communications are clear in about 95 per cent of instances, which is comparable to, or even better than, other central banks for which a similar analysis is available. This finding is based on an extensive analysis of ECB's inflation forecasts, inflation targets and verbal descriptions of inflation factors, risk assessments, and the like in monthly bulletins and press statement.

 The study further notes that the ECB's monthly bulletin contains useful additional information that enhances the clarity of the contents compared to ECB's press releases. Specifically, the bulletins contain useful detailed information on individual inflation factors and also on the overall forecast risk. What about a similar study here starting with the RBI?”

He met and danced with Edwina Ashley at the old Viceregal Lodge. They sat out the fifth dance, he then married.

MEGHNAD DESAI writes in Outlook “The best of the lot is a short memoir by Mountbatten who writes of his first visit to India in 1921 along with the Prince of Wales. He met and danced with Edwina Ashley at the old Viceregal Lodge. They sat out the fifth dance, he proposed to her and then they got married. Twenty-six years later, Mountbatten found himself in the same room in the Viceregal Lodge—now the Convocation Hall of Delhi University—conferring an honorary degree on...who else but Pandit Nehru!”