Monday, June 22, 2009

The lost horizon of the emperors -- Vaidyanathan

jun 21st, 2009
 
the good professor pulls no punches! not even 'damning with faint praise'! he tells it like it is. take that, yanks!
 
although i would have used (as i have in the past) angus maddison's statistic for 1750, when india accounted for 25% of world GDP, and china for 33%.

---------- Forwarded message ----------
From: Vaidyanathan R

Dealing with declining Empires

 

____________________________________________________________________________

R.VAIDYANATHAN                                                         

PROFESSOR OF FINANCE                                             

INDIAN INSTITUTE OF MANAGEMENT                   

BANNERGHATTA ROAD

BANGALORE

INDIA_560076 

The lost horizon of the emperors 

By R Vaidyanathan 
21 Jun 2009 11:27:00 PM IST

AT every seminar on financial matters these days, there's one question that lingers — even during the coffee breaks: will the economy recover, and when? And, it isn't about the Indian economy but that of the US. I reiterate it will take at least 40 quarters — that's a decade — for America to recover. I tell this, and am shunned — like a swine flu patient.
I still maintain the US is going the banana republic way what with a national debt of more than $10 trillion, which is more than 80 per cent of its national income. Not only that the budget deficit is skyrocketing; it's expected to reach more than 10 per cent soon. Last year, the US financial regulatory agencies came up with plans of financial support worth $6.8 trillion — comprising temporary loans and liability and asset guarantees. And by the third end of the first quarter of 2009, the financial support programmes reached $13.9 trillion.
The federal deficit as percentage of GDP is now expected to reach more than 10 per cent. There will be furious printing of more treasury bills and notes. The expected inflation is going to rip apart the society and the largest selling item in the last quarter was handguns and rifles. Already intriguing reports have come about attempt to smuggle more than $134 billion in treasury bonds by two Japanese citizens through the Italian border into Switzerland. It could be a ploy by CIA or really a daredevil act by some foreign government to destabilise the global financial system. I am waiting for the creditrating agencies like S&P to downgrade the US economy like other developing countries and prove their independence from the sole superpower. High hopes. Angus Maddison in his pioneering work for OECD on the global GDP share for the last 2,000 years has brought out an interesting fact pertaining to India and China. As early as the 1820s, China (33%) along with India (16%) and other Asian countries had a share of more than 55 per cent in the global GDP. By the late 20th century, it has declined to 29 per cent. The China percentage slid to 12, India's to 5.
In the next 20 years, India should plan to have a share of at least 30 per cent of the global GDP. These imply that India should be racing ahead. If India grows at 8 to 9 per cent in the coming decade, then it can become the world's third or fourth superpower.
But it also implies that, parallely, the West should decline in terms of their importance in the share of global GDP and world affairs.
Since the total is 100 per cent, any increased share for India and China would automatically reduce that of the other two.
Unlike the Great Depression of the 1920s, the current crisis for the West is not just an economic crisis. It has a dimension of demography and conflict (ongoing war with radical Islam) to it. Demographic, because Europe is slowly fading away from the global map. It used to have more than 20 per cent of the global population during the First World War, and now has less than 11 per cent. What's more, it's expected to shrink to three per cent in as many decades.
The reproductive rate in many European countries is less than 1.5, whereas the stable one is 2.1. In the case of US, the crisis is more severe due to its declining savings rate and a long-term tendency to nationalise families and privatise government.
Social security and Medicare system in US is classic case of nationalising families.
Such a declining Empire is dangerous to deal with. To start with, it does not want to accept the fact that it is a declining Empire.
Plus, it wants to retain its sole power status when it realises that its writ does not any more hold good. It tries to bully India.
Whenever a US official visits India, the beards in J&K become more active. Remember Robin Raphael of the nineties vintage who propped up the Hurriyat Conference? India recalls with anger the role Robin Raphael played during the Presidency of Bill Clinton in encouraging the formation of Hurriyat Conference, the umbrella organisation of moderate terrorists and terrorised moderates. Her only name to fame was she studied together with Clinton. When Hillary comes to India, the level of violence in J&K will increase. I wish someone in foreign office in India plots the correlation between visits of US officials and mob frenzy in the downtown Srinagar.
The declining empire realises that its elbowroom is becoming lesser and lesser with the Pakistan army that owns and controls a country. Islamabad always has a peculiar way of coming to discussion on any issue.
They keep a gun on their own head and argue with others. That is, they always threaten others with catastrophe if money is not given to them. This is the most sophisticated begging anywhere you can see in international relations. Bribing them won't stop the plotters against the "US Satan".
The next thing the declining empire does is to cringe and appease. The speech by Obama in Cairo is of that variety. He ascribed every human scientific endeavor to Islamic civilisation. Forget the Hindus who invented zero, forget Ptolemy and forget Copernicus. Just rewrite history. The third thing a declining power does is to pressure others to sacrifice on its behalf to buy peace with bullies. It cannot deal with radical Islam and if the ISI (that is what is critical — not the ten per cent Zardari) needs to be appeased with a piece of J&K, then the US will try to arm-twist India.
Herein comes our ability to understand declining powers.
We must internalise that US is a declining power and our bureaucrats must chant it hundred eight times on a daily basis. We should also remember that USA is very uncomfortable in dealing with democracies.
It's natural ally is always a dictatorship since they can be "use and throw" friendships.
Dealing with democracies is messy since they talk about a domestic constituency and behave similar to USA. A mirror image of itself is unacceptable to "sole super power". As India continues to grow at more than 8 per cent — and simply due to the power of compounding emerges as a major power — the desperation of the declining power will be more since our terrorist neighbour who has a the largest begging bowl and highest per-capita AK-47s will blackmail the declining power to appease him to keep peace.
What is in Indian interest is the continuation of civil war in Pakistan for, say, another ten to twenty years — ambient conflict — sort of auto-cannibalism which will be a dynamic disequilibria — situation.
Other option is to have at least three or so states created out of that entity. The concept of stable Pakistan is passé and a mirage and that should be unequivocally communicated to the declining empire.
Remember the last century. The declining British Empire — now it is the sick child of Europe but still with a grand illusion of influencing Indian sub-continent — created havoc by partitioning the land. The current declining empire may be tempted to do something rash to protect itself. And therein lays the challenge for our political leadership and mandarins. Dealing with a declining empire is more difficult than dealing with a stable empire.

http://www.expressbuzz.com/edition/print.aspx?artid=zHjiEhUwlVY=


6 comments:

Ram Lakshmanan said...

This is a good example of a badly researched effort. Consider this:
a) The author says, "In the next 20 years, India should plan to have a share of at least 30 per cent of the global GDP. These imply that India should be racing ahead. If India grows at 8 to 9 per cent in the coming decade, then it can become the world's third or fourth superpower." 30% of current global GDP would be $24 trillion, a number that is mathematically IMPOSSIBLE for India (or China) to achieve!
b)Could someone explain this amusing statement (even after ignoring the bad English!) "Social security and Medicare system in US is classic case of nationalising families" - what the hell does that mean? :)
c) "It will take at least 40 quarters ... for America to recover" - based on what? Numbers, logic, intuition, or just an itch in the rear-end?

In his urge to hyperventilate, the author has thrown logic, research, coherence and several other factors to the wind. What a rambling and uneducated piece! No wonder people shun him!

Anonymous said...

Ram:

It is your response to the article that actually displays your igorance. Prof. Vaidyanathan has actually delivered a very apt message in his article.

You said: "Social security and Medicare system in US is classic case of nationalising families" - what the hell does that mean? :)

In the US Government interferance in family matters has now become the norm. Where a family would extent support to an indivisual in need, the government has instead stepped in. In the process it has weakened family bonds. People are no longer obligated to care for the elders in the family and the government has promised to care for the entire elderly population. This is a huge liability that the future taxpayer cannot afford. It is unsustainable and will result the US economy to have the Same consequences as General Motors. It is definitely a valid reasonong.

You Said: "It will take at least 40 quarters ... for America to recover" - based on what? Numbers, logic, intuition, or just an itch in the rear-end?

You obviously have no idea what is happening in our world today.

YOU SAID: a) The author says, "In the next 20 years, India should plan to have a share of at least 30 per cent of the global GDP. These imply that India should be racing ahead. If India grows at 8 to 9 per cent in the coming decade, then it can become the world's third or fourth superpower." 30% of current global GDP would be $24 trillion, a number that is mathematically IMPOSSIBLE for India (or China) to achieve!

I dont think it is impossible. In fact given right policies (not the populist policies of the congress government) it should be certainly achievable.

If you cannot understand the facts I just stated, you are spending too much time reading bull shit in the TOILET paper and watching garbage on NDTV, CNN/IBN.

Julian said...

Ram it's obvious what nationalizing family means in the context it was used. It means gov't taking over what was once family function, in traditional cultures it was the kids who took care of their parents in old age, social security replaces these family bonds. Do you think it is a coincidence that things like divorce, single motherhood skyrocketed with the rise of the welfare state combined with feminist inspired garbage like no fault divorce laws among others?

Go through this article for more info:

http://mises.org/article.aspx?Id=1406

Unlike the author I don't see US recovering, as Jefferson said (paraphrasing) "it is the natural order of things for gov't to grow & liberty to yield" and the US gov't will only get bigger.

nizhal yoddha said...

this "ram" person -- and i am seriously considering summarily deleting comments by new posters who have hidden their blogger pages because i believe this is a back-door way for anonymous posters to rant and rave -- is probably one of the people i have kicked out of this blog. they periodically reappear with new ids for reasons best known to themselves.

anyway, most interesting that "ram" has decided that "people shun him [professor vaidya". so who is are the "people" who "shun" vaidya? and how did "ram" arrive at this conclusion? lo and behold, "ram" pulled it out of his nether region!

and this is a person who attacks others for lack of logic.

weak, weak. can you say, "hypocrisy", "ram"?

Wildcat said...

Regardless of what "Ram" says, the symptoms of an empire in decline are quite visible.

1) The abysmal educational standards of the average American.

2) Refusal to change with the times. (A small example is the insistence to stick to the idiotic feet, inches, pounds, miles and gallons, and expecting the rest of the world to follow suit).

3) Arrogance vis-a-vis the rest of the world, esp. the up-and-coming Third World types. You snub somebody today, then don't be surprised at his schadenfreude when you are in trouble tomorrow.

4) America became great due to hard work, thrift and freedom. Hard work today? The American worker is perceived to be less productive for every dollar spent on him. Thrift? The national debt in trillions and only the Indians, Chinese and Jews appearing to have any love for saving up. As for freedom, the overly protective State has become too damn nosey in private citizens' affairs, so where's the much touted Liberty?

Only the pursuit of happiness seems to hold any meaning, and how does one go about it with a bad economy?

However, I wish they came out of this tailspin somehow because the kafir world will have to face the Islamo-fascist threat unitedly sooner or later.

Unknown said...

Can Prof Vaidynathan shed some light on how India will maintain 8-9% growth for the next 30 odd years? I remember a time when a large population was seen as a liability , now a large population is seen as an asset. We might come back to revise this conjecture if growth slows down to 4-5% with unemployment spiraling upwards.