And the Weak Suffer What They Must

To be honest this book was not even on my reading list. I had my eyes for "The Adults in The Room" - considered to be one of the Top 100 books of the 2010s decade by The Guardian. But it wasn't available in my library. And researching about the author made me aware about this book. 

Besides the provocative title, the subtitle said "Europe's crisis and America's future" which piqued my curiosity as someone who is interested in learning and understanding more about how economies work and specially in this case Europe - of which my knowledge is next to zero.

The book is well-written, easy-to-understand which is not a surprise because the author was a professor at UT Austin and was also Greek finance minister during the most turbulent times. After reading the book I was able to understand why the European Union is a bad idea but the real takeaways for me were the crystal clear understanding of three fundamental questions. 

• How deficits and trade surplus work?
• What does it mean to devalue a currency?
• How lowering interesting rates (or the financial jargon QE) are not granted to work always?

How Deficits Happen?

First this basic principle - One person's debt is another person's asset. Similarly, one nation's surplus is another nation's deficit. 

• In an asymmetrical world, the money that surplus economies amass from selling more stuff to the deficit economies than they buy from them - accumulates in their banks.
• The way banks make money is by lending. With this surplus in their vaults, they are tempted to lend much of it back to the deficit countries where interests rates are always higher [because money is scarce there and, to invite investment those countries resort to increasing their interest rates. Investors love higher rate of returns.]

For example -

• One French family buys a Volkswagen car (a German company).
  Now there is a trade imbalance. To set it right, one German family will have to buy a French car (why would they when German cars are better) or a French wine. Think about competitive advantage here.
• But suppose this balance doesn't happen to the same matching degree i.e a trade imbalance occurs. Surplus (Germany) - Deficit (France)
• Now as soon as the whiff of this gets to the markets, currency traders and speculators will bet on the Franc to be devalued by the IMF.
• They will bet by taking out loans in Paris (in Francs) and buying Deutsche marks and whenever, in future Francs get devalued - sell those Deutsche marks back, repay the loan and make handsome profit.
• Interesting thing is - unlike sporting/weather events the bets here make the event more likely.
• This is how -
  With every Franc borrowed by speculators to buy Deutsche marks it will push Franc's value down. Now there are two exchange rates for Franc - one official and, the other unofficial rate in the markets run by the speculators.
• To defend the official exchange rate, France's Central bank would have to step in using its reserves of Deutsche marks to buy Francs and soak the excess Francs in circulation.
• But now a game of chicken is on and who will blink first.
  If speculators persist - the reserves of Deutsche marks will eventually start to run out.
• Finally, Central Bank will have to call its minister and tell them that they can no longer afford any more French families buying Volkswagen cars. Please call IMF and arrange for the devaluation of Franc.
• The only thing that now stand between speculators and their victory is Bundesbank (German Central Bank). If it prints more Deutsche marks and asks it "chosen traders" to buy more Francs and soak up the excess Francs in circulation thus bringing its price down and burning the speculators.
• But Bundesbank will not like to print more Deutsche marks to defend an exchange rate designed by politicians. As now there will be more Deutsche marks in the system it will cause domestic prices to rise (inflation).
• So the story unravels from here on then.

How does Quantitative Easing (QE) work?

• The Central Bank buys from commercial banks other people's debts.
• In exchange of these debts - the Central Bank deposits dollars to an account the commercial bank keeps at the Central Bank.
• It is hoped that the banks will pass on these huge sums of money to businesses wishing to invest.
• If it happens, the economy rises as the liquidity rushes in.
  
  But for it to work, lots of things have to align. Like,
• Customers for eg. have to believe that the real estate market has bottomed out and their jobs are secure. Only if they feel so they will ask a bank for a loan.
• Bank must be willing to lend the money.
• Companies which employ people must believe that since banks are lending money - the demands for their products will increase.
• Often, even when banks have done their job (under a directive) - companies hesitate to invest more in their operations fearing that demand is not there. So, instead they just buy back their own shares which increases the stock price and get a nice bonus for the execs for supposedly increasing the stock price. Shares rise and everyone thinks all is well while behind the scenes economy is not doing well.
• Mind you, this is not what QE was intended for. These benefits were supposed to trickle down. And for these failures, "trickle down economics" is now not very liked.

I have read bunch of books, articles on these topics and watched lots of videos explaining these concepts but I found the explanation in this book to be the best!

Other than these fundamental explanations, the author also makes a case that European Union essentially favors only a select few countries, likening them to a cartel and run by bureaucrats having plush jobs and perks in Brussels. Inspite of having a Maastricht treaty to draw inspiration from with some shady maneuvering few countries got admitted to the E.U. Read this. 

Yanis does make a good point when he points out that E.U tends to overrule and impose conditions on sovereign countries and democratically elected govts' arm-twisting to do things they weren't elected to do.

Another, interesting argument he makes is that after the end of Bretton Woods era United States propped up E.U with Germany as one surplus country in Europe and Japan in Asia. The way he explains this is that the plan was to entice the surplus nations to send their surpluses to WallStreet by -
i) Pushing American interest rates higher

ii) Make WallStreet more lucrative than its equivalents in London, Tokyo, Frankfurt, Paris etc.

And recycling those surpluses.

The analogy of the Greek fable: Minotaur and King Minos was quite striking here.
WallStreet = Crete

Minotaur = US' trade deficit that kept devouring R.O.W's net exports and their industries running. With profits being sent to WallStreet as a tribute to Minotaur.

To add context, he was the Greek finance minister during a tumultuous period and he resigned when Greece was asked to follow severe austerity measures by the E.U. So he definitely knows the inner-workings of the E.U as he had a seat at the table and was right in the middle of it. He also gives a fascinating account of how the concept of European Union took shape and gives lots of anecdotes.

Overall, I picked this up not entirely sure what this is going to be like but I definitely enjoyed reading and learning a few things!

ECI - Restoring credibility

Elections in India have always been a grand affair by virtue of being the world's largest democracy. And with the advent of social media it has become even grander.

Although I think it has become a cliched term to laud Indian elections as the biggest democratic exercise while itself the process is not smooth or seamless by any stretch.  And for these glitches one is left wondering how error-proof this whole process is. Infact, these headlines have been so over-used that they are now starting to be meaningless and hollow words. 

Trust Issues

Here is what I think are the key problems with the election process - 

Right from the start of the cycle of voter registration - the process is riddled with flaws. 

• Why on the voter list there are so many discrepancies:
• People find their names missing;
• Often many of the details is wrong - like the name is correct but picture is of someone else; D.o.B is wrong; address is wrong. The Chief Polling Officer (CPO) technically can disallow the person to vote on these grants. Only if you are fortunate the CPO may allow you to vote but only after you have shown 3-4 Id Proofs. You get the idea!
• It's worth asking why this basic step of conducting an election - having an updated list of voters has not been smoothened out yet. 

• Why is the office to correct names on the voting list not open throughout the year and opens only a few weeks before the election?
• Why can a candidate contest from two seats? 
• And why can he even contest while in jail (even though not convicted) - but at the same time a voter cannot vote in more than one constituency and definitely cannot vote if imprisoned - convicted or not.
  
  It is hard to understand the rationale why the founding fathers added this clause in our constitution. It seems to inadvertently grant voters a lower status. Economically speaking - the money spent to conduct a re-election after a candidate forgoes one of the two seats he/she won comes from taxpayers' money and it by no means is a judicious use.
• This is probably the most contentious issue off late - lack of transparency on EVMs.
  
  
  EVMs cannot be gotten a hold off to be independently researched for vulnerabilities within India and there’s no chance of it going abroad. There was a case where a US university professor was almost deported from the Delhi airport so cause he had earlier published a research paper calling out the vulnerabilities in EVMs (technically his Visa was downgraded to a tourist visa so he couldn't do any research).
  

  

     News link - http://archive.indianexpress.com/story-print/723897

  
  
  
  
  
  

If it is infallible as claimed then it should be open for research. This insistence on not to be allowed to taken abroad for research purposes and check for security flaws only in presence of Election officials raises eyebrows and is not a ringing endorsement of it's security features.

P.S - That professor has a free course on Coursera where he talks about his experience and explains his doubts.

https://www.coursera.org/lecture/digital-democracy/bonus-deport-on-arrival-t8uTx

• Another big issue is how the election campaigns are funded. The legalization of anonymous electoral bonds is such a farce in light of when every cash transaction of the citizen is tracked and above a certain limit you have to provide an Aadhaar card. But for the candidates people/companies can donate "anonymously" without any check on the identity. This is such a dark spot of our election process and raises uncomfortable questions.

Rebuilding Trust

I deeply admire the ECI's work in bringing some sort of order and process to how the elections are now conducted. It is much better than the earlier days where booth capturing, violence and voter intimidation was widespread. Efforts of Chief Election Commissioners like T.N Seshan and M.S Gill are to be credited for ushering these positive changes.

For starters these two steps should be taken -

• ECI considered to be autonomous in itself needs to be given more teeth and it should use those powers on candidates irrespective of the political party affiliation.
  
• ECI should be more proactive and fast. In the age of viral tweets and videos - ECI cannot sit on an incendiary speech or statement for 3 days, then conduct an investigation for another 7 days and then announce a warning notice or a slap on the wrist and all this while the person was busy campaigning. It is a challenge but to bring some sense of dignity and cleaning up the discourse in election campaign speeches ECI has to start acting sternly and swiftly.
  
• Now with different govt. issued documents floating around like Pan Card, Aadhaar, Voter ID linking all citizens - it has to figure out how to use them to streamline its voter registration process and provide an easy way to rectify those mistakes rather than running around babus in person.

I'm afraid if nothing gets done in these directions - we will keep seeing cliched headlines every 5 years and an occasional op-ed every now and then lamenting the legitimacy of the process.