Rahul Deodhar's Blog, page 9
January 16, 2017
Future Work 01 - Work not education makes people dumber!
How can we ensure that the workforce in a country continues to create jobs, create value and economic and other returns for its people in the current environment? The current environment is quite challenging for the employees. Those laid-off due to automation feel frustrated and find that they cannot find equivalent employment.
Economic value chains are changing rapidly. They are spreading out geographically. Skill obsolescence is quite high too with robots and computers being able to take up quite a bit of work. The profile of jobs is becoming polarised - extreme high value adding jobs (chip designer, chef, super specialist surgeons etc.) and extremely low-end (janitors etc.) Further, it is happening at an unprecedented pace.
On the contrary, the speed at which skills are being acquired and developed is quite slow. Thus, the people who have lost their manufacturing jobs to automation are not quite employable in similar pay-grade in as quick time. Two factors hinder in the process. First, the laid-off people are older and thus slower learners. Second, the skill spread is so wide that betting on the right skill, acquiring it and making a life by using it is difficult. Few unlucky ones have seen their new skills become obsolete too.
This dichotomy is a mismatch between the job profile of the economy and the skill profile of the economy. As the mismatch widens people feel more frustrated.
This wasn't the case in early years because of the nature of manufacturing jobs. The skills gained by the people working in the first factories were about organising and basic skills (turning, fitting etc.) These skills did not become obsolete only their demand did. But today these skills have been replaced by better fabrication machines and instrumentation. Thus, the skills that the workers have are not required.
The job profiles so developed as to reduce the judgement factor within the job. This makes people dumber as Adam Smith notes. Here is the quote from Adam Smith
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
Economic value chains are changing rapidly. They are spreading out geographically. Skill obsolescence is quite high too with robots and computers being able to take up quite a bit of work. The profile of jobs is becoming polarised - extreme high value adding jobs (chip designer, chef, super specialist surgeons etc.) and extremely low-end (janitors etc.) Further, it is happening at an unprecedented pace.
On the contrary, the speed at which skills are being acquired and developed is quite slow. Thus, the people who have lost their manufacturing jobs to automation are not quite employable in similar pay-grade in as quick time. Two factors hinder in the process. First, the laid-off people are older and thus slower learners. Second, the skill spread is so wide that betting on the right skill, acquiring it and making a life by using it is difficult. Few unlucky ones have seen their new skills become obsolete too.
This dichotomy is a mismatch between the job profile of the economy and the skill profile of the economy. As the mismatch widens people feel more frustrated.
This wasn't the case in early years because of the nature of manufacturing jobs. The skills gained by the people working in the first factories were about organising and basic skills (turning, fitting etc.) These skills did not become obsolete only their demand did. But today these skills have been replaced by better fabrication machines and instrumentation. Thus, the skills that the workers have are not required.
The job profiles so developed as to reduce the judgement factor within the job. This makes people dumber as Adam Smith notes. Here is the quote from Adam Smith
"In the progress of the division of labour, the employment of the far greater part of those who live by labour, that is, of the great body of the people, comes to be confined to a few very simple operations, frequently to one or two. But the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging, and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expense of his intellectual, social, and martial virtues. But in every improved and civilised society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it."Thus drained of the vitality of growth, initiative, the determined decision-making, the application of thought and the generation of ideas, such worker is thrown into the open world which values exactly that. So it may have been work and not education, as argued by Sir Ken Robinson, that makes people dumber.
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
January 15, 2017
World War 3 watch 01 - Some developments
Actually, this should the third post but I summarise what I observed in the past.
Monday, May 18, 2009
A few more developments are have taken place since then,
Russia unveiled Satan -2 ICBM range exceeding 11,000kmsIndia successfully tested Smart Anti-Airfield Missile (Bunker busters)Israel has received its F35s which will be fitted with Israeli techRussia launched massive war drill involving civilians.Russia has also deployed nuclear missiles in Kaliningrad.Great Britain stated that it will sail its ships through south China Sea in 2017 and station ships and aircraft in 2020.The US activated the missile shield in Europe last year. The US will be deploying THAAD systems in South Korea soon.Japan's helicopter carrier seems to be a disguised aircraft carrier.Chinese second aircraft carrier a replica of first one will be commissioned in 2017 or 2018. The third carrier may be equal to the biggest aircraft carriers of US.http://www.popsci.com/chinese-cargo-ships-get-military-optionChinese government issued directions in 2015 that certain civilian ships may be used by navies in an emergency to augment its naval supply chain.US-India have finalised a deal for M777 Howitzer.While these military developments are taking place, Trump is busy questioning one-china policy, the trade arrangements with China and anti-dumping duties. China detained 9 armoured vehicles headed to Singapore after Singapore conducted some military exercises with Taiwan.
Another event is sustained Japanese visits to countries across the Asia-Pacific. These are being made at the highest level and with consistency.
All these developments are not healthy. Unless there is concerted effort to diffuse this situation, it can quickly get out of hand.Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
Monday, May 18, 2009
Probability of war seems to have increased. It is still small but definitely increased. Though it is unlikely that India will be involved in one (we never invaded any country in 5000 years - so we dont have the mindset) But, look how different war-indicating trends are catching up. China has more males in its population - typically when the pop ratio gets skewed the chances of war increases. Further, income polarization is very high in China. Recession will make more people (mainly youth) unemployed and in financially distressed situation - implying combative etc US-china have classical debtor-creditor problem any strong arm by China will not be taken lightly by US. China believes it may be wronged by the US. If US dollar devalues then you can be sure things wont be easy on this front. War is by far the biggest domestic stimulus one can give - creates domestic jobs and stuff hence politicians are ok with war in such times. The typical flash points are visible - Afghanistan Pakistan is now a flash-point. If Us forces are attacked or get in some trouble then we could see drastic actions. Earlier North Korea, Malaysian protests, Demonstrations in Greece were some flash points ( though none as big as Af-Pak) Religious alignments are getting more stricter - talibanization of SWAT valley in Pakistan is an indicator. To certain degree, Obama election has reduced any polarization along religious lines that we saw earlier in US. US policies and other global stimuli are going to result in more income polarization. As global inflation strikes the differences will become more evident - I can foresee Mary Antoinette - "if you don't have bread eat cake" statements. Usually such conditions are off-set by economic growth (that promotes peace) - but that has near about halted in past few months. Now if things do not improve we could be in for much tougher times.In October 2016 I reiterated this issue
In 2015 Japanese parliament permitted their army to go aggressive( with US blessings). They have been making ships and aircraft carriers since few years ago displayed in Aussie, Singapore, Japan and US joint exercise - small allegedly helicopter carrier or something. Last week I was seeing Singapore Air Force Fighter planes on evening patrols. Also every day they have the another surveillance plane - it is not the boeing posiedon in the air. On friday, India announced surgical strikes on terror bases in Pakistan Occupied Kashmir. Last week, Singapore PM met Japanese PM Abe. Last month he met Obama. Chinese news paper is accused Singapore of siding with US. This week Singapore PM is meeting Narendra Modi. Last week Japanese PM Abe met Narendra Modi and promised him some military tech and other assistance including manufacturing assistance. Phillipines has abandoned US and is courting China. Durtete made a statement that he received encouragement from China and Russia on his anti-US remarks. Last month the International Arbitration Tribunal restrained China from claiming rights on South China Sea. Last month Austrailia published a white paper on maritime defence highlighting the need to protect the interest in the northern coasts and in the Pacific. Australia does not have any threat from any country in the Pacific save China. It is way far out and super friendly with most of the major powers. It has a love-hate relations with some island countries where China has become active. US is offering F-16 (yeah the old ones) to India for make-in-India option. (The tech is old but the offer is quite lucrative)
A few more developments are have taken place since then,
Russia unveiled Satan -2 ICBM range exceeding 11,000kmsIndia successfully tested Smart Anti-Airfield Missile (Bunker busters)Israel has received its F35s which will be fitted with Israeli techRussia launched massive war drill involving civilians.Russia has also deployed nuclear missiles in Kaliningrad.Great Britain stated that it will sail its ships through south China Sea in 2017 and station ships and aircraft in 2020.The US activated the missile shield in Europe last year. The US will be deploying THAAD systems in South Korea soon.Japan's helicopter carrier seems to be a disguised aircraft carrier.Chinese second aircraft carrier a replica of first one will be commissioned in 2017 or 2018. The third carrier may be equal to the biggest aircraft carriers of US.http://www.popsci.com/chinese-cargo-ships-get-military-optionChinese government issued directions in 2015 that certain civilian ships may be used by navies in an emergency to augment its naval supply chain.US-India have finalised a deal for M777 Howitzer.While these military developments are taking place, Trump is busy questioning one-china policy, the trade arrangements with China and anti-dumping duties. China detained 9 armoured vehicles headed to Singapore after Singapore conducted some military exercises with Taiwan.
Another event is sustained Japanese visits to countries across the Asia-Pacific. These are being made at the highest level and with consistency.
All these developments are not healthy. Unless there is concerted effort to diffuse this situation, it can quickly get out of hand.Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
January 13, 2017
Journalism 02 - Key Events in history of Journalism
Let us look at the history of newspapers through key/landmark events. I have stated some comments in brackets [ ], whenever I wanted to signal something. This is partial list as of now. Please make suggestions and corrections. I will be happy to edit/add modify and update this list.
Year Event 131 BCE The Acta Diurna ("Daily Events") was the first news type of publication. The first form of Acta appeared around 131 BCE. It is more of a Gazette of daily events rather than a newspaper. 1450s Gutenberg Printing press 1605 Relation aller Fürnemmen und gedenckwürdigen Historien first newspaper is published. 1662 England establishes licensing requirements for press by Licensing Act 1662. It is subsequently protested by John Milton. 1665 The Oxford Gazette is published (Now the London gazette) 1695 House of Commons allows Licensing Act to lapse after campaigning by John Locke. ~1700 Mercantile newspapers emerged mainly to support Marine insurance companies and owners and investors of ships about loss of ships, etc. 1704 The first newspaper advertisement, an announcement seeking a buyer for an Oyster Bay, Long Island, estate, is published in the Boston News-Letter. 1791 USA passes the first amendment protecting the freedom of speech and freedom of press. 1833 In New York, The Sun began publication September 3, 1833, as a morning newspaper edited by Benjamin Day with the slogan "It Shines for All". This was a penny press newspaper. 1835 The Sun first became famous for its central role in the Great Moon Hoax of 1835, a fabricated story of life and civilization on the moon which the paper falsely attributed to British astronomer John Herschel and never retracted. [Begining of fake news] 1837 Commercial telegraphs are introduced. 1843 Steam powered cylindrical press was introduced with ability to print about 8000 pages per hour. 1844 On April 13, 1844, The Sun published as factual a story by Edgar Allan Poe now known as "The Balloon-Hoax", retracted two days after publication. The story told of an imagined Atlantic crossing by hot-air balloon. 1851 The Reuter agency was established in 1851 by Paul Julius Reuter in Britain at the London Royal Exchange. He used telegraph, Reuters used pigeons to communicate between Aachen and Brussels as telegraph connectivity was not complete. 1860 American Civil War pushed the use to Telegraphs to communicate news with newsroom for printing. Cutting telegraph wires was common counter-strategy. As a response, reporters used inverted-pyramid reporting style popular even today. Embeded reporters collected facts sold to both sides of Civil war. Hence facts were necessarily objective and unbiased. (Good for business). [Note beginning of embedded journalist but note their business models keeping them unbiased] 1870s - As overland telegraph and undersea cable facilities developed, Reuters expanded beyond Europe to the Far East in 1872 and South America in 1874. 1890 First war of readership - Start of yellow journalism (over exaggerations, lies, fake news etc.) While Pulitzer prize is given to good quality research, Pulitzer himself published exaggerations albeit slight. Though in comparison to his competitor William Hearst, Pulitzer was quite mild. Both together are part of the yellow journalism era. 1890s Movies come on the scene. Mostly silent films in black and white but a new medium is created. 1893 Muckraking magazines—notably McClure's of publisher S. S. McClure—took on corporate monopolies and political machines while trying to raise public awareness and anger at urban poverty, unsafe working conditions, prostitution, and child labour. 1894 Tabloid pioneer, Alfred Harmsworth, 1st Viscount Northcliffe an early pioneer of tabloid journalism. He bought several failing newspapers and made them into an enormously profitable chain, primarily by appealing to popular taste. He began with The Evening News in 1894, and then merged two Edinburgh papers to form the Edinburgh Daily Record. That same year he fitted out an expedition to Franz Joseph Land in the Arctic with the aim of making attempts on the North Pole. 1895 The first comic strip appears in Pulitzer's paper called the Yellow Kid. Stunt Journalism was used to increase readership. [Note the shift from news to entertainment in a battle for readership] 1896 Marconi patents wireless telegraphy machine precursor to the modern radio which became operational a few years later. By 1900 most navies and armies were using this technology for coordination. 1896 On 4 May 1896, Alfred Harmsworth began publishing the Daily Mail in London, which was a hit, holding the world record for daily circulation until Harmsworth's death; taglines of The Daily Mail included "the busy man's daily journal" and "the penny newspaper for one halfpenny". [Birth of tabloid] 1898 Possibly, sensational news reporting may have pushed the US deployment of USS Maine which was sunk triggering the war. [First war caused by fake news?] 1906 "The Jungle" is a 1906 novel written by the American journalist and novelist Upton Sinclair (1878–1968). Sinclair wrote the novel to portray the harsh conditions and exploited lives of meat packing industries in the United States in Chicago and similar industrialised cities. The book was based on proper investigations and led to laws relating to food and drugs. 1906 On Christmas Eve 1906, Reginald Fessenden used a synchronous rotary-spark transmitter for the first radio program broadcast, from Ocean Bluff-Brant Rock, Massachusetts. Ships at sea heard a broadcast that included Fessenden playing O Holy Night on the violin and reading a passage from the Bible.[38] This was, for all intents and purposes, the first transmission of what is now known as amplitude modulation or AM radio. 1909 Charles Herrold started broadcasting in California in 1909 and was carrying audio by the next year. (Herrold's station eventually became KCBS). 1912 Titanic sank but after hitting iceberg radioed SOS. Soon there was regulations about using radio. 1920 In 1920 wireless broadcasts for entertainment began in the UK from the Marconi Research Centre 2MT at Writtle near Chelmsford, England. A famous broadcast from Marconi's New Street Works factory in Chelmsford was made by the famous soprano Dame Nellie Melba on 15 June 1920, where she sang two arias and her famous trill. She was the first artist of international renown to participate in direct radio broadcasts. 1920 The first radio news program was broadcast August 31, 1920 by station 8MK in Detroit, Michigan, which survives today as all-news format station WWJ under ownership of the CBS network. 1922 BBC is formed 1926 US national radio networks are established. 1928 The Queen's Messenger, a one-act play broadcast on September 11, 1928, was the world's first live drama on television. 1930s Great Depression wrecks havoc and FDR uses radio for fire-side chats. Great Depression also inflicts the first assault on newspaper industry. 1938 During the March 1938 Anschluss, in which Adolf Hitler engineered the annexation of Austria by Nazi Germany. Edward R. Murrow immediately sent William Shirer, his reporter on the ground, to London, where Shirer delivered an uncensored, eyewitness account of the Anschluss. Ed Murrow became the first star - on radio and then on TV. 1940 Lowell Thomas hosted the first-ever news broadcast on television in 1940. 1940s Arthur (Usher) Fellig under the pseudonym Weegee, kickstarted what is today called papparazi journalism. 1953 The coronation of Queen Elizabeth II in June 1953 is said to have been watched by more people on television than heard it on "the wireless". It became the first live outdoor event telecast. Famously, the camera stopped working just as the queen's parade was about to turn onto the road. The cameraman kicked it and it started working resulting in a new term called "technical tap" joined the troubleshooting lexicon. 1963 JFK Assasination brought Television into focus. Murdocuh also converted the Sun from a broadsheet to tabloid in 1969. 1970 The Sun, bought by Rupert Murdoch in 1969, kickstarts the era of Page 3. Page 3, the phrase originates with the publication of a large photograph of a topless, bare-breasted female glamour model which was usually published on the print edition's third page. The feature first appeared in the newspaper on 17 November 1970 and on the official Page 3. 1972 Nixon tapes scandal brings to fore some of the journalism's best-known people - Bob Woordward, Carl Bernstein, Deep Throat. 1972 Galella v. Onassis, Jacquline Kennedy Onassis obtained a restraining order to keep Galella 150 feet (46 m) away from her and her children. [Papparazi photography/journalism leads to legal impact]. 1977 David Frost interviews Nixon and the interviews are aired on television to unprecedented audience. The "Questioning of powerful" by Frost of Nixon by confronting him with conversations and pushing him to explain have set journalistic standard. 1980 Launch of Cable News dedicated channel for news. 1983 USA Today is launched with colour photos, colour paper, graphics and stylish layouts we know today. 1986 In 1986, Murdoch introduced electronic production processes to his newspapers in Australia, Britain and the United States. This is more on newspaper production side not on journalism side. But Newspaper firms get used to fire people and cut cost theory of business management. 1988 On January 29, 1988, USA Today published the largest edition in its history, a 78-page weekend edition featuring a section previewing Super Bowl XXII; the edition included 44.38 pages of advertising and sold 2,114,055 copies, setting a single-day circulation record for an American newspaper (a record that the paper would beat nearly nine months later on September 2, when its Labor Day weekend edition sold 2,257,734 copies). 1989 Sky News launches in Europe, 1990 Adobe releases Photoshop one of the most important tools in era of Papparazi. 1991 Gulf War catapaults cable news into mainstream 1994 Yahoo launches its web portal - a catalogue of links. Alongwith subgroup of news. 1994 O. J. Simpson trial begins 1995 Drudge Report was launched as a gossip site on Hollywood and Washington. Andrew Brietbart assisted Matt Drudge the founder. Brietbart also launched his own site which gained notoreity during 2016 election. 1996 Fox News launches in US using conservative bias and slick reporting to gain viewership. 1997 Google's initial launch. 1997 Lady Diana is killed in an accident, allegedly trying to avoid papparazi. Lady Diana was the world's most photographed woman by that time and hounded by the papparazi. 2001 Yahoo News launches most emailed page of the day. Usually news item shared on the internet. This increases reach of the publishers. 2002 Google launches Google News 2003 Facebook is launched restricted to Harvard alum. 2003 LA Times photographer manipulates war images to improve composition 2005 Youtube is created sold an year later to Google. 2005 Celebrity gossip news site TMZ is launched. 2006 Twitter is launched. 2006 Facebook goes global 2007 Kim Kardashian sex tape hits the internet. The Kardashians use this to construct an entertainment business around this. The show itself dovetails with tabloid demand leading to wider coverage in the news media. The difference between the "reality TV" and Kardashians is the amount of coverage it takes up on journalism time. There is often interest in happenings of Big Brother and Survivor but these items do not get covered in news. Kardashian show uses "news" as a tool of their entertainment show. 2009 Christian Science Monitor stops paper edition 2010 Twitter starts setting records for no. of tweets during events. For example, a record was set during the 2010 FIFA World Cup when fans wrote 2,940 tweets per second in the thirty-second period after Japan scored against Cameroon on June 14. 2010 On July 19, 2010, Shirley Sherrod was forced to resign from her position as Georgia State Director of Rural Development for the United States Department of Agriculture after blogger Andrew Breitbart posted a selectively-edited video of Sherrod's address to a March 2010 NAACP event onto his website. Reacting to these video excerpts, the NAACP condemned her remarks and U.S. government officials called on her to resign. However, upon review of the complete unedited video in full context, the NAACP, White House officials, and Tom Vilsack, the United States Secretary of Agriculture, apologised for the firing, and Sherrod was offered a new position with the USDA. 2011 News International phone-hacking scandal is a controversy involving the defunct News of the World and other British newspapers published by News International, a subsidiary of News Corporation. Employees of the newspaper were accused of engaging in phone hacking, police bribery and exercising improper influence in the pursuit of stories 2015 Periscope is launched for video sharing by twitter. 2016 The lack of proper debate and malicious campaigning attributed to fake news. Facebook, Fox News contributed to spreading of these fake news stories. President Obama said "If I was only watching Fox News even I would not vote for me."
Using inputs from Mark Grabowski Slideshare presentation, Wikipedia and Google for dates.
Note :
As an investor, I find learning the history of any industry is very crucial. You never know what you will get to know. When I started out I was dumbfounded by one analyst who seemed to know so much history about oil and petroleum. I was pointed to a book called "The Prize", then there was Chaos which told about the development of Chaos Theory. As investors, we understand how business model changed how entrepreneurs made the decisions they did. So when we want to develop a business model for Journalism, we should know what transpired.
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
Year Event 131 BCE The Acta Diurna ("Daily Events") was the first news type of publication. The first form of Acta appeared around 131 BCE. It is more of a Gazette of daily events rather than a newspaper. 1450s Gutenberg Printing press 1605 Relation aller Fürnemmen und gedenckwürdigen Historien first newspaper is published. 1662 England establishes licensing requirements for press by Licensing Act 1662. It is subsequently protested by John Milton. 1665 The Oxford Gazette is published (Now the London gazette) 1695 House of Commons allows Licensing Act to lapse after campaigning by John Locke. ~1700 Mercantile newspapers emerged mainly to support Marine insurance companies and owners and investors of ships about loss of ships, etc. 1704 The first newspaper advertisement, an announcement seeking a buyer for an Oyster Bay, Long Island, estate, is published in the Boston News-Letter. 1791 USA passes the first amendment protecting the freedom of speech and freedom of press. 1833 In New York, The Sun began publication September 3, 1833, as a morning newspaper edited by Benjamin Day with the slogan "It Shines for All". This was a penny press newspaper. 1835 The Sun first became famous for its central role in the Great Moon Hoax of 1835, a fabricated story of life and civilization on the moon which the paper falsely attributed to British astronomer John Herschel and never retracted. [Begining of fake news] 1837 Commercial telegraphs are introduced. 1843 Steam powered cylindrical press was introduced with ability to print about 8000 pages per hour. 1844 On April 13, 1844, The Sun published as factual a story by Edgar Allan Poe now known as "The Balloon-Hoax", retracted two days after publication. The story told of an imagined Atlantic crossing by hot-air balloon. 1851 The Reuter agency was established in 1851 by Paul Julius Reuter in Britain at the London Royal Exchange. He used telegraph, Reuters used pigeons to communicate between Aachen and Brussels as telegraph connectivity was not complete. 1860 American Civil War pushed the use to Telegraphs to communicate news with newsroom for printing. Cutting telegraph wires was common counter-strategy. As a response, reporters used inverted-pyramid reporting style popular even today. Embeded reporters collected facts sold to both sides of Civil war. Hence facts were necessarily objective and unbiased. (Good for business). [Note beginning of embedded journalist but note their business models keeping them unbiased] 1870s - As overland telegraph and undersea cable facilities developed, Reuters expanded beyond Europe to the Far East in 1872 and South America in 1874. 1890 First war of readership - Start of yellow journalism (over exaggerations, lies, fake news etc.) While Pulitzer prize is given to good quality research, Pulitzer himself published exaggerations albeit slight. Though in comparison to his competitor William Hearst, Pulitzer was quite mild. Both together are part of the yellow journalism era. 1890s Movies come on the scene. Mostly silent films in black and white but a new medium is created. 1893 Muckraking magazines—notably McClure's of publisher S. S. McClure—took on corporate monopolies and political machines while trying to raise public awareness and anger at urban poverty, unsafe working conditions, prostitution, and child labour. 1894 Tabloid pioneer, Alfred Harmsworth, 1st Viscount Northcliffe an early pioneer of tabloid journalism. He bought several failing newspapers and made them into an enormously profitable chain, primarily by appealing to popular taste. He began with The Evening News in 1894, and then merged two Edinburgh papers to form the Edinburgh Daily Record. That same year he fitted out an expedition to Franz Joseph Land in the Arctic with the aim of making attempts on the North Pole. 1895 The first comic strip appears in Pulitzer's paper called the Yellow Kid. Stunt Journalism was used to increase readership. [Note the shift from news to entertainment in a battle for readership] 1896 Marconi patents wireless telegraphy machine precursor to the modern radio which became operational a few years later. By 1900 most navies and armies were using this technology for coordination. 1896 On 4 May 1896, Alfred Harmsworth began publishing the Daily Mail in London, which was a hit, holding the world record for daily circulation until Harmsworth's death; taglines of The Daily Mail included "the busy man's daily journal" and "the penny newspaper for one halfpenny". [Birth of tabloid] 1898 Possibly, sensational news reporting may have pushed the US deployment of USS Maine which was sunk triggering the war. [First war caused by fake news?] 1906 "The Jungle" is a 1906 novel written by the American journalist and novelist Upton Sinclair (1878–1968). Sinclair wrote the novel to portray the harsh conditions and exploited lives of meat packing industries in the United States in Chicago and similar industrialised cities. The book was based on proper investigations and led to laws relating to food and drugs. 1906 On Christmas Eve 1906, Reginald Fessenden used a synchronous rotary-spark transmitter for the first radio program broadcast, from Ocean Bluff-Brant Rock, Massachusetts. Ships at sea heard a broadcast that included Fessenden playing O Holy Night on the violin and reading a passage from the Bible.[38] This was, for all intents and purposes, the first transmission of what is now known as amplitude modulation or AM radio. 1909 Charles Herrold started broadcasting in California in 1909 and was carrying audio by the next year. (Herrold's station eventually became KCBS). 1912 Titanic sank but after hitting iceberg radioed SOS. Soon there was regulations about using radio. 1920 In 1920 wireless broadcasts for entertainment began in the UK from the Marconi Research Centre 2MT at Writtle near Chelmsford, England. A famous broadcast from Marconi's New Street Works factory in Chelmsford was made by the famous soprano Dame Nellie Melba on 15 June 1920, where she sang two arias and her famous trill. She was the first artist of international renown to participate in direct radio broadcasts. 1920 The first radio news program was broadcast August 31, 1920 by station 8MK in Detroit, Michigan, which survives today as all-news format station WWJ under ownership of the CBS network. 1922 BBC is formed 1926 US national radio networks are established. 1928 The Queen's Messenger, a one-act play broadcast on September 11, 1928, was the world's first live drama on television. 1930s Great Depression wrecks havoc and FDR uses radio for fire-side chats. Great Depression also inflicts the first assault on newspaper industry. 1938 During the March 1938 Anschluss, in which Adolf Hitler engineered the annexation of Austria by Nazi Germany. Edward R. Murrow immediately sent William Shirer, his reporter on the ground, to London, where Shirer delivered an uncensored, eyewitness account of the Anschluss. Ed Murrow became the first star - on radio and then on TV. 1940 Lowell Thomas hosted the first-ever news broadcast on television in 1940. 1940s Arthur (Usher) Fellig under the pseudonym Weegee, kickstarted what is today called papparazi journalism. 1953 The coronation of Queen Elizabeth II in June 1953 is said to have been watched by more people on television than heard it on "the wireless". It became the first live outdoor event telecast. Famously, the camera stopped working just as the queen's parade was about to turn onto the road. The cameraman kicked it and it started working resulting in a new term called "technical tap" joined the troubleshooting lexicon. 1963 JFK Assasination brought Television into focus. Murdocuh also converted the Sun from a broadsheet to tabloid in 1969. 1970 The Sun, bought by Rupert Murdoch in 1969, kickstarts the era of Page 3. Page 3, the phrase originates with the publication of a large photograph of a topless, bare-breasted female glamour model which was usually published on the print edition's third page. The feature first appeared in the newspaper on 17 November 1970 and on the official Page 3. 1972 Nixon tapes scandal brings to fore some of the journalism's best-known people - Bob Woordward, Carl Bernstein, Deep Throat. 1972 Galella v. Onassis, Jacquline Kennedy Onassis obtained a restraining order to keep Galella 150 feet (46 m) away from her and her children. [Papparazi photography/journalism leads to legal impact]. 1977 David Frost interviews Nixon and the interviews are aired on television to unprecedented audience. The "Questioning of powerful" by Frost of Nixon by confronting him with conversations and pushing him to explain have set journalistic standard. 1980 Launch of Cable News dedicated channel for news. 1983 USA Today is launched with colour photos, colour paper, graphics and stylish layouts we know today. 1986 In 1986, Murdoch introduced electronic production processes to his newspapers in Australia, Britain and the United States. This is more on newspaper production side not on journalism side. But Newspaper firms get used to fire people and cut cost theory of business management. 1988 On January 29, 1988, USA Today published the largest edition in its history, a 78-page weekend edition featuring a section previewing Super Bowl XXII; the edition included 44.38 pages of advertising and sold 2,114,055 copies, setting a single-day circulation record for an American newspaper (a record that the paper would beat nearly nine months later on September 2, when its Labor Day weekend edition sold 2,257,734 copies). 1989 Sky News launches in Europe, 1990 Adobe releases Photoshop one of the most important tools in era of Papparazi. 1991 Gulf War catapaults cable news into mainstream 1994 Yahoo launches its web portal - a catalogue of links. Alongwith subgroup of news. 1994 O. J. Simpson trial begins 1995 Drudge Report was launched as a gossip site on Hollywood and Washington. Andrew Brietbart assisted Matt Drudge the founder. Brietbart also launched his own site which gained notoreity during 2016 election. 1996 Fox News launches in US using conservative bias and slick reporting to gain viewership. 1997 Google's initial launch. 1997 Lady Diana is killed in an accident, allegedly trying to avoid papparazi. Lady Diana was the world's most photographed woman by that time and hounded by the papparazi. 2001 Yahoo News launches most emailed page of the day. Usually news item shared on the internet. This increases reach of the publishers. 2002 Google launches Google News 2003 Facebook is launched restricted to Harvard alum. 2003 LA Times photographer manipulates war images to improve composition 2005 Youtube is created sold an year later to Google. 2005 Celebrity gossip news site TMZ is launched. 2006 Twitter is launched. 2006 Facebook goes global 2007 Kim Kardashian sex tape hits the internet. The Kardashians use this to construct an entertainment business around this. The show itself dovetails with tabloid demand leading to wider coverage in the news media. The difference between the "reality TV" and Kardashians is the amount of coverage it takes up on journalism time. There is often interest in happenings of Big Brother and Survivor but these items do not get covered in news. Kardashian show uses "news" as a tool of their entertainment show. 2009 Christian Science Monitor stops paper edition 2010 Twitter starts setting records for no. of tweets during events. For example, a record was set during the 2010 FIFA World Cup when fans wrote 2,940 tweets per second in the thirty-second period after Japan scored against Cameroon on June 14. 2010 On July 19, 2010, Shirley Sherrod was forced to resign from her position as Georgia State Director of Rural Development for the United States Department of Agriculture after blogger Andrew Breitbart posted a selectively-edited video of Sherrod's address to a March 2010 NAACP event onto his website. Reacting to these video excerpts, the NAACP condemned her remarks and U.S. government officials called on her to resign. However, upon review of the complete unedited video in full context, the NAACP, White House officials, and Tom Vilsack, the United States Secretary of Agriculture, apologised for the firing, and Sherrod was offered a new position with the USDA. 2011 News International phone-hacking scandal is a controversy involving the defunct News of the World and other British newspapers published by News International, a subsidiary of News Corporation. Employees of the newspaper were accused of engaging in phone hacking, police bribery and exercising improper influence in the pursuit of stories 2015 Periscope is launched for video sharing by twitter. 2016 The lack of proper debate and malicious campaigning attributed to fake news. Facebook, Fox News contributed to spreading of these fake news stories. President Obama said "If I was only watching Fox News even I would not vote for me."
Using inputs from Mark Grabowski Slideshare presentation, Wikipedia and Google for dates.
Note :
As an investor, I find learning the history of any industry is very crucial. You never know what you will get to know. When I started out I was dumbfounded by one analyst who seemed to know so much history about oil and petroleum. I was pointed to a book called "The Prize", then there was Chaos which told about the development of Chaos Theory. As investors, we understand how business model changed how entrepreneurs made the decisions they did. So when we want to develop a business model for Journalism, we should know what transpired.
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
January 12, 2017
Journalism 01 - What is journalism?
Concurrent with my series on Tax I have been working on series on Journalism. Frankly, this work on Journalism began back in 2010 while working on Subverting Capitalism and Democracy. It was taken further by discussions with former editors, journalist and others who complained about lack of business models. The series will analyse the Journalism part and we will generate some ideas on how a new business model can be built for journalism.
A good place to start the series is to ask What is Journalism? The reason I ask this question is two-fold. I want to know what is journalism in the context of it being the pillar of democracy. And I want to know how journalism is different from other things - media, reporting of mere facts, etc.
Let us first look at dictionary meaning of Journalism
Merriam-Webster Dictionary
American Press Institute (API) says
API also has a distilled list of elements of Journalism from the book The Elements of Journalism, by Bill Kovach and Tom Rosenstiel:
Journalism’s first obligation is to the truthIts first loyalty is to citizensIts essence is a discipline of verificationIts practitioners must maintain an independence from those they coverIt must serve as an independent monitor of powerIt must provide a forum for public criticism and compromiseIt must strive to keep the significant interesting and relevantIt must keep the news comprehensive and proportionalIts practitioners must be allowed to exercise their personal conscienceCitizens, too, have rights and responsibilities when it comes to the newsYou must read the detail as they explain it well. But some of the insightful comments I am highlighting here.
Note: The blog series will be quite unstructured. Me being a scanner keep jumping from idea to idea. But I will persevere with it. I have been at it since 2010 so nothing new. But expect waxing and waning.
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
A good place to start the series is to ask What is Journalism? The reason I ask this question is two-fold. I want to know what is journalism in the context of it being the pillar of democracy. And I want to know how journalism is different from other things - media, reporting of mere facts, etc.
Let us first look at dictionary meaning of Journalism
Merriam-Webster Dictionary
Definition of journalism
1
a : the collection and editing of news for presentation through the media
b : the public press
c : an academic study concerned with the collection and editing of news or the management of a news medium
2
a : writing designed for publication in a newspaper or magazine
b : writing characterized by a direct presentation of facts or description of events without an attempt at interpretation
c : writing designed to appeal to current popular taste or public interest
American Press Institute (API) says
"Journalism is the activity of gathering, assessing, creating, and presenting news and information. It is also the product of these activities."API also points out
"That value flows from its purpose, to provide people with verified information they can use to make better decisions, and its practices, the most important of which is a systematic process – a discipline of verification – that journalists use to find not just the facts, but also the “truth about the facts.”
API also has a distilled list of elements of Journalism from the book The Elements of Journalism, by Bill Kovach and Tom Rosenstiel:
Journalism’s first obligation is to the truthIts first loyalty is to citizensIts essence is a discipline of verificationIts practitioners must maintain an independence from those they coverIt must serve as an independent monitor of powerIt must provide a forum for public criticism and compromiseIt must strive to keep the significant interesting and relevantIt must keep the news comprehensive and proportionalIts practitioners must be allowed to exercise their personal conscienceCitizens, too, have rights and responsibilities when it comes to the newsYou must read the detail as they explain it well. But some of the insightful comments I am highlighting here.
Journalistic independence, write Kovach and Rosenstiel, is not neutrality. On one level, it means not becoming seduced by sources, intimidated by power, or compromised by self-interest. On a deeper level it speaks to an independence of spirit and an open-mindedness and intellectual curiosity that helps the journalist see beyond his or her own class or economic status, race, ethnicity, religion, gender or ego.
The publisher of journalism must show an ultimate allegiance to citizens.
This “journalistic truth” is a process that begins with the professional discipline of assembling and verifying facts. Then journalists try to convey a fair and reliable account of their meaning, subject to further investigation.
The earliest journalists firmly established as a core principle their responsibility to examine unseen corners of society.
Watching over the powerful few in society on behalf of the many to guard against tyranny
Journalism should also attempt to fairly represent varied viewpoints and interests in society and to place them in context rather than highlight only the conflicting fringes of debate.
Journalists must continually ask what information has the most value to citizens and in what form people are most likely to assimilate it. While journalism should reach beyond such topics as government and public safety, journalism overwhelmed by trivia and false significance trivializes civic dialogue and ultimately public policy.
Note: The blog series will be quite unstructured. Me being a scanner keep jumping from idea to idea. But I will persevere with it. I have been at it since 2010 so nothing new. But expect waxing and waning.
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
January 10, 2017
Tax Reform 2 - Designing Tax system
Today we start by analysing a paper "Designing Tax and Transfer Schemes: Some Basic Principles" by John Creedy, Department of Economics, University of Melbourne. [Dr. John Creedy, incidentally, has published quite a few papers on taxation and some of those can be accessed here.]
Below you will find some points made by Dr. Creedy and my understanding of these. For clarity they are intermingled here, but you can get better idea by reading Dr. Creedy's paper linked above. Just to keep in mind, the paper deals with taxes and benefits (such as social security) together.
So broadly what I understood from this is the following:
While governments derive the "power to tax" from the Constitution, the nature of the system they choose depends on "attitudes" to the role of the state. These lead me to following inferencesThe Constitution may or may not define what the "role of state" is. But system for taxation is affected by what government itself and/or the society thinks the "role of government" is.Further, over time, as a perception of the role of the state changes, the best system to attain that goal may also change. But tax systems do not change that much. In that context, look at the FDR tax reforms. These are reorienting to new "role of the state" as a provider of social security. In Indian scenario, the role of government changed drastically from near socialism to proper capitalism. The Indian Constitution does state the country to be socialist but the society has moved away from it.So Indian tax system needs a drastic reform. Dr. Creedy lists a six attitudes. The list itself is quite instructive. Some of the attitudes are relevant for benefits and not tax per se.The tax structure is influenced by views regarding the extent to which govern- ments may intervene in peoples lives. Tax administration involves obtaining private information. It may, for example also involve forcing people to take particular jobs. Attitudes towards these aspects are influenced by views regarding certain basic freedoms or rights. A related issue here is the level of government chosen to carry out necessary administration.The ways in which individual responsibilities are perceived are important. For example, unemployment has variously been judged as a failing of individuals, or alternatively as a ‘problem of industry’. This affects the extent to which people are categorised as being ‘deserving poor’ or ‘non-deserving poor’.The nature of a tax and transfer system adopted will depend on a range of paternalistic judgements. For example, some judges may prefer to provide benefits (such as rent assistance, food stamps and so on) which are linked to certain spe- cific goods. Or, the view may be taken that people should make minimum savings for retirement in the form of a special income-related contribution in addition to income taxation.An important factor is the view taken of intra-family intra- and inter-generational transfers versus a state system of support involving compulsory taxation. This has been particularly relevant in the context of aged care and disability care, where there have been substantial changes in attitudes over time. Thus there is a strong preference for tax-financed care (insurance) rather than within-family transfers.A choice must be made regarding those eligible for the receipt of transfers, or payment of taxes. This may involve the choice of a social insurance type of system whereby unemployment and sickness benefits and pensions are available only to those who have a history of tax (or ‘national insurance’ contributions).1 Alternatively, eligibility may be related to nationality or residence requirements. A judgement must be made regarding the tax base. This may be some concept of income, consumption, or wealth. The decision here is influenced by views regarding the main aims of the tax system, and often a variety of tax bases are used. In the public finance literature, the ‘comprehensive’ income concept is often mentioned, but its choice in favour of other bases involves a value judgement. Comprehensive income is of course difficult to measure in practice, and involves the awkward treatment of unrealised capital gains and the coverage of such a tax.In the first post on tax, I clarified that tax should not be used as instrument of policy. Benefits are essentially instruments of policy. We are concerned here regarding tax system not the benefit system. We will debate the benefit system separately. I would keep both systems as separate as possible.Next we will look at other papers.
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
Below you will find some points made by Dr. Creedy and my understanding of these. For clarity they are intermingled here, but you can get better idea by reading Dr. Creedy's paper linked above. Just to keep in mind, the paper deals with taxes and benefits (such as social security) together.
So broadly what I understood from this is the following:
While governments derive the "power to tax" from the Constitution, the nature of the system they choose depends on "attitudes" to the role of the state. These lead me to following inferencesThe Constitution may or may not define what the "role of state" is. But system for taxation is affected by what government itself and/or the society thinks the "role of government" is.Further, over time, as a perception of the role of the state changes, the best system to attain that goal may also change. But tax systems do not change that much. In that context, look at the FDR tax reforms. These are reorienting to new "role of the state" as a provider of social security. In Indian scenario, the role of government changed drastically from near socialism to proper capitalism. The Indian Constitution does state the country to be socialist but the society has moved away from it.So Indian tax system needs a drastic reform. Dr. Creedy lists a six attitudes. The list itself is quite instructive. Some of the attitudes are relevant for benefits and not tax per se.The tax structure is influenced by views regarding the extent to which govern- ments may intervene in peoples lives. Tax administration involves obtaining private information. It may, for example also involve forcing people to take particular jobs. Attitudes towards these aspects are influenced by views regarding certain basic freedoms or rights. A related issue here is the level of government chosen to carry out necessary administration.The ways in which individual responsibilities are perceived are important. For example, unemployment has variously been judged as a failing of individuals, or alternatively as a ‘problem of industry’. This affects the extent to which people are categorised as being ‘deserving poor’ or ‘non-deserving poor’.The nature of a tax and transfer system adopted will depend on a range of paternalistic judgements. For example, some judges may prefer to provide benefits (such as rent assistance, food stamps and so on) which are linked to certain spe- cific goods. Or, the view may be taken that people should make minimum savings for retirement in the form of a special income-related contribution in addition to income taxation.An important factor is the view taken of intra-family intra- and inter-generational transfers versus a state system of support involving compulsory taxation. This has been particularly relevant in the context of aged care and disability care, where there have been substantial changes in attitudes over time. Thus there is a strong preference for tax-financed care (insurance) rather than within-family transfers.A choice must be made regarding those eligible for the receipt of transfers, or payment of taxes. This may involve the choice of a social insurance type of system whereby unemployment and sickness benefits and pensions are available only to those who have a history of tax (or ‘national insurance’ contributions).1 Alternatively, eligibility may be related to nationality or residence requirements. A judgement must be made regarding the tax base. This may be some concept of income, consumption, or wealth. The decision here is influenced by views regarding the main aims of the tax system, and often a variety of tax bases are used. In the public finance literature, the ‘comprehensive’ income concept is often mentioned, but its choice in favour of other bases involves a value judgement. Comprehensive income is of course difficult to measure in practice, and involves the awkward treatment of unrealised capital gains and the coverage of such a tax.In the first post on tax, I clarified that tax should not be used as instrument of policy. Benefits are essentially instruments of policy. We are concerned here regarding tax system not the benefit system. We will debate the benefit system separately. I would keep both systems as separate as possible.Next we will look at other papers.
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
December 19, 2016
Tax reform - Introduction to the new series
After demonetisation, it is widely expected that next step will be tax reform. So I wanted to examine and recommend the possible taxation reforms we can expect.
But this time, I want to open the research process to you all. So this post will be the beginning of a series of posts on this topic. Each post will be ideas under exploration and may end with some questions too. At the end of the series, I will convert it into a proper research paper and an explanatory article.
So to start off, let us begin by asking basic questions.
What is Tax?Tax is essentially a levy charged, on the people, by the government, to fund its activities.
You can find equivalent definitions in Wikipedia and Investopedia. Let us examine the crucial aspects of this definition and the question it raises.
Tax is a levy. It is a charge on something such as a transaction or an asset. It implies that there exist transactions or assets that are visible to the government.
Government or its equivalent implies some authority that can bear the force of law on the person. The person may be a citizen or foreigners (including friendly aliens or enemy aliens).
Activities of the government include all the activities taken by the government upon itself. Initially, it included mere protection from enemies (army). Then expanded to provide safe internal law and order (police). It was further expanded to include dispute resolution (Judiciary). It further expanded to infrastructure for citizens (markets and city infrastructure). And now includes education, social security, health, etc.
Distinction of taxIn purely communist countries there is ideally nothing like taxes. Everything belongs to the government and the citizens only get what they need for living.
In capitalist societies, a tax is something government takes from the people in return for the services it provides. It envisages a government to charge fairly for the services it provides even though the government can impose itself by authority of law.
Capitalist societies want to restrict the scope of government so that only a minimum amount needs to be taken from the person. The individual himself is best placed to spend the rest of the amount. So better to tax him less and leave him enough resources to achieve her own potential. This is the republican position on government.
The left-wing position on government is somewhat contrary. Their view is that government should provide the common services that could enable the individuals to achieve their full potential. They are for expanding government role in activities that involve common good. So they are happy to pay higher taxes.
In either case, taxes are a reality only the extent differs. We discuss this distinction because it has a bearing on HOW the individual is taxed not just WHAT he is taxed.
Power to tax
The constitution of the country grants power to the government to tax the citizens. The constitution decides what level of government can tax what activity. These powers are then refined by relevant laws and hence collection or even benefit from the taxes collected can be allocated to other government (usually lower).
Notice that power to tax is embedded in the constitution and hence amending it is a considerably expensive legislative exercise.
Types of Taxes
If you search for types of taxes, you will end up with taxes at the level of various governments. Local taxes, state taxes, central or federal taxes etc. But when designing tax policy the relevant classification is a bit different.
So one way to differentiate taxes is - income taxes v/s expenditure taxes. Expenditure taxes means sales tax, VAT or GST type taxes. Income taxes are fairly well understood. But people forget that income for individuals is salary and for corporates is the profit. So in accounting terminology, individuals get taxed on revenues and corporates get taxed on profits. Another way is to look at is flow taxes v/s stock taxes. Flow taxes include income or expenditure taxes while stock taxes include property taxes or estate taxes, inheritance taxes etc.Some taxes are mixed taxes - capital gains. It is partly income and partly stock tax. Experts have intuitively suggested that short-term capital gains are like income and therefore it is closer to income tax. Long-term Capital gains is an investment gain, therefore has second and third order effects hence taxed at lower rates.Transaction Taxes are another type. They are incurred only when a transaction occurs. Banking Transaction tax being discussed currently is part of this.Policy taxes like import taxes, sin taxes and environmental taxes, carbon taxes etc. These are not essentially taxes but instruments designed to influence the markets. So if extremely low costs imports are threatening the domestic industry some import taxes may be charged. The objective of these taxes is not to create fund for government activities but to influence the markets or policy. The fund created from them may be used selectively but the aim is different.
Tax Collection
Taxes are collected from taxpayers (different from citizens) either by direct deductions (Tax deducted at source) or by seeking payment of taxes.
Tax payment is accompanied by a statement by the taxpayers that details her assessment of taxes and proof of payment. It is generally called Tax Returns.
Tax inquiry and approval
If you note, taxes are self-assessed. Hence, by definition, the government will create an oversight mechanism to ensure your assessment is correct or not. This is done by tax scrutiny, wherein an officer or a computer checks for correctness of your statement. Your statement or return is examined against the data generated by your banks and other agencies and tallied with your return. If it is correct, your return in approved and tax liability is extinguished.
In every country, there is a limit as to how long the tax liability stays active. In India it is presently 5 years. In other countries the years varies depending upon how efficient the tax department is. Once this period is passed you are no longer required to pay for liabilities that may be discovered for prior period.
In sum
These are the very basic things about taxes. Next we will dive into the main topic.
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
But this time, I want to open the research process to you all. So this post will be the beginning of a series of posts on this topic. Each post will be ideas under exploration and may end with some questions too. At the end of the series, I will convert it into a proper research paper and an explanatory article.
So to start off, let us begin by asking basic questions.
What is Tax?Tax is essentially a levy charged, on the people, by the government, to fund its activities.
You can find equivalent definitions in Wikipedia and Investopedia. Let us examine the crucial aspects of this definition and the question it raises.
Tax is a levy. It is a charge on something such as a transaction or an asset. It implies that there exist transactions or assets that are visible to the government.
Government or its equivalent implies some authority that can bear the force of law on the person. The person may be a citizen or foreigners (including friendly aliens or enemy aliens).
Activities of the government include all the activities taken by the government upon itself. Initially, it included mere protection from enemies (army). Then expanded to provide safe internal law and order (police). It was further expanded to include dispute resolution (Judiciary). It further expanded to infrastructure for citizens (markets and city infrastructure). And now includes education, social security, health, etc.
Distinction of taxIn purely communist countries there is ideally nothing like taxes. Everything belongs to the government and the citizens only get what they need for living.
In capitalist societies, a tax is something government takes from the people in return for the services it provides. It envisages a government to charge fairly for the services it provides even though the government can impose itself by authority of law.
Capitalist societies want to restrict the scope of government so that only a minimum amount needs to be taken from the person. The individual himself is best placed to spend the rest of the amount. So better to tax him less and leave him enough resources to achieve her own potential. This is the republican position on government.
The left-wing position on government is somewhat contrary. Their view is that government should provide the common services that could enable the individuals to achieve their full potential. They are for expanding government role in activities that involve common good. So they are happy to pay higher taxes.
In either case, taxes are a reality only the extent differs. We discuss this distinction because it has a bearing on HOW the individual is taxed not just WHAT he is taxed.
Power to tax
The constitution of the country grants power to the government to tax the citizens. The constitution decides what level of government can tax what activity. These powers are then refined by relevant laws and hence collection or even benefit from the taxes collected can be allocated to other government (usually lower).
Notice that power to tax is embedded in the constitution and hence amending it is a considerably expensive legislative exercise.
Types of Taxes
If you search for types of taxes, you will end up with taxes at the level of various governments. Local taxes, state taxes, central or federal taxes etc. But when designing tax policy the relevant classification is a bit different.
So one way to differentiate taxes is - income taxes v/s expenditure taxes. Expenditure taxes means sales tax, VAT or GST type taxes. Income taxes are fairly well understood. But people forget that income for individuals is salary and for corporates is the profit. So in accounting terminology, individuals get taxed on revenues and corporates get taxed on profits. Another way is to look at is flow taxes v/s stock taxes. Flow taxes include income or expenditure taxes while stock taxes include property taxes or estate taxes, inheritance taxes etc.Some taxes are mixed taxes - capital gains. It is partly income and partly stock tax. Experts have intuitively suggested that short-term capital gains are like income and therefore it is closer to income tax. Long-term Capital gains is an investment gain, therefore has second and third order effects hence taxed at lower rates.Transaction Taxes are another type. They are incurred only when a transaction occurs. Banking Transaction tax being discussed currently is part of this.Policy taxes like import taxes, sin taxes and environmental taxes, carbon taxes etc. These are not essentially taxes but instruments designed to influence the markets. So if extremely low costs imports are threatening the domestic industry some import taxes may be charged. The objective of these taxes is not to create fund for government activities but to influence the markets or policy. The fund created from them may be used selectively but the aim is different.
Tax Collection
Taxes are collected from taxpayers (different from citizens) either by direct deductions (Tax deducted at source) or by seeking payment of taxes.
Tax payment is accompanied by a statement by the taxpayers that details her assessment of taxes and proof of payment. It is generally called Tax Returns.
Tax inquiry and approval
If you note, taxes are self-assessed. Hence, by definition, the government will create an oversight mechanism to ensure your assessment is correct or not. This is done by tax scrutiny, wherein an officer or a computer checks for correctness of your statement. Your statement or return is examined against the data generated by your banks and other agencies and tallied with your return. If it is correct, your return in approved and tax liability is extinguished.
In every country, there is a limit as to how long the tax liability stays active. In India it is presently 5 years. In other countries the years varies depending upon how efficient the tax department is. Once this period is passed you are no longer required to pay for liabilities that may be discovered for prior period.
In sum
These are the very basic things about taxes. Next we will dive into the main topic.
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
December 14, 2016
Demonetisation - The leap-frogging mobile banking tech
I am experimenting with videos these days. Mostly because the commentary is same - biased and boring. No new interesting ideas are being highlighted by the media. So I thought may be we should be talking about the different aspects of the demonetisation initiative. I am fascinated by mobile banking technology the government is promoting.
Before the launch of Demonetisation initiative, the government and RBI have made two platforms operational. The Unified Payments Interface (UPI) is platform for smartphones and Unstructured Supplementary Structured Data (USSD) is platform for feature phones.
Both these systems interface directly with your bank accounts. That is unlike mobile wallets, they do not store the money in a special account created for you. The business of keeping mobile wallets recharged is not applicable here.For using the same data charges and transaction charges are applicable. But there are no other charges. For example, if you use mobile wallet, you pay data charges and also charges to transfer funds back into your accounts. These charges are borne by the person getting the funds. UPI and USSD work between banks and are authorized by the RBI and National Payments Corporation of India.UPI interface is simple but we must remember it is embedded within the mobile apps of banks. So be sure to select UPI and bypass all other layers.The USSD system is a bit iterative - not difficult to understand but requires you to memorize account number, pin, enter the counter party phone number or id etc. Here are some articles describing use of USSD - from BGR, from ET and one by WPXbox.
Now imagine if the country does make a move to mobile payments system. It will be leapfrogging about 2-4 generations of technologies -conventional banking, ATM-based self-service banking, credit and debit cards, internet banking all in one go. We will directly reach mobile banking.
This mobile banking is differentThe mobile banking promoted by the government is not the same as carrier-promoted mobile banking. Carrier promoted mobile banking involves another layer on top of your accounts. Such layer can be physical (banking agents) or through telecom-operators themselves. Each layer adds costs and thus inefficiency. The UPI and USSD based system government of India is promoting is layered on bank accounts themselves.
What supporting infrastructure is needed?We need to get POS machines that can initiate USSD / UPI based transactions. Thus, the vendor can initiate payment amount and his own id. Based on which the user can accept and authenticate this transaction leading to debit in his account. Such a system
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
Before the launch of Demonetisation initiative, the government and RBI have made two platforms operational. The Unified Payments Interface (UPI) is platform for smartphones and Unstructured Supplementary Structured Data (USSD) is platform for feature phones.
Both these systems interface directly with your bank accounts. That is unlike mobile wallets, they do not store the money in a special account created for you. The business of keeping mobile wallets recharged is not applicable here.For using the same data charges and transaction charges are applicable. But there are no other charges. For example, if you use mobile wallet, you pay data charges and also charges to transfer funds back into your accounts. These charges are borne by the person getting the funds. UPI and USSD work between banks and are authorized by the RBI and National Payments Corporation of India.UPI interface is simple but we must remember it is embedded within the mobile apps of banks. So be sure to select UPI and bypass all other layers.The USSD system is a bit iterative - not difficult to understand but requires you to memorize account number, pin, enter the counter party phone number or id etc. Here are some articles describing use of USSD - from BGR, from ET and one by WPXbox.
Now imagine if the country does make a move to mobile payments system. It will be leapfrogging about 2-4 generations of technologies -conventional banking, ATM-based self-service banking, credit and debit cards, internet banking all in one go. We will directly reach mobile banking.
This mobile banking is differentThe mobile banking promoted by the government is not the same as carrier-promoted mobile banking. Carrier promoted mobile banking involves another layer on top of your accounts. Such layer can be physical (banking agents) or through telecom-operators themselves. Each layer adds costs and thus inefficiency. The UPI and USSD based system government of India is promoting is layered on bank accounts themselves.
What supporting infrastructure is needed?We need to get POS machines that can initiate USSD / UPI based transactions. Thus, the vendor can initiate payment amount and his own id. Based on which the user can accept and authenticate this transaction leading to debit in his account. Such a system
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
December 13, 2016
Demonetisation - Rant about media
Here is my rant about lack of proper debate on demonetisation
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
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Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
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December 11, 2016
Demonetisation - What was the targeted black money held in cash?
Total black money (cash) in the system was estimated to be 3 Lac Crores or 3 Trillion. This number is now being questioned. One reason this number is important is that some believe that this is the number government was targeting using the demonetisation initiative. So what is this number? Is it 3T? Is it more? Is it less? Does it matter?
As an aside, that logic is flawed. The government has not given any target for black money it wants to unearth. It has maintained that it wants to unearth all black money. The government's definition as supplied by the White paper on black money 2012 includes cash, assets and everything. In short it refers to black economy not just cash.
Simple calculation Nevertheless, the number 3T came from media and they calculated it thus. The total currency in circulation 15T (only 500 and 1000 notes). about 20% of this is in black hence 3T is in black.
Pseudo-data backed Another way is to estimate how much percentage of black wealth held in cash. If you look at the data from white paper on black money, it is about 5% for those were caught. So one journalist calculated 5% of 15T (currency in circulation) to arrive at 0.77T as his estimate. To put it in context, this is comparable to the amount government got through tax amnesty scheme. Naturally, he pooh-poohed the government. But this calculation is wrong on many levels. First, 5% of wealth (stock) is not same as 5% of 15T (which is flow - money in circulation). So 15T is not comparable to wealth of Indian economy. When IIM teachers make such miscalculation, I am surprised.
My calculation (In INR)
India nominal GDP = 125 TTotal currency in circulation = 16 TRatio = 7.8
Estimate of black economy = 62TEstimated cash in circulation (using about ratio of 7.8) = 7.9 T(By Arun Kumar Estimation of the Size of the Black Economy in India, 1996–2012 EPW = he says its 60% based on some regression. check out his paper)
Now to temper the estimates: The size of black economy may be lower i.e. Arun Kumar may be over-estimating. Say the size of economy is 25% (this comes from world bank estimates).
So 25% of 125 T = 31 Tcurrency supporting 31 T at ratio of 7.8 will be about 3.9 T
The ratio logic: The ratio for the black economy will be different. One can argue both ways. The transactions are black so ratio will be lower or that people want to rid of the black cash so ratio will be higher. But for bulk money (high amounts) it is difficult to move black money. So ratio could be lower. Which means the black cash will be higher than 4T.
So 3 Lac crore / 3 T is ok estimate.
But does it matter?No. First, this money is fungible. It can move from black to white. You cannot trap it completely. So what can be done?
First get this flow into stock. Let the currency come out white - but wealth will still remain black. Let it go into assets, gold and other stock items. It is easier to shoot at stock than flow. Second if you are vigilant, their conversion will give their location away. To do that we need to push the cash holders into converting, Coax them into action. Demonetisation does that trick. Now that thieves are moving they become visible.
Now the black money is both visible and cash component is revealed. The success will depend on whether the government takes out the black money or not. Let us wait and watch.
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
As an aside, that logic is flawed. The government has not given any target for black money it wants to unearth. It has maintained that it wants to unearth all black money. The government's definition as supplied by the White paper on black money 2012 includes cash, assets and everything. In short it refers to black economy not just cash.
Simple calculation Nevertheless, the number 3T came from media and they calculated it thus. The total currency in circulation 15T (only 500 and 1000 notes). about 20% of this is in black hence 3T is in black.
Pseudo-data backed Another way is to estimate how much percentage of black wealth held in cash. If you look at the data from white paper on black money, it is about 5% for those were caught. So one journalist calculated 5% of 15T (currency in circulation) to arrive at 0.77T as his estimate. To put it in context, this is comparable to the amount government got through tax amnesty scheme. Naturally, he pooh-poohed the government. But this calculation is wrong on many levels. First, 5% of wealth (stock) is not same as 5% of 15T (which is flow - money in circulation). So 15T is not comparable to wealth of Indian economy. When IIM teachers make such miscalculation, I am surprised.
My calculation (In INR)
India nominal GDP = 125 TTotal currency in circulation = 16 TRatio = 7.8
Estimate of black economy = 62TEstimated cash in circulation (using about ratio of 7.8) = 7.9 T(By Arun Kumar Estimation of the Size of the Black Economy in India, 1996–2012 EPW = he says its 60% based on some regression. check out his paper)
Now to temper the estimates: The size of black economy may be lower i.e. Arun Kumar may be over-estimating. Say the size of economy is 25% (this comes from world bank estimates).
So 25% of 125 T = 31 Tcurrency supporting 31 T at ratio of 7.8 will be about 3.9 T
The ratio logic: The ratio for the black economy will be different. One can argue both ways. The transactions are black so ratio will be lower or that people want to rid of the black cash so ratio will be higher. But for bulk money (high amounts) it is difficult to move black money. So ratio could be lower. Which means the black cash will be higher than 4T.
So 3 Lac crore / 3 T is ok estimate.
But does it matter?No. First, this money is fungible. It can move from black to white. You cannot trap it completely. So what can be done?
First get this flow into stock. Let the currency come out white - but wealth will still remain black. Let it go into assets, gold and other stock items. It is easier to shoot at stock than flow. Second if you are vigilant, their conversion will give their location away. To do that we need to push the cash holders into converting, Coax them into action. Demonetisation does that trick. Now that thieves are moving they become visible.
Now the black money is both visible and cash component is revealed. The success will depend on whether the government takes out the black money or not. Let us wait and watch.
Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
December 9, 2016
Demonetisation - Can anaesthesia cure the cancer?
It has been one month since demonetization was announced. So naturally it is time to assess how it is doing. But I am not going to do that. I am going to assess the criticism of the initiative.
Just to reiterate, since the announcement, I have maintained two things. First, that the true effect can only be determined when you consider the whole picture - the entire gamut of initiatives, execution and operations on black money, cash-less economy, and such other co-terminus objectives. Till such a time it is premature to pass any judgment. Second, it is a step in right direction. So let me assess the criticisms.
Draconian move by sidelining RBIThis is factually not true. The Gazette notification states that powers were exercised on the recommendation of Central Board of Directors. However, many commentators rely on fact that there are vacancies on that board. But, as per law, vacancies do not invalidate the Orders of the board. The board was authorized to act and it did recommend. Then people question of all the information was disclosed to the board. Well, it is the prerogative of the board to establish that. Unless the board members complain, citizens raising such questions are undermining the authority of the board.
Certainly, the move was quick and secretive. But that does not make it illegal or unlawful. The legal merits of the move seem to be on sound footing.
The Poor are sufferingThis argument is usually the first. In their article in Mint, Krishnamurthy Subramanian & Prasanna Tantri argue that data would show otherwise. The poor will have to visit the bank about 3 times between Nov. 8 and Dec 30 if they continued to accept the old notes. And just once if they refused to accept the old notes. Therefore they wonder:
So next, you go and ask the people themselves. Just remember, if you are watching videos online to gauge public opinion - ignore the videos uploaded by the media (pro and against) and political parties (right and left). Search for videos of people speaking directly with common people waiting in line or otherwise. These videos are positive. Better yet, speak to the people directly yourself, they are positive. They are suffering, but they understand and they are positive. Some are hurt but they still understand.
Currency in circulation will be destroyed - will lead to deflationThis was textbook economics commentary - money supply has reduced therefore prices must fall. Unfortunately, it is not true. The principle is sound but the money supply is not reduced. People still have the same amount of money. The form is changed. If people are genuinely transacting, paying taxes on it, then they will merely do it through banking channels.
If they are not genuine then it does not matter if there is a loss of such activity. Please note, demand will be affected, but it will be short term. You may even see a surge in a quarter or two. Just like this lull was temporary the surge will also be temporary - adjustments taking place.
The argument was advanced in light of the fact that for undisclosed amounts tax was 200% penalty and some additional cess. Thus for every Rs. 100 deposited you ended up retaining about Rs. 10. (in top tax bracket). Thus, it was better for such holders of black money to destroy it rather than return it. This, as per media estimate, was "the money that would never return". These IOUs that never returned would be gains for the central bank. This was quickly rectified with a modified amnesty scheme that said that effective tax rate will be 50% and some terms were imposed.
Government will not get windfall gains it was expectingThis is the most fervently promoted falsehood I have ever seen. I have never read any government press release or any official statement saying the government will gain because RBI will give windfall dividend on the notes that are not returned.
This benefit was claimed by the media and it was false. It showed a lack of basic knowledge of central bank balance-sheet. [Refer to the primer by Bank of England I linked to in my first post.] The nature of adjustment remains on the same side of the balance sheet. There was never claimed to be revenue impact from this activity.
If the government was expecting a windfall from RBI then would the government announce modified amnesty at 50% tax and thus impair its own chances of getting gains.
That said, the fault lies with the government officers and bureaucrats as well. When they speak to the media, anonymously, they fan the rumors about this approach. Some such officials are claiming that RBI Act can be amended by the Government to take the dividend. This undermines the basic structure and legitimacy of the government's initiatives.
[Some idiot will say - maybe they did. Initially, government thought it will get windfall gains, but when former RBI governors challenged that on our channel/ newspaper/magazine, government quickly announced amnesty to save its own face!]
All the currency in circulation will return - so demonetisation has failedThis is another popular argument. If all the currency in circulation comes back, government will not get any windfall and thus costs of demonetisation will outweigh the benefits. Hence demonetisation has failed.
First, if all money returns to the system, it is good. It means there won't be contraction of currency on hand. And therefore those who got scared about deflation would not get scared.
Second, what if money returned is higher than money in circulation? Does it not mean that there were high quality fake Indian currency notes (FICN)? If they come to the banks is it not a benefit of demonetisation? Based on the present run-rate it is possible.
[I want to ask something to the people who were going to give windfall profits to government. The day deposits/exchanges will exceed RBI's currency in circulation figure, will you ask government to pay RBI for those liabilities?]
No benefits for anti-black money initiativeThen there are people saying once all money comes back to the bank there is no gain for black money initiative. Those who created black money will create black money again. Those who converted are sleeping peacefully. So why trouble everyone.
The benefits to black money initiative will be seen only later. But some are evident right away. People moving to cash-less economy is good for black money initiative. Remember, when black money is deposited into banks it is good. It exposes the total money in the system and its ownership. Coupled with laws on benami holdings, it will reveal the extent of black money problem. Note that by alone it won't do anything. But without it black money initiative would not make proper impact. Thus, viewed from black money prism demonetisation is necessary but not sufficient.
[I am happy these people are not in charge of surgeries or some such life-threatening issue. Just after anaesthesia, these people will criticise the doctor that the cancer is not cured. "I can still see the cancer cells growing". They will come out of the operation theater and tell the patients relative - operation has failed. Cancer refuses to die so better let the patient die.]
Black money is not held in cash so exercise is uselessTackling black money is like cleaning a tank. Unless you stop/slow the water pouring into the tank will not empty itself. This is a classic flow-and-stock problem. So best way to tackle black money is to attack the flow problem first. Then stock problem. Demonetisation tackles the flow problem.
Because of demonetisation, the black money will be forced into stockpiles i.e. in bank accounts, in gold, benami assets etc. This is good. The flow needs to stop. Hitting the flow is like shooting at a moving target. Hitting the stock of black money is much easier.
Note that if further actions do not continue, flow will resume and the stock problem cannot be rectified. This tells us what kind of initiatives will come after December 30. They will attack stock problems at critical places.
Government keeps changing the rules, focus on cash-less economy so demonetisation has failedThere is a classic problem involved with government. If they talk too much, their talk is criticised. If they talk too less, their silence is criticised. Government officers have been talking too much. RBI is talking too little. Hence there is a problem for both. Unfortunately, there is no escape for the government or RBI from this. It is a lose-lose scenario.
First, the government has been quite responsive. Asking the government to maintain its stance is foolish. Imagine in Apollo 13, Tom Hanks and crew are calling Houston to help them, but Houston continues to be head-strong. Any exercise of this sort requires nimble-footed decision-making.
Demonetisation is good opportunity to push people into a cash-less economy. And no-one is arguing that it is bad. The argument is that if sole focus of demonetisation was to push for cash-less economy then it could have been done better. But cash-less was not the focus of the demonetisation exercise - no one said so. Read the initial release. It was an ancillary benefit. But it is a benefit nevertheless. Better push it when you can.
Poorly planned initative - hence badThis is a genuine issue. But people attacking poorly planned issue slant it differently.
First, there was no way under any conceived planning model to pre-inform any one of the demonetisation move. The move had to be sudden and out of the blue. There was no getting around that part of criticism.
Second, criticism is at logistics of notes reaching ATMs. Some say the new notes should have been same size so no recaliberation of ATMs would be needed. Now, even if new notes are same size and weight as old notes, ATMs will have to be configured to understand that these are new notes and not old notes. So there was no getting around recalibration too. Could it have been done in advance? No! Otherwise, the information would be leaked. In fact, 2000 note pictures had started appearing before demonetisation was announced.
Shouldn't RBI printed the notes and kept them ready? Well yes. In fact, if you see the timelines, I think the government was aiming for a January announcement. It appears that some news related to terrorists or FICN coming in the country in a big way pushed the government to announce on Nov 8th. This is a legitimate question to ask the government. It is possible that they will share some information once the anti-terror part of the operation has concluded. We will have to wait for that.
A 2000 rupees will help stock black money - hence demonetisation failedWhen the government introduced the 2000 rupee note, people were aghast. This note will definitely facilitate holding black money.
Arthakranti had proposed a 2000 rupee note. Their logic was that if you are repairing an arterial road with lots of traffic you have to give some by-pass. So this 2000 rupee note is a by-pass. They further said that in terms of printing quantity v/s printed value it reduces time to replenish full currency back into the system in half the time of 1000 rupee notes.
I agree with that basic premise. To add to it, think who will use 2000 rupee note. It cannot be used for transacting as it is too big a denomination. People found 1000 rupee note also too big. The reason we feel that is because of metric design system of currency. (from V. Anantha Nageswaran) But I think it is by design rather than by mistake. In a year or two these notes will find their way back to the black money hoarders. Then these notes will be demonetised gradually. That is the reason why there were rumours about microchips installed in the notes. There are no microchips the notes are traceable to black money holders. That is all.
Black money holders are depositing money in Jan-Dhan Accounts - hence failedThis logic is applicable to many such devices black money holders are using to launder money into white. In this process, people with Jan-Dhan accounts are also involved. But more importantly, cooperative banks, small businesses and others are involved in a big way.
We must remember that these acts constitute money laundering. They are also under the purview of benami property acts. The fines and penalties are severe. So once investigations are done we will find the culprits.
People have diedThat, unfortunately, is true. Some people have indeed died. Should they have died? Absolutely not. That is why implementation is receiving poor marks. The government should have set up a task force and convened the meeting via video conference - all bank CEOs, Finance Ministry and others. The government should have pushed them to monitor this like an emergency situation. There should have been End of day recap meeting and things should have smoothened out.
But I personally thought there could have been more deaths. Seriously! And that was why I was against the policy. We are 700 million not counting old and too young. That's more than the entire population of USA. 700million went to the bank in distress and yet no riots broke out. People are not cribbing they are supportive. That number once verified can be debated. But at present, we are talking about 2 people in one crore. Yet, even one casualty is one too many.
Tax terrorismAt the end of the 50-day period, the authorities will unleash a new compliance program. Income Tax (IT) authorities are known to be very unfriendly to the lawful and buddies of the corrupt. IT department is the reason that people have joined the black economy in droves.
Tax reform is absolutely essential. Without tax reforms and reforms of tax departments, we will not tame the corruption and black money monster ever. The initiative has indeed armed this monster. So without reform it will unleash a fresh round of terror. Once victimised the population will be reminded of the pains that pushed them to black economy in the first place. Without this critical reform the political costs of this exercise will be too high to bear.
Chanakya, the person prime minister admires, used to say that governance must BE fair and must BE SEEN to be fair. So also goes a prominent legal doctrine - justice must not only be done but also seen to be done.
I have 100 employees but I cannot pay my employees. This is boat-load of bullshit. A person who has 100 employees should be doing business through banking in any case. If this fellow goes to the bank and asks the bank to open the account for his 100 employees, he will be able to do it quickly. In fact, the benefit of demonetisation is that such fellows will come into the formal sector.
Corporate sector is hurt in a big wayPost demonetisation there has been an impact on demand. People are focussing their spending on essentials. This has hit industry to a certain extent. Yet, there is no reason for high-value goods industry to be affected. Thus, if people are buying cars, there is no reason that should stop. Most of the car purchase was using bank money anyways. Bicycles and Two-wheelers have been hurt.
If businesses are hurt because their distribution chain is cash based then this is no argument. There was no business for this distribution chain to be cash-only if they are paying relevant duties. In fact, these dealers and shopkeepers are a major source of black money creation. Please note that they are not without bank accounts, they are cash-based by choice. That such businesses will come into the mainstream banked economy, is a boon and benefit of the demonetisation.
So what do we conclude
At the end, demonetisation is not a single initiative that will rid India of corruption. The anaesthesia cannot cure this cancer. The surgery is ahead of us. Possibly, demonetisation will insulate the law-abiding people from the pains of this anti-corruption surgery. But corruption has seeped into the character of this country. Every fellow is corrupt as much as his ability, opportunity and self-conscience allowed. In this game everyone is dirty. The system did push people into the black economy. But that has to change.
The example of Georgia is documented in this World Bank Report hold many learnings as to how a corrupt country can get clean. The president of Georgia started out by firing all the traffic police known to be most corrupt. The result is that Georgia went from a poor country to a middle-income country in a short time.
The process of change has begun. How far the prime minister takes us, how successful he is, depends on the next steps. There are workable models, but India will have to fashion its own solutions. India has to take the leadership, forge new paths against corruption.Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
Just to reiterate, since the announcement, I have maintained two things. First, that the true effect can only be determined when you consider the whole picture - the entire gamut of initiatives, execution and operations on black money, cash-less economy, and such other co-terminus objectives. Till such a time it is premature to pass any judgment. Second, it is a step in right direction. So let me assess the criticisms.
Draconian move by sidelining RBIThis is factually not true. The Gazette notification states that powers were exercised on the recommendation of Central Board of Directors. However, many commentators rely on fact that there are vacancies on that board. But, as per law, vacancies do not invalidate the Orders of the board. The board was authorized to act and it did recommend. Then people question of all the information was disclosed to the board. Well, it is the prerogative of the board to establish that. Unless the board members complain, citizens raising such questions are undermining the authority of the board.
Certainly, the move was quick and secretive. But that does not make it illegal or unlawful. The legal merits of the move seem to be on sound footing.
The Poor are sufferingThis argument is usually the first. In their article in Mint, Krishnamurthy Subramanian & Prasanna Tantri argue that data would show otherwise. The poor will have to visit the bank about 3 times between Nov. 8 and Dec 30 if they continued to accept the old notes. And just once if they refused to accept the old notes. Therefore they wonder:
the long queues seen stem from two sections of the population: (i) people from the top half of the country’s income distribution, i.e. the richer folks, who want to exchange their honestly earned savings for new currency; and (ii) people who are acting as agents for the dishonest. The significant decrease in the queues after the government decided to use indelible ink to identify people that have exchanged their currency suggests large presence of the second category of people.Note, I am not saying that poor are not suffering, neither are the authors above. What is being said is they are not suffering as much as alleged by these commentators.
So next, you go and ask the people themselves. Just remember, if you are watching videos online to gauge public opinion - ignore the videos uploaded by the media (pro and against) and political parties (right and left). Search for videos of people speaking directly with common people waiting in line or otherwise. These videos are positive. Better yet, speak to the people directly yourself, they are positive. They are suffering, but they understand and they are positive. Some are hurt but they still understand.
Currency in circulation will be destroyed - will lead to deflationThis was textbook economics commentary - money supply has reduced therefore prices must fall. Unfortunately, it is not true. The principle is sound but the money supply is not reduced. People still have the same amount of money. The form is changed. If people are genuinely transacting, paying taxes on it, then they will merely do it through banking channels.
If they are not genuine then it does not matter if there is a loss of such activity. Please note, demand will be affected, but it will be short term. You may even see a surge in a quarter or two. Just like this lull was temporary the surge will also be temporary - adjustments taking place.
The argument was advanced in light of the fact that for undisclosed amounts tax was 200% penalty and some additional cess. Thus for every Rs. 100 deposited you ended up retaining about Rs. 10. (in top tax bracket). Thus, it was better for such holders of black money to destroy it rather than return it. This, as per media estimate, was "the money that would never return". These IOUs that never returned would be gains for the central bank. This was quickly rectified with a modified amnesty scheme that said that effective tax rate will be 50% and some terms were imposed.
Government will not get windfall gains it was expectingThis is the most fervently promoted falsehood I have ever seen. I have never read any government press release or any official statement saying the government will gain because RBI will give windfall dividend on the notes that are not returned.
This benefit was claimed by the media and it was false. It showed a lack of basic knowledge of central bank balance-sheet. [Refer to the primer by Bank of England I linked to in my first post.] The nature of adjustment remains on the same side of the balance sheet. There was never claimed to be revenue impact from this activity.
If the government was expecting a windfall from RBI then would the government announce modified amnesty at 50% tax and thus impair its own chances of getting gains.
That said, the fault lies with the government officers and bureaucrats as well. When they speak to the media, anonymously, they fan the rumors about this approach. Some such officials are claiming that RBI Act can be amended by the Government to take the dividend. This undermines the basic structure and legitimacy of the government's initiatives.
[Some idiot will say - maybe they did. Initially, government thought it will get windfall gains, but when former RBI governors challenged that on our channel/ newspaper/magazine, government quickly announced amnesty to save its own face!]
All the currency in circulation will return - so demonetisation has failedThis is another popular argument. If all the currency in circulation comes back, government will not get any windfall and thus costs of demonetisation will outweigh the benefits. Hence demonetisation has failed.
First, if all money returns to the system, it is good. It means there won't be contraction of currency on hand. And therefore those who got scared about deflation would not get scared.
Second, what if money returned is higher than money in circulation? Does it not mean that there were high quality fake Indian currency notes (FICN)? If they come to the banks is it not a benefit of demonetisation? Based on the present run-rate it is possible.
[I want to ask something to the people who were going to give windfall profits to government. The day deposits/exchanges will exceed RBI's currency in circulation figure, will you ask government to pay RBI for those liabilities?]
No benefits for anti-black money initiativeThen there are people saying once all money comes back to the bank there is no gain for black money initiative. Those who created black money will create black money again. Those who converted are sleeping peacefully. So why trouble everyone.
The benefits to black money initiative will be seen only later. But some are evident right away. People moving to cash-less economy is good for black money initiative. Remember, when black money is deposited into banks it is good. It exposes the total money in the system and its ownership. Coupled with laws on benami holdings, it will reveal the extent of black money problem. Note that by alone it won't do anything. But without it black money initiative would not make proper impact. Thus, viewed from black money prism demonetisation is necessary but not sufficient.
[I am happy these people are not in charge of surgeries or some such life-threatening issue. Just after anaesthesia, these people will criticise the doctor that the cancer is not cured. "I can still see the cancer cells growing". They will come out of the operation theater and tell the patients relative - operation has failed. Cancer refuses to die so better let the patient die.]
Black money is not held in cash so exercise is uselessTackling black money is like cleaning a tank. Unless you stop/slow the water pouring into the tank will not empty itself. This is a classic flow-and-stock problem. So best way to tackle black money is to attack the flow problem first. Then stock problem. Demonetisation tackles the flow problem.
Because of demonetisation, the black money will be forced into stockpiles i.e. in bank accounts, in gold, benami assets etc. This is good. The flow needs to stop. Hitting the flow is like shooting at a moving target. Hitting the stock of black money is much easier.
Note that if further actions do not continue, flow will resume and the stock problem cannot be rectified. This tells us what kind of initiatives will come after December 30. They will attack stock problems at critical places.
Government keeps changing the rules, focus on cash-less economy so demonetisation has failedThere is a classic problem involved with government. If they talk too much, their talk is criticised. If they talk too less, their silence is criticised. Government officers have been talking too much. RBI is talking too little. Hence there is a problem for both. Unfortunately, there is no escape for the government or RBI from this. It is a lose-lose scenario.
First, the government has been quite responsive. Asking the government to maintain its stance is foolish. Imagine in Apollo 13, Tom Hanks and crew are calling Houston to help them, but Houston continues to be head-strong. Any exercise of this sort requires nimble-footed decision-making.
Demonetisation is good opportunity to push people into a cash-less economy. And no-one is arguing that it is bad. The argument is that if sole focus of demonetisation was to push for cash-less economy then it could have been done better. But cash-less was not the focus of the demonetisation exercise - no one said so. Read the initial release. It was an ancillary benefit. But it is a benefit nevertheless. Better push it when you can.
Poorly planned initative - hence badThis is a genuine issue. But people attacking poorly planned issue slant it differently.
First, there was no way under any conceived planning model to pre-inform any one of the demonetisation move. The move had to be sudden and out of the blue. There was no getting around that part of criticism.
Second, criticism is at logistics of notes reaching ATMs. Some say the new notes should have been same size so no recaliberation of ATMs would be needed. Now, even if new notes are same size and weight as old notes, ATMs will have to be configured to understand that these are new notes and not old notes. So there was no getting around recalibration too. Could it have been done in advance? No! Otherwise, the information would be leaked. In fact, 2000 note pictures had started appearing before demonetisation was announced.
Shouldn't RBI printed the notes and kept them ready? Well yes. In fact, if you see the timelines, I think the government was aiming for a January announcement. It appears that some news related to terrorists or FICN coming in the country in a big way pushed the government to announce on Nov 8th. This is a legitimate question to ask the government. It is possible that they will share some information once the anti-terror part of the operation has concluded. We will have to wait for that.
A 2000 rupees will help stock black money - hence demonetisation failedWhen the government introduced the 2000 rupee note, people were aghast. This note will definitely facilitate holding black money.
Arthakranti had proposed a 2000 rupee note. Their logic was that if you are repairing an arterial road with lots of traffic you have to give some by-pass. So this 2000 rupee note is a by-pass. They further said that in terms of printing quantity v/s printed value it reduces time to replenish full currency back into the system in half the time of 1000 rupee notes.
I agree with that basic premise. To add to it, think who will use 2000 rupee note. It cannot be used for transacting as it is too big a denomination. People found 1000 rupee note also too big. The reason we feel that is because of metric design system of currency. (from V. Anantha Nageswaran) But I think it is by design rather than by mistake. In a year or two these notes will find their way back to the black money hoarders. Then these notes will be demonetised gradually. That is the reason why there were rumours about microchips installed in the notes. There are no microchips the notes are traceable to black money holders. That is all.
Black money holders are depositing money in Jan-Dhan Accounts - hence failedThis logic is applicable to many such devices black money holders are using to launder money into white. In this process, people with Jan-Dhan accounts are also involved. But more importantly, cooperative banks, small businesses and others are involved in a big way.
We must remember that these acts constitute money laundering. They are also under the purview of benami property acts. The fines and penalties are severe. So once investigations are done we will find the culprits.
People have diedThat, unfortunately, is true. Some people have indeed died. Should they have died? Absolutely not. That is why implementation is receiving poor marks. The government should have set up a task force and convened the meeting via video conference - all bank CEOs, Finance Ministry and others. The government should have pushed them to monitor this like an emergency situation. There should have been End of day recap meeting and things should have smoothened out.
But I personally thought there could have been more deaths. Seriously! And that was why I was against the policy. We are 700 million not counting old and too young. That's more than the entire population of USA. 700million went to the bank in distress and yet no riots broke out. People are not cribbing they are supportive. That number once verified can be debated. But at present, we are talking about 2 people in one crore. Yet, even one casualty is one too many.
Tax terrorismAt the end of the 50-day period, the authorities will unleash a new compliance program. Income Tax (IT) authorities are known to be very unfriendly to the lawful and buddies of the corrupt. IT department is the reason that people have joined the black economy in droves.
Tax reform is absolutely essential. Without tax reforms and reforms of tax departments, we will not tame the corruption and black money monster ever. The initiative has indeed armed this monster. So without reform it will unleash a fresh round of terror. Once victimised the population will be reminded of the pains that pushed them to black economy in the first place. Without this critical reform the political costs of this exercise will be too high to bear.
Chanakya, the person prime minister admires, used to say that governance must BE fair and must BE SEEN to be fair. So also goes a prominent legal doctrine - justice must not only be done but also seen to be done.
I have 100 employees but I cannot pay my employees. This is boat-load of bullshit. A person who has 100 employees should be doing business through banking in any case. If this fellow goes to the bank and asks the bank to open the account for his 100 employees, he will be able to do it quickly. In fact, the benefit of demonetisation is that such fellows will come into the formal sector.
Corporate sector is hurt in a big wayPost demonetisation there has been an impact on demand. People are focussing their spending on essentials. This has hit industry to a certain extent. Yet, there is no reason for high-value goods industry to be affected. Thus, if people are buying cars, there is no reason that should stop. Most of the car purchase was using bank money anyways. Bicycles and Two-wheelers have been hurt.
If businesses are hurt because their distribution chain is cash based then this is no argument. There was no business for this distribution chain to be cash-only if they are paying relevant duties. In fact, these dealers and shopkeepers are a major source of black money creation. Please note that they are not without bank accounts, they are cash-based by choice. That such businesses will come into the mainstream banked economy, is a boon and benefit of the demonetisation.
So what do we conclude
At the end, demonetisation is not a single initiative that will rid India of corruption. The anaesthesia cannot cure this cancer. The surgery is ahead of us. Possibly, demonetisation will insulate the law-abiding people from the pains of this anti-corruption surgery. But corruption has seeped into the character of this country. Every fellow is corrupt as much as his ability, opportunity and self-conscience allowed. In this game everyone is dirty. The system did push people into the black economy. But that has to change.
The example of Georgia is documented in this World Bank Report hold many learnings as to how a corrupt country can get clean. The president of Georgia started out by firing all the traffic police known to be most corrupt. The result is that Georgia went from a poor country to a middle-income country in a short time.
The process of change has begun. How far the prime minister takes us, how successful he is, depends on the next steps. There are workable models, but India will have to fashion its own solutions. India has to take the leadership, forge new paths against corruption.Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".
