Bardonomics

Image: Wikimedia Commons Modi has “robbed India of its economic prowess,” writes Rahul Gandhi, leader of the opposition Indian National Congress, in the Financial Times. Prime Minister Narendra Modi does not much care for such comments. He does not much have to: his party maintains firm control of India’s lower house of parliament, the Lok Sabha, as well as a commanding majority in state legislatures. Mr. Modi and his Bharatiya Janata Party (BJP) stormed to power on a promise to galvanise India’s economy with a series of wide-ranging reforms. The two most controversial actions were demonetisation and the institution of a nationwide Goods and Services Tax (GST). This article will analyse the controversy surrounding those reforms, and will also examine a few other key reforms. Demonetisation, Mr. Modi’s dead-of-night decision to take high denomination notes out of circulation, has unexpectedly become a central political pillar of his economic policy. The government’s objectiv...

Photo: SCMP Optimism flows freely through the markets today. Asset prices are at record highs: investors are happier than ever to throw money at barely profitable technology companies, debt issuances from dubious companies and volatile governments, and anything blockchain related—from Bitcoin to Ethereum to Insanecoin, which does actually exist.     Most observers think that the coin mania is a bubble waiting to burst. But bears have been calling the whole market a bubble for a while, predicting an end to the years-long economic recovery and stock market boom. The old joke goes that economists have called seven of the last two recessions. It still rings true. Doomsayers have been convinced of a market crash since the post-recession recovery had barely gotten on its legs. But with things as they are today, are we on a path toward crisis?   I will not engage in the perilous business of trying to predict when the next economic downturn or market tumble will occ...

Photo: Reuters/SCMP It was a pivotal moment in Myanmar’s history, and one that was watched with full hearts across the globe. On November 13, 2010 democracy and human rights activist Aung San Suu Kyi was released after years under house arrest. Her political party, the Nation League for Democracy, won a resounding majority in legislative by-elections in 2012, and eventually came to power in 2015. Her release and subsequent election were highlights in the wave of democratic reforms carried about by Myanmar’s junta, which had imposed on the country a repressive, authoritarian regime.   To the people of Myanmar, and to observers around the world, it appeared that these reforms indicated the inception of genuine, lasting democracy and economic growth in the country. The unforgiving march of reality has tempered the early idealism that surrounded outside observers’ impressions of the country. Myanmar remains in a promising condition, but the country is fraught with potentially...

Photo: Singapore Tourism Board In the mid-1960s, they were overrun by poverty and hopelessly underdeveloped. Within 25 years, their citizens ranked among the wealthiest in the world, and their cities buzzed with life. Among the most stunning economic growth stories in modern history is that of the Four Asian Tigers: South Korea, Taiwan, Singapore and Hong Kong.   All four economies are today robust and highly developed, and although serious economic inequality inevitably persists, extreme deprivation has long since been cast into the annals of the past. How did these four East Asian countries generate such astounding growth? For much of the 1980s and the 1990s, there persisted a consensus view among economists that the growth of these economies could overwhelmingly be ascribed to open economic policies and a minimal role for the government.   With regard to manufacturing—particularly relevant in the East Asian context—neoclassical economists, those with an ideo...

Photo: AFP/SCMP Economists await interest rate pronouncements with a degree of speculation, anticipation and angst perhaps only matched by graduating high schoolers awaiting college admission decisions. And, if I dare extend the analogy, the Federal Reserve and the Bank of England are in the Ivy League of central banks—making their pronouncements particularly large events.   On November 2, in a move that markets had largely predicted, the Bank of England’s Monetary Policy Committee voted 7-2 to raise its base rate from 0.25% to 0.5%. It was the first increase in a decade. Across the Atlantic, the Federal Reserve in America has increased rates four times since the financial crisis, and markets have assessed that there is a 98% chance it will do so for a fifth next month. Its interest rate currently stands between 1.00% and 1.25%.   Why has the Bank of England lagged behind the Federal Reserve in increasing the cost of borrowing? The primary reasons have been a str...

Photo: SCMP Chief Executive Carrie Lam’s maiden policy address outlined a clear, if unsurprising, vision for Hong Kong’s economic future. The economic keystone of Ms. Lam’s policy address was, as expected, housing policy. Meeting housing needs was characterized as the “top priority” for the government. Beyond the dominant theme of housing, Ms. Lam’s economic proposals also included schemes to bolster the competitiveness of Hong Kong’s flagging innovation and technology sector and a reduction of the profits tax for small- and medium-sized enterprises.   Affordable housing has been a perennial issue for Hongkongers. The city is the world’s most expensive housing market, both in absolute terms and in relation to the median income of its residents. As a relatively small place, insufficient land supply is often cited as the root cause of Hong Kong’s high property prices. With its reputation as an intensely dense, urban city, it is also often forgotten that country parks compri...

Photo: Reuters/SCMP This year’s Nobel Prize in Economics was awarded to Richard Thaler, a University of Chicago economist who pioneered the pathbreaking field of behavioral economics—a discipline at the intersection of economics and psychology.   Economists have traditionally eschewed psychology in their models of human behavior, insisting that humans are fundamentally rational. That is to say much of mainstream economic theory is premised on the notion that humans systemically make choices leading to optimal self-benefit, and that all decisions we make can be defended on purely logical grounds.   This assumption has been problematic; many observable economic and behavioral phenomena sit uneasily with explanations grounded solely within the realm of rationality. Of course, the simple statement that humans are irrational does not provide much value to economics in and of itself: models cannot automatically incorporate the notion. For irrationality to be academical...

Image: Wikimedia Commons India’s taxman has a problem. Under three percent of the country’s citizens pay income tax, while the government continues to run a significant budget deficit. Bolstering tax collection thus assumes particular importance in the country. Prime Minister Narendra Modi’s widely criticised demonetisation program, which I wrote about in an earlier column piece, was to a great degree motivated by the aim of increasing tax revenue. The government points to the program as being responsible for a 12% increase in collection.   But with the vast majority of Indians working in the “informal” economy—typically small businesses, self-employment and other such enterprises that are chronically not tax compliant—and many more making too little to pay a meaningful sum of tax, the government has made a concerted effort to boost collection in other tax categories as well. India’s rapidly expanding real estate market has been a prime target. The government levies a sta...

Photo: EPA-EFE Two years ago, things looked dire for Russia’s horse-riding, bear-wrestling, tiger-hunting president. Vladimir Putin’s Russia was teetering. The country had entered a deep recession, its currency had plunged, and inflation was rampant. But how things have changed since then. A recent cover of The Economist featured Putin’s authoritative visage, his figure decked in regal clothing: the new tsar. His country’s economic future is far from assured, but things are looking up, with the country exiting its 2014-2016 recession. In this article, we look back at Russia’s economic and currency crisis.   The ruble’s slide in 2014 began after the Russian invasion of Ukraine, and the Western sanctions that followed it. By the end of 2014, however, the currency’s was plummeting at an alarming rate. At one stage, it was down fifty percent for the year against the US dollar. Moves of even a few precent up or down are considered significant in currency markets.   ...