Inflation and the mosque

Like the demolition of the mosque in Delhi's Jangpura area, inflation in India has developed into a major political crisis.

The first has brought into play local politicians - the employed, like Sheila Dikshit, as well as the unemployed,  like Amar Singh and Jayaprada, not to mention hundreds of hangers-on. Their reaction to the scene makes me think of ambulance chasers, carrion who descend on a scene of devastation to see what mileage they can wring out of it - lawyers' fees, or political capital.

Carrion are a fact of life, so the essential question should relate to why the devastation was necessary. In a word,  non-governance. If you walk in a city, you can see the way in shrines are grown on public land. They are not built in the way we construct legitimate buildings on land acquired or allotted for the purpose. They begin as tiny, temporary shrines, a stone idol at the base of a peepul tree, on a pavement. Their promoters watch, often for years, to see how much public support they are gathering, on the one hand; on the other, they look for the willingness of enforcement agencies to turn a blind eye to the expropriation of public property. When they find the balance is in their favour, they bump up the permanence of the structure by an order of magnitude. The stone idol now has a home - a few square feet of masonry, clad in the tiles with which we lined our bathrooms, before they came to be seen as down-market.

The expanded shrine now forces pedestrians to climb down from the pavement; not a big deal: you need to do that every few yards for the minister's security chowky, a paanwallah, or a hole in the ground.

The next time the shrine expands, it is done after serious risk assessment - major sums of money are put into it, and political backing is imperative. Without the right backers, your effort would go the way of the first Kochi IPL bid. In its final avatar, the shrine is virtually unassailable. In my view, the court order against the Jangpura masjid is a major triumph of civil activism, of  public action seeking to reclaim public land from private capture.

Politicians have long been used to being the sole adjudicators of such capture - a fact which Sonia Gandhi acknowledged when she asked Chief Ministers to give up their 'discretionary' powers in land allotment. To have their power taken away by the litigation of a pesky residents' welfare association (RWA) is a slap in the face, even if you are Chief Minister who has long preached the value of 'bhagidaari' between her government and RWAs. That's a relationship that is fine and dandy if it relates to removing garbage and cleaning drains, tasks her administration will not perform. But if not if it cuts at land, a major source of her political patronage. In which case, she is willing to jump into the fray, announce that she will have the mosque reconstructed, and risk contempt of court.

And inflation? The seeds were planted a long time ago, and have been continuously watered, by fiscal deficits, populist expenditure, and a lack of political will to adjust prices of fuels, fertiliser and power as their costs rose. By repeatedly misreading economic signals, and deliberately misleading the public about where prices were heading. Small steps taken early in the cycle could have prevented inflationary tendencies from becoming a monster which the government now admits it has no tools to defeat - just as the local policeman could have prevented the first bathroom tiles from being cemented into a structure on which the High Court needs to rule.

Fed Jokes

From a Fed Meeting in 2005*


Planning:
That mixed message reminded me of a story told by Nobel laureate Ken Arrow. During World War II, Arrow was assigned to a team of statisticians to produce long-range weather forecasts. After a time, Arrow and his team determined that their forecasts were not much better than pulling predictions out of a hat. They wrote their superiors, asking to be relieved of the duty. They received the following reply, and I quote “The Commanding General is well aware that the forecasts are no good. However, he needs them for planning purposes.”


Spending:
MR. FISHER. I’m reminded of a story that George Shultz told me about his time working under President Reagan, who was very frustrated about spending. George picked up the phone and called I think it was Sam Cohen and said, “Tell me, Sam, is there really any difference between Republicans and Democrats when it comes to spending?” And Cohen said, “I want to think about it, do some research, and give you a serious answer.” He called back the next morning and said, “Yes, George, there is. Democrats enjoy it more.” [Laughter] “But otherwise there doesn’t appear to be any difference.”


*http://blogs.wsj.com/economics/2011/01/14/fed-laugh-track-can-we-borrow-from-the-greeks/

The Precautionary principle in finance

Neil Barofsky, appointed to investigate TARP (Troubled Asset Relief Program),said “The conclusion of the various government actors that Citigroup had to be saved was strikingly ad hoc.”


http://www.bloomberg.com/news/2011-01-13/citigroup-45-billion-rescue-based-on-fear-of-the-unknown-barofsky-says.html
 
This is an application of the precautionary principle, that applies government fiat against technical progress that might upset the status quo - whether in medicine, genetics or aviation. While US entrepreneurs and innovators are the world's most prolific, the US government is moving in the opposite direction, spending huge sums of tax payers money on trying to preserve the status quo.
 
In the Citibank case, this consisted of 45 bn of emergency infusions, plus government backing of 300 bn. of Citi assets.
 
Putting such enormous sums behind an organisation that had clearly taken excessive risk creates "moral hazard";  as Barofsky said,  "the prospect of additional government relief may encourage excessive risk-taking by executives".
 
Ironically, the same desire to be precuationary has the oppostie effect on technology - discouraging risk taking. This is a perverse outcome of conservatism in government- encourage risk in financial bets, discourage innovation in technology!
 

Dumb bricks or intelligent governments?

A gold bar is no more intelligent than Bernanke, but it tells no lies. It should be apparent by now that George Bernard Shaw was right: "You have a choice between the natural stability of gold and the honesty and intelligence of the members of government. And with all due respect to those gentlemen, I advise you, as long as the capitalist system lasts, vote for gold."

Urbanisation creates forest cover

"According to a 2005 UN report, fifty-five times more rainforest is growing back as second growth in the newly empty rural areas than is being cut down from primary forest."
From the McKinsey quarterly article, Urban Squatters change the world.
http://whatmatters.mckinseydigital.com/cities/urban-squatters-save-the-world?utm_source=quarterly&utm_medium=marketing&utm_campaign=cities_email_1

India will urbanise, and forest levels will not be a problem. What we need to do is to create ownership systems by which the custody of the forests is with those who have an incentive to manage them rsponsibly, not with forest departments.