Random Thoughts

Its All About Jobs Baby

2011-11-27T16:53:00.000-08:00

Two contrasting set of news are buzzing in the media this week. There is no immediate drop in the US unemployment rate (still at 9%), and the long-term unemployment rate might replicate that of Europe’s. On the other hand there is huge demand of skilled labour in certain sectors and jobs are becoming difficult to fill.

If recent trends in the unemployment rate are to be believed, US joblessness will be similar to that if Europe’s with high rates of long term unemployment, youth joblessness and generous social programs etc. Typically US companies’ hire and fire approach go along with the business cycles but the rebounding rate in the last few years had been very sluggish. There were simply not enough jobs created in the last two decades except for the technology and housing boom of the late 90s and the early 2000s. While the technology sector requires skilled workforce and has somehow rebounded in the last two years, jobs in the housing sector have disappeared for good especially with no real growth in construction and new infrastructure investments. The bottom line is that our less skilled workers with very little college education who were engaged in the real estate or housing market are finding it difficult to find jobs elsewhere.

The technology sector is going through a job boom - a stark contrast to the malaise of the general job market. According to Bureau of Labor Statistics report in July, 2011, the unemployment rate for tech professionals dropped to 3.3 percent, from 5.3 percent in January. Talent search in the tech industry had never been easy but its getting more and more difficult with the tighter immigration restrictions and higher fees in this economy. The increasing competitiveness in the tech sector between Google, Amazon, Facebook, Groupon etc. had make tech jobs more rewarding where the supply isn’t always meeting the demand. There are other sectors such as manufacturing where the demand for skilled labour without any college degree is still high. A recent survey by Delloite found out that 83% of manufacturers reported a moderate or severe shortage of skilled production workers to hire(http://online.wsj.com/article/SB10001424052970203707504577010080035955166.html?mod=WSJ_economy_LEADStoryTop). Skill mismatches are a part of any structural unemployment issue but aging baby boomers, lack of training and vocational programs in the last decades, the boom in the housing sector with well paid jobs with very little technical or academic skills have made the turnaround very difficult.

Road Ahead

This is where I think the Wall Street protesters have a very strong point. No civilization can progress without the progress of its bottom 99%. The recent protests all over the country has gained momentum and can get bigger and bigger if we don’t address our structural problems of the “Haves” and “Have-nots”. We simply cannot mindlessly get into the mode of profit, shareholders interests without a full social long term commitment for improvement in education, skill and training. Government cannot be the solution for all possible cases but it can definitely be the enabler and the enforcer of such solutions. More than the mindless financial regulations, we need a progressive redistribution of wealth and income to invest in better education and training programs to make America fill those thousand and thousand of jobs in technology, manufacturing and energy sector and create many new jobs.

Summer Getaway up in the Adirondack Mountain

2011-08-11T06:19:00.000-07:00

So finally after much deliberation we decided to take some break from our busy lives last week. We wanted to move away far far away from the city life. Ended up exploring the Adirondack, Lake Placid region.

As we took the train from Albany to WestNewport, we started noticing the beauty of the green with its slow countryside settings. We slowly got into the slow pace of life. Upon arrival, the beauty of the village and its neighbourhood blew our mind. The first sight of Lake Placid was absolutely breathtaking.

It's the clean, crisp mountain air that filled up our lungs, so need to close our eyes and inhale as much as we could :-). As soon as we checked in our Inn, we could smell a distinct smell - its the woodsy scent that this entire region has - one wonders if there was a way to bottle that air! And with that smell comes the serene tranquility from the lake and the surrounding village.

But this mountain village isn't the only attraction. Lake Placid is also famous for all kinds of winter sports and its an historic Olympic village which hosted Winter Olympics in 1932 and in 1980. The place hosts important sporting events such as international Ironman Triathlon, International Horse shows and a major destination for Olympic athletes training. On our way back Bob the cabbie showed us one of the grandson of the Secretariat ( American Thoroughbred racing legend )

Key Activities

Kayaking, sailboating, paddle boating, swimming, hiking and biking around the mountain region. Do not miss the Olympic Center Museum! Or if you just want to do nothing, grab a seat along the beach, lay down with one of your favorite books and enjoy the beauty of the mountain and the lake.

Real Estate

Most properties along the lake area starts from a million. Some of these are dependent on the summer rentals, camping etc. others are pure family getaways. So if you are a pure nature lover and has some cash handy, you know where to look out for.

Facebook Activism - Is it for real ?

2010-10-10T18:36:00.000-07:00

Last week my attention was drawn to the NewYorker magazine article titled “Twitter, Facebook and Social Activism” by their staff writer Malcolm Gladwell. The main issue is the increasing level of social activism through nonconventional methods such as social network groups through Facebook, emails etc. More than activism, it is the increasing level of participation of certain groups for a common cause which requires faster mobility and consensus formation in no time. Wikipedia says that any intentional action seeking to bring about changes in social, political, economic or environmental etc changes can be called Activism. Often the forms or shape of Activism are in boycotts, sit ins, letters, forming groups etc. but in this age of internet where communication is vastly popular, unorthodox methods of activism is taking shapes through various social networking groups. The social networking ties are often weak and decentralized in nature. People don’t know each other or may have weak connections through friends of friends of friends and so on. Is it always possible to gather momentum or form consensus through social networks? In other words, are we entering an age of conscious liberal social activism free of any hierarchy through internet networking? I am interested to know what you guys think with special reference to Facebook. Please take a moment to complete the survey below. Thanks for your time.

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Back To School - Fall 2010

2010-09-24T17:29:00.000-07:00

On Science and Religion

2010-09-06T16:24:00.000-07:00

In his bestselling book, “The Brief history of Time”, Stephen Hawking mentions about the famous scientist philosopher Bertrand Russell’s remark defending his atheism on what he would say to God “Why did you make the evidence of your existence so little”. The celebrated scientist Hawking in the “Brief History” argued that may be there is a role of God in creating our universe. However, the same Hawking with his co-author Leonard Mlodinow in their latest book “ The Grand Design” argue that recent advances in cosmology suggest that laws of gravity and quantum theory allow the universe to appear spontaneously and doesn’t necessarily require any “grand designer”. No doubt this will open the forum for more counterarguments and debates. The question is do we really need to bring God in Science or vice versa?

Hawking is right. Many theological and mythological ideas that the universe was the work of god to accommodate mankind and to support the other complex structures cannot be the answer of modern science. Scientific knowledge and its explanation are very specific and technical in nature. It requires years of training, sound mathematical knowledge, narrowed focus and clear observational power. Religion on the other hand is a belief, a way of life, not limited to certain groups or individuals, less complicated if supported by strong belief and more profound and widespread than science. While scientific knowledge is based a set of hypothesis in the causes and nature of things, its explanation and predicting its future, religion is mostly based on factual analysis, historical claims, personal experience and strong faith. Although we have made huge progress in the field of medical science, physics, astronomy etc. we cannot fully claim that modern science has reached the stage of its absoluteness in defining or explaining any events or for that matter correct prediction of future events. Therefore, there is no clear winner on either side.

The selective criteria to prove the existence of God is different for religion and science. For a religious person, the beauty of the nature and its miraculous activities everyday are more than sufficient to prove God and its existence. But for a scientist like Bertrand Russell that’s not enough. Scientific proof requires certain axioms, testing, empirical evidences and many more validations. Just because the religious believers think what is sufficient for him doesn’t always make them irrational or unscientific. Lack of evidence cannot always be judged as non-existence of evidence. Similarly, presence of evidence may not always be sufficient to prove anything as it could purely be contextual and lack in generalizations. Therefore the relative nature, experiences and their processes of both the streams of knowledge are neither absolute nor authoritative.

This is however not to iterate that science is limited or religion is for the weak-minded irrationals. Proper respect and full adherence to the practices of both the subjects should be maintained and basic standards should be followed. This will allow mutual understanding of each other’s perspectives and bridge the gap between science and religion.

Sholay - The Magic Continues

2010-08-20T05:36:00.000-07:00

Celebration time in the Indian Film industry as the magical “Sholay” completes its 35^th year. Lots of articles, interviews of stars appearing in all the leading Indian newspapers where nostalgic reminiscences rekindling the memoirs of the great movie. Without knowing that Sholay is completing 35 years of unabated public attractions, I was telling my wife the other day that we should watch Sholay atleast once in every six months. I received a lukewarm response from her similar to what the movie perhaps received during the early days of its release. So I have a task at hand convincing where is the magic of Sholay?

The first time I heard about Sholay was through my classmate in the first standard who was all in awe of that movie and especially the character “gabbar singh”. Having heard similar euphoria from my uncles and aunts, I went to watch Sholay in 1984, 9 years after its first release. If I remember correctly, Sholay used to be released at least once in a year in the 80s and almost all shows used to go full house. Since then, I may have watched sholay atleast 9 times and each time I have enjoyed the movie more than ever before. So what it is so special about this movie and what made it the most successful movie of all time in the india film industry. Sholay has all the ingredients including classic acting, smart screenplay, brilliant actions and crisp editing – perfect recipe for a blockbuster; but more than that sholay will be remembered for its plots and subplots with small characters drawn with detail and completeness that made sholay so unique. There were plenty of small characters whose oneliners are still the folklore of millions of Indians who grew up watching Sholay. But is that all ?

No. A movie which received a lukewarm response in the first few days of its release turned out to be the greatest blockbuster ever. The response was so bad that the producers and directors thought of reshooting the end of the movie and bring the character Jai played by Amitabh Bachan back to life. It was thought that public sentiments went against the death of Bachan who had a smilar fate in one of the recent release “Diwar”. So what really made the public go back to the theaters ?

In August 1975, a young hyderabadi went to see Sholay with his brother during the first week of its release. The movie didn’t appeal to the brothers and like many others thought it was one of those multistarrer average hindi movies. Three days later, in an Iranian café center he over heard some young guys talking about how Veeru, one of the central characters threw the lucky coin and how distinctly it sounded in the stereophonic sound system in the 70mm movie theater. Having unnoticed the stereophonic effects, the hyderabadi went on to see the movie in one of the better theaters which was playing the movie in 70 mm screen with stereophonic sound system. At a later stage Ram Gopal Verma made many good movies like Satya, Rangeela etc. but the effect of the stereophonic sound and the essence of other small yet significant aspects of sholay started to uncover before his eyes after many many screenings. Indeed the word of mouth helped to spread the message how good a movie sholay was but more than that a social epidemic likes this which would carry on for more than 35 years require more explanation than word of mouth factor.

In social epidemics, there is involvement of people with some particular and rare set of social gifts. The guy in the café spoke distinctly about the effects of the stereophonic sound which was introduced for the first time. Ram Gopal Verma didn’t know this guy but he must have carried his message so effectively that it convinced Verma to go for the movie for the second time. My friend Kunal Sharma from the 2^nd grade was not great in solving math or remembering dates in history. But when it comes to movies, he could recite dialogues and act with equal ease. One day during lunch time, he showed me how Bachchan threw the last bomb towards the dacoits and ignited it using his pistol. I used to be mesmerized by this quality of his and always trusted his judgment on movies. Yes, even at that age. The stories of the Kunals are everywhere, we find the rare ability to convince but they know what type of message to convey. Law of six is a commonly known practice in advertising industry. It basically says that it takes a minimum of six ads to make people get interested in the product. But Sholay was released when there were no television ads, perhaps only dependent on 4/4 or 6/6 wall posters. The word of mouth factor turned into a social epidemic when we had characters like the guy in the café and Kunal, my friend. They are the “Connectors”, Mavens or the salesman as Malcolm Gladwell has described in his book “The Tipping Point”. The connectors have the rare ability to know many people or acquaintances or they just know how to deliver the message. Obviously for such message to be successful, the product has to be indeed good. Sholay truly was just not a good commercial film but it depicted an era, an event a yardstick of success.

But how can we explain the success of this movie year after year for over a period of 35 years? The social connectors or mavens played a huge rule within particular geographic locations and cultures. But they couldn’t have reached out to multiple generations. Who linked these future generations? Just like we see connectors in every society who can influence others by the sheer quality of their knowledge or acquaintances etc. every family has few connectors who influence the younger generations. As we grow up, in matters like politics, sports we tend to take the words of our parents or grandparents as the final authority. In most houses, political views would be largely influenced by what views were shared or practiced by the elders in the family. They weave an imagination in the young minds before they start rationally justifying those at later stages in life. But justifying Sholay was easy even at a later stage because the product itself was the perfect blend of all the right masala in right doses.

On Higher Education

2010-08-15T15:01:00.000-07:00

TWO interesting news item in higher education were noteworthy this week; first one is related to how to cope up with the finances for the new college year in the light of the rising college tuition, cut in some major services in the college campuses and shrinking financial aids etc. The freshman and their parents face an arduous task of managing money effectively during these school years. With unemployment rate of more than 10 %, rising debts and delinquency rates, higher education has never been more important to America or more socially desired. In contrast, we have states like New York and California reeling under huge budget deficits so much so that they have already implemented drastic cuts in supporting public schools and raising tuition incrementally with a cap over a period of time perceived to be easier for students and parents to figure out the actual cost of a college degree. The real question is how much the parents can afford to spend for those additional bucks in the middle of domestic economic recovery and global economic slowdown. We have not started adding new jobs yet and businesses still have a lot to catch-up to reduce unemployment. But even with the best estimates we surely are not going to reduce unemployment below 10 percent for the best part of next year. Students and parents are stranded between the high cost of college education and gloomy outlook on the jobs market after graduation.

The second news item is related to the first one. With scarce funding support on the public education system and skyrocketing cost of private education system, some private universities are competing against each other in opening new campuses and physical expansions. Most of these schools are facing shrinking endowment and staggering level of debts. It is estimated that NYU has $2.22 billion of debts compared to $2.2 billion endowment. It is reported that NYU is opening new campuses in Abu Dhabi and offering new courses to compete with other private schools like Columbia. Even with a good school name behind, students are struggling to get jobs after majoring in social sciences and other so called “less marketable” areas. Therefore, more and more students are moving on the online degree programs. No wonder why we notice flourishing ads of Devry univ , University Phoenix these days. Pressures to reduce operating costs have led to some of the well known universities to move into online offerings with part time faculties but it can never match the quality of class room education. Instead, universities should focus more on a cooperative model of having joint degree programs with fewer faculties, less expansive physical presence supported by audio visual technology which can benefit distant learners. Students and parents on their part need to evaluate the details in the health insurance plans offered by schools compared to the other plans in the market, minimizing the luxurious spend on the fancy cars, high definition tv sets, minifridge and laptops etc. and last but not the least choosing the right curriculum which can help in building the desired career in mind.

With growing uncertainty on the impact of education reforms, the least we could do today is to make our own reforms at home work for the future to come out of this current financial crisis. This would require proactive financial and career planning right from high school till the end of the last day in college. This can only become successful with adequate knowledge, sharing of information and communication between teachers, students and parents.

Our Lives in Stories

2010-03-07T12:54:00.000-08:00

Life is a set of sequential events. Right from the day of birth, each event gets unfolded embracing the passage which leads to a new one, first day in school to college, first date to marriage, children to retirement etc. These events are not without causes neither do they evaporate into thin air. Events are natural succession to our stories; stories of you and us and the life around us. The stories of our parents who brought us here, their individual stories defining and refining us in many moulds; migration to a new place, first job, first house, first baby…they all leave a long lasting impression in our minds. And there are folktales read by moms and grandmas with strong offerings of morals and guidance. Every story offers a gift. Words read out lasts long in the memory lane. Seldom have we forgotten the major Aesops’ fables, or The llyiad or The Mahabharata. Such stories are good for imagination, to inspire and stimulate young minds. Who can forget the great warrior Karna from the great epic, Mahabharata, such a charitable and generous character with no bounds yet fraught with frailties and excessive proud, still catches the moist imaginations of the millions young unadulterated minds.

Many sequences of events from the early childhood train our mind to think and relate to narratives. Events are perhaps indexed around many stories. Events are finitely large in human lives but the pattern of stories defining those events is very small. A very small number of stories have been told and retold in several ways and fashion in human civilization. Ronald Tobias wrote in 1993 that there are just twenty fundamental plots, “quest, adventure, pursuit, rescue, escape, revenge, riddle, rivalry, underdog, temptation, metamorphosis, transformation, maturation, love, forbidden love, sacrifice, discovery, excess, ascension and descension.” There may be few more plots which would be close to any one of the above but the point is that all stories of our lives can be closely explained through the above set of plots. Human relationships and behavior are limited to only a small number of emotive patterns and our stories are a reflection of that. Our culture, art and cinema are also mere reflections of these basic human stories.

The impact of successful stories does not always depend on its merit, rather how we tell them. The narration of the simple basics and its vivid descriptions can transport the human mind across geographic boundaries, centuries and ages. Successful leaders can attract huge mass following due their sheer eloquence in narrating the story. In the last US Presidential election Senator Mccain repeatedly used the story of Joe, the plumber. However, he was a no match to Barack Obama in his style and depiction of similar stories around his grandma, his father and some of his fellow countrymen. And for the imaginative minds, there are stories of individuals which perhaps showcase a country’s excellence.

In the just concluded Winter Olympics, Norway, a country of 4.7 million has won as many gold medals as the US, a country of over 300 million people. Norway has won more gold medals than any other nations. Norway’s excellence in skis and performance in special winter conditions is embedded in the story of certain Jan Baalsrud. Baalsrud was a young instrument maker who was asked to help the anti Nazi anti resistance in Norway. However as fate would have had it, he was chased by the German troops from island to island and in the high snowy mountain ranges. He scrambled across islands, swam between mountains in icy cold conditions, buried in snow totally secluded in stormy conditions for days. Baalsrud lived in holes in the ice for several days, lost his eyesight, and damaged his legs severely so much so that he had to cut his toes to save his legs. Such a story is only a glimpse of the unbelievable toughness, resilience and special skill of a culture which is bound to show continued success in the Winter Games.

Bollywood Villains

2009-11-15T12:51:00.001-08:00

I am really frustrated with the repeated showings of the same movies in cable. Most of these movies are either a C or at best B – but they are thrust upon you every time you switch on the movie channels. One exception is the latest Batman thriller – The Dark Knight. I have seen this one at the theater and DVD and perhaps watched it on cable more than 4 times. Apart from the breathtaking special effects, this one is worth watching just for Heath Ledger. The Joker character is not the easiest thing to play especially when you have predecessors like Jack Nicholson or Jim Carey. But to me Ledger’s chilling but darky comic portrayal of the joker is by far the best and some pundits felt that he bested Jack Nicholson’s take from “Batman” (1989) by a large margin. To prepare for the role, Ledger told Empire, "I sat around in a hotel room in London for about a month, locked myself away, formed a little diary and experimented with voices — it was important to try to find a somewhat iconic voice and laugh. I ended up landing more in the realm of a psychopath — someone with very little to no conscience towards his acts"; after reiterating his view of the character as "just an absolute sociopath, a cold-blooded, mass-murdering clown”. Looking at the Batman series or spiderman superman, the audience never really hates the villains in these movies. In fact these characters make these movies more memorable. I often wonder what happened to our good old Bollywood Villians. The Gabbars ( Amjad Khan ), the mokambos ( Amrish Puri ), or the shakaals ( Khulbhsan kharbander ).

Unlike contemporary English movies, hindi movies had always had the concept of the good guy and bad guy. Bad guys used to be played by villains who wanted to kill or marry the heroine but ultimately good wins over evil. Our movies drew largely from the mythological characters of good vs evils in the Ramayan and Mahabharat. In each decade, the good vs the bad story was folded in the context of the then social political environment. Thus the baddies were zamindars to begin with, later on became the greedy capitalists and in the early 80s they were the corrupt policemen or the politicians. In the 90s and early 2000s, the villains had taken the identities of the underworld dons. However, over the last few years we haven’t seen any strong characterization of the bad guys. What happened ???. NDTV’s consulting editor Anupama Chopra thinks that hindi movies have moved on from the good vs evil stories and now main characters have grey areas in them. Thus, we have now the anti heroes. But what about the class ??? Naa.

Hindi movies had gifted class actors who had so ideally portrayed the evil characters with perfection. We may find flaws in Sholay, Shaan or Mr India but the Gabbars, and the Mokambos are still immortal in our hearts. All these villains had mostly stage experience and could fit into any difficult roles. Thus on one hand we had Amjad Khan playing Gabbar Singh and we see him in the classic Nawab Wajid Ali shah’s role in “ Shatranj ke khiladi” or the great friend in “Yaranaa”. Similarly we have seen the Amirish Puri playing “Mokambo Khush hua” in the fantacy thriller Mr. India and the idealistic middle class honest police officer in “Gardish”. Not going to extend this list from the yesteryears but the point is simple: the golden period of strong grey characterizations is lost. Is it the dearth of good solid storyline or acting skills ? Or is it too much of television acting and too little of Theatre acting? I think it’s the combination of all the above. What do you think ?

Choices We Make

2009-09-29T04:27:00.000-07:00

In our undergrad days, the first few lessons from economic theory were based on the assumption that More Is Better (excluding Bad Goods ofcourse). More shirts, more pants, more shoes, mores cars etc. all seem to be better propositions than having too little. However, my recent visit to a grocery store to buy toothpaste has created doubts about this basic economic assumption. A simple task of buying toothpaste shouldn’t require more than a minute but the array of different types of toothpastes from the same brand cost me more than 30 minutes. I couldn’t remember the last time when I was so tired of making such a small decision. That left me to investigate little bit more on this. Are we really better off with too many choices in modern times?

In recent times, we are noticing several companies are clamoring to produce more duplicates products ranging from simple products like toothpaste, jeans, social networking sites, smart phones to hugely complex things like cars. A simple web search revealed that today we are confronted with more than 360 different types of shampoo, conditioners 80 types of painkillers and hundreds of cars. For average consumers this can be time consuming and confusing. For more fancy choices like managing your 401k portfolio can be more stressful than just managing simple money market funds. In the Mahabharata, the longest epic poem in the world, the great warrior Arjuna was perplexed and confused in making an apparently simple decision to fight or not to fight. Before the great battle, seeing his own relatives, teachers, friends etc. in the enemy camp, Arjuna couldn’t justify killing his own people and therefore surrendered himself to Lord Krsna for His guidance. If such elevated souls like Arjuna can get bewildered with choices, what to speak of the lesser mortals.

The Choice paradox is widely discussed and researched topic in marketing psychology. Malcolm Gladwell in his book “Blink” mentions about an experiment conducted by Sheena Iyengar and Mark Lepper where more people stayed away from more varieties of exotic jams and preferred the simple regular flavors which they had been consuming for years. Orthodoxy, conservatism plays big in people’s mind when exposed to wider and unknown territory. Fear and uncertainty draws average consumers to decide on trusted and known choices. Barry Schwartz in his “The Paradox of Choice” prescribes the following strategies for decision making; Set your goals, evaluate each goals, evaluate options to make those goals successful and finally modify goals based on the prevailing options. Here is my recipe for successful choice making:

1. Need Vs Want : Before making any decision, always ask the questions, Do I need it or do I want it? If the answer is “want” then exit, If “need” then proceed to the next step.

2. Clearly define your need – What would you do with that need? How would it better your life? Will you be happy or will it be a cause of your misery in future?

3. Evaluate Options – Once you have successfully answered all the above then your choices would be narrowed down. Pick the one which meets your goal and budget.

Marriage market, Recession and the family system

2009-08-30T15:15:00.000-07:00

Are the NRIs losing all their glamour and success as a prospective groom? If the recent article in Time Magazine titled, “In India, the NRI…” is to be believed, US no longer offers the heavenly picture for the single professional women from urban India. In the matrimonial market where most marriages are arranged, stability of income and job is critical to win the bride. Unfortunately, with the economic downturn thousands of frustrated NRIs have gone back home to search for an alternative career. Yet, there are many NRI men in the west who are still looking for a prospective native bride from India. The waiting period could be long in this recession.

The severity of this recession in India and China may not be deep but yet there had been job losses and fall in investment and demand from the US and other European countries. So what happens to those prospective grooms who have lost jobs or the married males who may just have started their married life? Fortunately, their prospects are not as bad as their counterparts in the US. India’s financial system had been less risky with the credit derivatives and Mortgage based securities and traditionally very conservative and precautiously regulative. The system mirrors our social fabric of cautious spending and borrowing where some of the virtues of joint family system are still predominant.

Despite the continuous and growing impact of urbanization and Westernization, the traditional joint families remain the primary social force in India. Loyalty to other members in the family is still deep rooted even in the big cities. Many large and successful Indian companies like the Tatas, Birlas etc. have retained the joint family arrangements to share the pains and to maximize the gains. In times of economic distress, strong network of kinship ties help in alleviating economic losses and boosting morale support. In such social network, decisions are made after abundant consultations and discussions. The pillar of democracy is embedded truly in the joint family system of the Indian culture. The traditional family system in India offers the stability and security which the career oriented women be looking for in any prospective grooms. No worries native Indian men.

Thoughts from Recession 2008

2008-12-30T12:06:00.000-08:00

The US Holiday shopping data after Thanksgiving Day has shown some signs of solid revival. The Thanksgiving weekend ( the last week of November every year in the US ) marks the start of the holiday shopping season and is widely regarded as a litmus test for US consumers’ willingness to spend. The entire nation was waiting to see how the US consumers would respond in the middle of the plunging wholesale prices backed by the falling energy costs. Earlier in October, Fed had no problems to cut interest rates without any inflationary pressures to boost lending activities. However encouraging the holiday shopping data looks, consumer spending which makes two third of US economy will not be able to revive the economy on its own. The high sales data is obviously due to huge retail price cuts which ultimately will squeeze profits.

The graver concerns lie in how to restore the confidence in the banking system and more importantly how to improve the supply of credit to households and homeowners at cheaper rates. As more and more jobs are disappearing from the pay roll every month, the confidence in the market is reaching rock bottom. The supporters of free market economy had to vote for the government bailout schemes at the expense of the tax payer’s money and deficit spending in the next few years. Governments across the rich and developing worlds including India and China have taken drastic steps to prevent any outright collapse of the financial system. President Bush has publicly defended his administration's aggressive market interventions to come out of the current mess.

Financial systems are far less self correcting than individual players in the market. One of the demons of free market economy is investors’ irrational panic or collective market psychology which paralyses the whole system. John Maynard Keynes in his 1936 titled classic “The General Theory of Employment, Interest and Money” wrote that “when disillusion falls upon an over-optimistic and over-bought market, it should fall with sudden and even catastrophic force,"…once doubt begins it spreads rapidly." In the current situation, the mortgage market, the mortgage based securities and other asset based securities were highly over optimistic and over bought in the last few years. The Classical economic school of thought which relies on the market forces to restore full employment equilibrium, strongly advocates for free market to self adjust without any government intervention. In the current environment, this means we should allow Wall Street to remain in the liquidity trap and wait for the prices and wages to fall for the markets to finally clear, however long the waiting period and large the cost of such wait be. As more and more bailout schemes are waiting in the pipeline, it would be interesting to see what role would market play in the financial systems of the 21^st century and how far can it remain independent.

Some of the ongoing debate in the recent presidential campaign on the actual causes of the financial meltdown was attributed to pure Wall Street greed and lack of financial regulations. While greed could be a populist phrase to earn votes but there is nothing wrong in raising the profit margin even if it requires acquiring some risky portfolio. More importantly, easy monetary policies and inadequate regulatory interventions made things worse. Intervention is generally perceived as a factor inhibiting the smooth functioning of any activity. In a soccer game, frequent interventions for trivial infringements can disrupt the flow and abuse the control mechanism. But lack of it can also kill the natural beauty and perfect functioning. Laws and rules allow players in the market to participate and play with freedom within their own domain but it may not ensure complete protection. A timely intervention in a fast paced challenging and changing environment can prevent several landslides. But interventions are not sufficient enough to prevent market meltdown. Had it been the case, then we wouldn’t have seen so many US banks failure and the current plight of the auto industry after Bear Sterns.

By nature financial markets are speculative in nature and the notion of free market is compatible with speculation. Speculation is based on all past and current sets of information which is often myopic and ill informed due to weak knowledge set. On top of speculation, market forces are also governed by animal instincts what Keynes in his The General Theory referred to as animal spirits. He argued that “…human decisions affecting the future, whether personal or political or economic, cannot depend on strict mathematical expectation, since the basis for making such calculations does not exist ... it is our innate urge to activity that makes the wheel go around”. In uncertain times individual decisions are often irrational and contribute further to the downward spiral. That’s why we often have stampede on minor landslide news or small smoke in public theaters etc.

Thus, even with the best of regulations and rules, market may be subjected to more and more interventions and may require huge government spending due to speculation, irrational behavior etc. In a stable period such frequent interventions may not be warranted but government spending and interventions would prevent meltdown when we confront with challenging times.