The David Friedman Interview

I met David Friedman at Starbucks in Connaught Place, the Central Business District of Delhi. Starbucks, which exemplifies the age of aesthetics, tends to maintain consistency in look, feel and attitude across the world. But, its store in Delhi’s premier market reeks of traditionalism, with bare cement interiors, local crafts and furniture. The Connaught Place market, though somewhat dilapidated, is one of the most expensive office spaces in the world. Starbucks, which does not have many outlets in India, bought space here because as per its brand values, it cannot afford to open stores where the catchment area does not justify the investment. The young men and women who listened to Friedman consuming expensive retail space without consuming the expensive coffee epitomize India’s leisurely café culture. It is hardly surprising that Starbucks does not have many outlets in India.

Economist David Friedman is one of the most creative minds of our times. Friedman studied Physics at Harvard and Chicago, and has never taken a course for credit in economics or law. But, the finest of minds vouch that Friedman’s class on legal systems is the best economics course in the world. David Friedman is the son of Milton Friedman, the 1976 winner of Nobel Prize in Economics, and economist Rose Director. Rose Director was the co-author of Milton’s best-selling book, ‘Free to Choose’ and sister of economist Aaron Director who was instrumental in the development of the Chicago School of Economics.

Read the whole interview here.

In Defense Of The Passive Citizen

05TH_NOTA_1777943fWhen an auto rickshaw driver in Karnataka ferried people to the polling booths for free on the Election Day, the media called him a great philanthropist. But, is it self-evident that it is a virtue to vote? 

The mainstream media celebrates the phenomenon of the people who do not even know their own age registering their opinion on complex policy matters. They are, after all, eager to vote. The underlying logic is irrefutable: “If ignorance does not stop the passengers from pushing the buttons and pulling the levers of the air craft, this must be noble. At least, they are doing something.” 

But, it is not hard to understand why the admirers of democracy love greater participation. It fits in well with their vision. Their heart lies with the real India waiting to get in, but is still being kept out by the elite. They think that ordinary masses will not go away. It might be their only hope, but they have something called the vote which will humiliate their betters. The Day of Judgment will come once in every five years.

While the middle class and the rich are busy partying, they will march to the polling booth in hordes and push the button, throwing all the rascals out. It would be quite an inspiring sight! 

This is quite a vision. It is also a vision that never materialised in its full glory. Or, perhaps it did, in an ironically grotesque manner. Lalu Prasad Yadav once said: “From a buffalo back, I have landed into the gut of a helicopter. This is democracy.” It is not open to argument whether he was right. What is open to argument is whether this can be considered a merit of democratic politics. 

Read my column in DNA.

Learning from the inflationary mistakes of the past

As usual, inflation targeting began in the United States. In 1971, the US cut the link between the dollar and the Gold. Soon other countries followed suit. Inflation started rising to unprecedented levels in the US and the other industrial nations. Like in today’s India, the inflation of the 70’s was blamed on the rising oil prices, and various external factors.  Like in today’s India, many economists had believed that with rising inflation unemployment would fall. Low growth was also associated with high inflation. But, in the 70s, with high inflation, growth fell and unemployment rose.

In 1979, the Fed decided to have monthly target rates for the growth rate of M1. (M1 consists of the public’s holdings of currency and the checking account deposits in banks and other depository institutions) In 1971-81 period, the inflation in the US was in double digits, but, something changed after that.For close to three decades, inflation in the US was steady, but historically low. Fluctuations were mild till the ongoing global slow down. This is historically unprecedented. In the 70’s and 80’s, inflation in New Zealand was higher than in other OECD countries. In 1988, the CPI inflation in New Zealand was 9%. Inflation targeting began in 1990, and by 1991, the inflation was down to 2%. Inflation and output volatility declined. By 1994, New Zealand was among the fastest growing OECD countries.  In the financial year 2012-13, prices fell in New Zealand, month after month. It was so remarkably successful.

Read the whole article in the Business Standard. 

Cash Registers For Hearts?

“Doing charity is intrinsically difficult. Steve Jobs once said that he is not deeply engaged in philanthropy because there is no measurement system—-It is very hard to measure whether you have succeeded or not. But, according to the Bain and India philanthropy report, 80% of the individuals and 90% of the NGOs are satisfied with the efficacy of their philanthropic activities. Many economists think that this is because people often donate for the “feel-good” factor, and prefer to believe that their money goes into the right causes. “

“And, charity will never be sufficient. Economist Jagdish Bhagwati once said that an outright redistribution of wealth would only increase the food consumption of the poor by one chapatti a day. Some economists have estimated that sharing the total wealth in developing countries would leave its citizens with a few dollars a day. It is clear that charity will not solve the problem of world poverty.” 

Do read the whole article in the Business Standard:  Do Indian businessmen have cash registers for hearts?