1/ Very interesting thread on Colombia (pop. 52 million) wanting to restore basic industries and jobs and restore balance in their external trade.

Is it possible? Yes. There are some trade-offs (!) they would have to make but their goal is doable. Let's look at the trade-offs.

https://twitter.com/michaelxpettis/status/1657116393924624384

2/ The most critical trade off is this. Consider the iPhone, which I will use as code to represent "goods with the most sophisticated tech available". If Colombians want to buy a lot of iPhones, they may not have enough exports to pay for them and achieve trade balance.

1/ I will summarize my concerns about AI. I won't focus on the technology itself but on the economic consequences.

First of all, if AI were to eliminate all jobs, it means AI is able to produce all the goods and services humans need and want without human labor. 2/ The air we breathe is free and we don't complain about it, so if a future magical AI were to produce all the goods and services free of human labor, it need not be bad for us. The real question is "how do we pay for those goods, because there are no jobs and hence no income".

1/ The Credit Suisse crisis demonstrates yet again the extreme fragility of the global financial system, caused by decades of central bank madness, with endless QE distorting financial markets & the real economy beyond recognition, causing massive inequality & other social ills. 2/ This hyper-financialized regime of debt driven "growth" cannot be sustained. The problem today is that global policy makers, particularly central bankers in the developed world, know no other play book than yet more QE and curing extreme debt with yet more debt and bailouts.

1/ With vicious personal attacks and slander on my character, it is time for me to respond.

This is a deeply painful personal thread. My personal life, in contrast to my business life, has been a long tragedy. Autism destroyed our lives and left me suicidally depressed. 2/ My wife Pramila and I were in this fight against autism for over 15 years. She is a super mom and her passionate cause is curing our son of autism. I worked hard along with her. To ensure his safety I also took some of his treatments so I could know what they did to him.

1/ Rural Hindu society increasingly runs on the shoulders of overburdened women. Alcoholism among men and loan sharking are causing enormous suffering. Men feel trapped in these vices and all too often choose suicide in despair.

These problems have to be addressed holistically. 2/ As a first step, our media and elites should not promote a drinking culture.

I have emphasized to our employees that drinking may be their private choice but as a company we frown upon public displays. I frequently warn our people that public drunkenness will get them fired.

1/ How can India produce globally competitive companies like Apple, Google, Pfizer, Samsung, Honda, Boeing, Siemens, TSMC or Huawei?

Why are these companies so important to their host nations?

Is India on a path to producing these companies?

I will explore these quesrions. 2/ First let me answer the "Why" question. These companies are extremely important to their host nations because they embody within themselves the advanced know-how and R & D capabilities essential for modern life and nationhood. Most critical R & D happens within such companies.

1/ One argument advanced against freely tradable import credits whose total quantity is tied to total exports is that it takes us back to License Quota Raj or that it is "socialist".

In fact, its purpose is to mimic the gold standard so that our foreign debt is kept in check. 2/ The gold standard is useful precisely because gold is scarce. Scarcity is the essence of being money. Bitcoin limits the total quantity of Bitcoin that will ever be mined.

The essence of the market mechanism is to allocate scarce resources.

Import credits work the same way.

1/ When Warren Buffett proposed balancing US external trade by introducing the idea of freely tradable import credits whose total quantity is tied to export volume, economists dismissed it. That was in 2003. The US runs a far bigger trade deficit today & is in worse shape now. 2/ Let us review the primary argument the economists made and often still make: the trade deficit is merely a reflection of the fact that foreigners have a huge demand for US assets, and that reflects the strength, safety and liquidity of US financial markets.

1/ India imported 31% more from China so far in 2022 while exporting 36% less.

Chinese economy is so structurally distorted, it can only produce and not consume. As a recent example, they ran factories during lockdowns but closed shopping malls.

What can India do?

https://twitter.com/michaelxpettis/status/1587837616808132609

2/ If India passively accepts China's structural distortion, we risk heavily distorting our own economy to consume without producing and that would change our jobs mix towards token distribution jobs whose purpose is to create income to consume imported goods.

We must resist.

1/ GDP accounting like below raises a serious philosophy of measurement issue. Over many decades, US economy has structurally adapted to consume, which means that *a part of what we think of as investment is to enable consumption of imports*. Think of ports, warehouses and ...

https://twitter.com/svembu/status/1587304556806873088

2/ ...then there is also over-consumption of housing, in the form of ever larger houses even as the number of people per household declined. House construction is counted as investment but it promotes more consumption of household goods, often imported & more energy to heat/cool.

1/ WEF asks "Why are young people not preparing for the jobs of future?"

As someone involved in both basic schooling & advanced skill development, this is my perspective.

First, we need a strong focus on basics: Reading, Writing & Arithmetic, the 3Rs.

weforum.org/agenda/2022/10… 2/ At the elementary and middle school level, we need a strong emphasis on the 3Rs. Digital skills come later.

A degree of memorization, such as multiplication tables or reciting poems is necessary. Memory power - holding and processing a lot of ideas in our head - is vital.

1/ India's thinking is dominated by English, which means it is shaped by what goes on in the US and UK. I will explore some consequences here.

First let's come to economics. Both the US and UK are highly financialized, "post-industrial" or "post- manufacturing" economies. 2/ US/UK run massive trade deficits in manufactured goods & export services (intellectual property or financial services) to partly balance the goods deficit, but the resulting net trade deficit is still huge and has kept growing.

How do they pay for this ever-growing deficit?

1/ I spent over 4 years in my PhD deep inside mathematical models of wireless systems. It slowly dawned on me that the professors were addicted to the models themselves and never entertained any doubts about whether the models had much to do with reality. 2/ Over time, the entire purpose of the models evolved so as to allow us to publish cute theorems & win grants, awards & coveted tenure! I saw this trend everywhere I looked in academia with very few professors immune to the pull of models increasingly detached from reality.

1/ It is worth understanding why the US has persistent skill shortages, even during periods of high unemployment: the US economy is structurally distorted so badly due to years of bad policy that most talent goes to "token distribution jobs" which distribute claims on imports.

https://twitter.com/d_jaishankar/status/1582368413883961345

2/ For a talented young person in the US, jobs in finance, law, marketing and real estate brokerage pay much bigger wages (tokens!) than being semiconductor engineers/technicians.

Anyway all the chips can be imported from foreigners willing to take treasuries and dollar claims.

1/ Rajan echoes the conventional-economist thinking that focuses on efficiency gains from trade and totally ignores resilience and the benefits of a diversified jobs mix in a region. As an example, a bright kid in Tenkasi wanting to build planes today has to migrate out of India.

https://twitter.com/cvkrishnan/status/1582231724137713665

2/ Rajan would argue "Let's make labor mobile across countries so the Tenkasi kid can migrate to where planes are built" and that ignores unmodeled costs of uprooting people, such as elderly people left behind.

Their models also have no place for culture, community and so on.

A/ It is extremely important that thinking people grasp the basics of our modern global monetary system. What you do not know can hurt you. Here is a very basic outline.

1. Nations export to the US and receive dollars.

2. Nations export to nations that export to US. B/
3. After step 2, dollars start circulating globally and don't need to come back to the US to claim goods/services or assets.

4. Global banks start creating more dollar assets and liabilities, based on the "real dollars" that arose in trade with the US. Very important step.

1/ In this thread, I will contrast two forces: clustering or agglomeration effects that result in a large cities getting larger. Then there are economies of scale that favour large factories vs small factories. These forces are different and can even be opposed to each other. 2/ An economic cluster is a group of firms in a particular industry specializing in various areas, that work together to create finished goods. The classic example is Tirupur textile industry where firms specialize in spinning, knitting, dyeing, garmenting and so on.

1/ Thank you for starting this debate Sanyal-ji. Let me present some evidence to show per capita infrastructure costs go up with population as we get to larger cities.

Tokyo is the largest metro region in the world (population of 36+ million) and I will start with that.

https://twitter.com/sanjeevsanyal/status/1567406832519610368

2/ Tokyo is the world's most expensive place to build in terms of cost per square meter. We can convert that to cost per person as well and that is my first piece of evidence that per capita costs rise with population as cities get large.

forbes.com/sites/niallmcc…

1/ I talk about the toy models of macro economists. Here is an illustration. This toy model of inflation vs unemployment does not capture demographics, does not capture the effect of foreign trade on inflation (US inflation was kept low for decades by China suppressing wages)...

https://twitter.com/paulkrugman/status/1566056460315942912

2/ ... and many more such parameters that influence inflation. Krugman himself failed to see "supply chain constraints" as a parameter (not part of his toy model!) so missed the 2021-22 inflationary surge.

You can draw dangerously wrong conclusions with these toy models.

1/ NYT has the story of a teenager who was prescribed 10 psychiatric drugs and how this practice has become widespread.

Doctors became protocol pushers, giving up common sense & clinical judgment and that is the outcome of the "evidence-based" religion.
nytimes.com/2022/08/27/hea… 2/ In medicine, the dogma of "evidence-based" parallels the similar dogma of "data-driven" management in the business world. Both dogmas ultimately arise from the metrics obsession where metrics become targets, and that goes back to the dogma of logical positivism in philosophy.

1/ As a critic of Prof Panagariya's free trade theory for development, I will present the opposing case here.

My critique has 3 parts:
a) debt driven trade is not free trade
b) technology & production know-how are not tradable
c) cross-border migration

Lets start with debt.

https://twitter.com/APanagariya/status/1530911716128735232

2/ The present regime of "free trade" is more accurately described as "trade that causes extreme debt imbalances due to infinitely stretchable monetary instruments".

In no sane monetary regime would Sri Lanka have been able to accumulate over $50 billion of net foreign debt.