August 12, 2009 — drsubrotoroy
Subroto Roy suggests one reason China has far outpaced India in exports is because it was willing to focus on manufacturing common man mass consumption items like toys, umbrellas, winter clothing etc for a start, where India’s conceited nomenclatura businessmen/ bureaucrats either maintained traditional imperial exports like textiles, raw materials & tea or chose a high-end middle-class item like software….
April 1, 2009 — drsubrotoroy
“Summits” of global political leaders require competent “sherpas” to do the preparations. From what I gather about the London “G-20 summit” this has not happened adequately enough, so I expect only a lot of waffle to emerge. (If they suddenly start talking about Global Warming or AIDS in Africa or whatever, we will know the actual talks have failed badly.)
Reforming the IMF? Hmmm, let’s see, what happened to all that talk four years ago about reforming the Big Daddy of them all, the UN? Oh yes, I forget, India is now a permanent veto-wielding Security Council Member, NOT!
It has been said that academic syllabus reform at a university is like ‘”moving a graveyard”. Reforming the world monetary system and its major institutions would be like moving thousands of graveyards. And there is no one with the brains of a White or a Keynes to help things along. But we should not be surprised if there were pronouncements of this or that high-powered commission of pompous worthies who will make recommendations for reform some time in the future. In general, little more than waffle will emerge now — I cannot even see the UK Government following informal British advice to stand down from its founding role at the IMF.
There is no clear path to solving the great (alleged) economic and financial crisis because no one wants to admit its roots were the overvaluation (over decades) of American real-estate, and hence American assets in general.
India’s PM shall be seen at least up and about after several months out of action, indeed he will be up and about for the first time in months doing what he (like India’s nomenclatura in general) likes doing best, which is to travel outside India.
Subroto Roy, Kolkata
March 19, 2009 — drsubrotoroy
In the summer of 1983 Dr James Dorn of Cato Institute invited me (then in Menlo Park) to comment on the influential papers
then being given by the prominent trade economist Dr J Michael Finger.
I think I might have said I hadn’t worked on trade since LSE days a decade earlier but Jim said something sweetly persuasive like “We want to put you in the limelight” — and limelight there was, a full house in Washington (the Capitol Hill Hyatt Regency), with the bright camera lights of C-Span and local television.
I do not recall what current trade issues dominated the agenda, certainly it was years before NAFTA or China were being discussed, perhaps tariff removal on US textiles, probably Japanese auto-imports: Michael Finger certainly gave a devastating example of the difficulty US beef exporters had entering Japan’s beef market at the time.
But whatever I said, as a 28 year old Indian from Cambridge and India, was very well received by that packed Washington audience. And I did not say much more than offer a Hahnian-Keynesian scepticism about textbook economic theory being divorced from ground realities.
Half a dozen years later at the University of Hawaii in March 1989 I amplified the argument a little bit as follows:
“Risk-aversion explains resistance to freer trade (and explains protectionism during a recession)
Textbook economics suggests world trade improves material welfare: consumers are better off when imports may compete freely in the home-market. Yet from Adam Smith’s critique of mercantilism to modern theories of rent-seeking, domestic producers in import-competing industries have been described as trying to restrict international trade by tariffs or other means. How is it producers so often succeed in persuading governments of the social costs of imports? Why are there not (or not as many, or not as powerful) consumer lobbies? Certainly there are high costs of organizing consumer lobbies relative to producer lobbies, but leaving that aside, is it possible consumers are ignorant and irrational? J. Michael Finger (1982, 1983/84) argued that in this respect consumers are in fact ignorant of their own best interests.
Roy (1983/84) suggested that a simple Keynesian observation offers a different explanation. A domestic household may be definitely better off by trade-liberalization on the expenditure side of its budget but the increased competitiveness of the economy accompanying liberalization may so decrease the expected value of its income that a risk-averse household would prefer the trade-protected status quo and have no incentive to lobby for trade-liberalization. Conversely, in a recession when the expected value of a household’s income declines, households have an incentive to lobby for trade-protection despite this worsening the expenditure side of their budgets.
The simplest of examples suffices to show all this. Let x1 be a non-traded domestic good, and x2 an imported good, and let a domestic household have preferences
U (x1, x2) = x1α . x2β
α + β < 1; 0 < α, β < 1 (1)
Let x1 be numeraire, p’ and p be the world and domestic prices of x2 respectively, and t be the tariff-rate on x2 such that p = (1 + t). p’. Let the household’s expected income be ya in the trade-protected state and yb in the trade-liberalized state, so its budget constraint is either
ya = x1 + (1 + t).p’. x2 in the trade-protected state
yb = x1 + p’. x2 in the trade-liberalized state (2b).
Maximizing (1) subject to (2a) gives a “final utility” in the trade-protected state, Ua*. Maximizing (1) subject to (2b) gives a “final utility” in the trade-liberalized state, Ub*.
Hence Ua* > Ub* as
[ya/yb] (α + β)/β > 1 + t where (α + β)/β > 1.
If income is certain in the trade-protected state but uncertain in the trade-liberalized state, a household’s risk-aversion will require loss in the expected utility of income in the trade-liberalized state to be offset by a gain in final utility that it receives as a consumer due to tariff-reduction.
E.g., let α = β = ½ and let the household have a certain income in the trade-protected state of $20,000; let it place a subjective probability of 1/4 on being unemployed with zero income in the trade-liberalized state, and 3/4 on maintaining the same income of $20,000.
Then Ua* > Ub* as [4/3]2 > 1 + t.
I.e., for any tariff-rate less than about 78% with these particular data, the household may rationally think itself better off in the trade-protected state than in the trade-liberalized state, and hence have no incentive to lobby for the latter.
Cooper (1987) remarked: “There should of course be a strong appeal to consumers of imported goods for removing restrictions. For a variety of reasons, political mobilization of consumers has been difficult in most countries. Many of these consumers also are employed in producing tradable goods, and they worry more about their jobs than about the purchasing power of a given wage. But most goods that move in international trade are not consumer goods. They are capital goods and intermediate products, and it should be easier to appeal to buyers of these intermediate products for import liberalization, because such buyers would enjoy a reduction in their costs.” The sentence italicized above may be consonant with the simple point made here.
Richard N. Cooper “Why liberalization meets resistance” in J. Michael Finger (ed.), The Uruguay Round, A Handbook on the Multilateral Trade Negotiations, World Bank, November 1987.
J. Michael Finger, “Incorporating the gains from trade into policy”, The World Economy, 5, December 1982, 367-78.
“The political economy of trade policy”, Cato Journal, 3, Winter 1983/84.
Subroto Roy, “The political economy of trade policy: comment”, Cato Journal, 3, Winter 1983/84″
I sent it to Economic Letters but the editor Professor Jerry Green rejected it, perhaps because it was too simple and unpretentious. And it remained unpublished until I put it on my blog in March 2009.
Yes it is relevant to the trade-problem America may face today, and yes perhaps both Mr Trump and Mr Sanders were in my audience at Cato
, I do not know.
From Twitter 09.11.2016: Trump sat toffishly dressed in an aisle seat, congratulated me and introduced himself, Sanders charged out at speed after a momentary word…I recall three interactions after the talk, one each with Trump and Sanders
, or someone like them
from My American years
I have put these documents here now in 2017 after recollecting in 2016 during the American election campaign that both Bernie Sanders and Donald J Trump had been present at that trade policy conference in Washington in September 1983 and both had interacted with me briefly! Mr Sanders had expressed a momentary word of praise and had charged out of the large crowd at speed with I think a small retinue of staff. (I asked someone who that had been, and recall Vermont being mentioned, and recall the spectacles and the fierce earnest expression.) Mr Trump had sat in an aisle seat in the middle and he had looked at me and I at him (we were both relatively young men in that middle aged milieu) as I had walked up to the podium. He was toffishly dressed, looking somewhat out of place in a nerdy conference of academics, journalists, politicians and policy wonks. As I had come down from the podium he had stood up and introduced himself as “Donald J Trump”, and said “Manhattan real estate” possibly upon my enquiry; he praised my talk quite profusely and might have said something like he was surprised that “coming from the part of the world” I did I had grasped what I had done about America.
[I would have looked a year younger than this, Mr Trump a bit older than this…]
The encounter was no more than two minutes and ended with him saying “Remember the name”… which as it happens I did not even when I walked by his tall buildings in New York a decade later.
It was only when I heard his primary campaign speeches in the American Midwest about March 2016 that I said “Hey I said that”, and recalled my own argument and our meeting. Was the future American President conspicuous in that nerdy policy wonk conference of academics, congressional staff, journalists etc? I would say he was… in both dress and manner. “Make no mistake …a preppie by education, an American nationalist, a commonsense pragmaticist (Peirce)” I have said at Twitter, starting the hashtag mentioned. As it happened, earlier that summer I had stopped with my Sheltie puppy for a night at a motel in Little Rock, Arkansas, where Mrs Clinton was First Lady; a leprechaun could have told me, Hey, those two are going to square off in 2016… .
from Twitter 11 January 2019
Both of us were relatively young men in that crowd of journalists, policy wonks, congressional staffers, his stare at me was one of “Now who’s that, where’s he from?”; I noticed him at all because he was looking back at me, & I saw a brash well-dressed preppie, the jock at school.
Mr @realDonaldTrump had been at 2 o’clock to me staring back at me in the hall before my talk, and I have tried to recall the logistics: our panel had been asked to sit midway in the packed hall waiting our turn as a previous panel finished. Trump looked back to stare at me…
when our panel was called, Mr T’s eyes followed me as I walked past him up to the podium (Washington Capitol Hyatt 1983, perhaps a few black journalists or staffers, no one else of “colour” except myself), and I recall his face in the audience as I waited to speak & then did…
Ordinary workers were not being represented yet were massively affected by trade policy taken from econ textbooks, there was a disconnect, that was my 1983 Washington contribution, and I, under the bright glare of tv lights, had the whole hall in thrall, not just @realDonaldTrump
As I walked down back from the podium, he stood up and introduced himself, and I was like “Ha! Gotcha! Preppie!”, he was profuse in his praise, and upon my enquiry introduced himself as “Manhattan real estate”, an oddity in that crowd…
“Coming from the part of the world you do” was Mr @realDonaldTrump ‘s way of saying “How did you as an Indian manage to get all that about America?”, I had to leave, I had to meet someone at Baltimore airport, then drive to my visiting parents, left alone in Ithaca w my Sheltie..
“Remember the name” parting shot from Mr @realDonaldTrump as I left our conv, I’d prob have had a job offer w him if I’d chatted on… but No Can Do.. I was visiting @Cornell, my Green Card was being processed by Virginia Tech… a manuscript in longhand
And at @Cornell I was talking to Max Black, Wittgenstein’s pupil, then 74, and teaching a new course on History of Economic Thought … … demanded of the Econ dept by History students led by Ms @AnnCoulter! .. a quiet pupil, who was disappointed w a B+ or A-
October 10, 2008 — drsubrotoroy
Author’s note: March 21 2009: I am glad to see there is new interest in America in this short note I published here back in October. No American or other Western economist concerned with the financial crisis has apparently said the same thing. One factor causing this may be that much of what has been made to pass of as “economic research” in American academic economics departments in the last several decades has effectively amounted to being waste-paper.
America was at its best when it was open to mass immigration, and America is at its worst when it treats immigrants with racism and worse (for seeming “uppity”).
All those bad mortgages and foreclosures could vanish within a year or two by playing the demographic card and inviting in a few million new immigrants into the United States. They would pour in from China, Vietnam, Thailand, Philippines, Indonesia, Mexico, South America, South Africa, Nigeria, Egypt, Israel, Poland, Romania, Hungary, Belarus, Ukraine, Russia, Uzbekistan, Kazakhstan, India, Sri Lanka, Bangladesh, and yes, Pakistan too, and more. They would happily buy up all those empty houses and apartments, even in all those desolate dismal locations. If the USA’s housing supply curve has moved so far to the right that the equilibrium price has gone to near zero, the surest way to raise the equilibrium price would be by causing a new wave of immigration leading to a new demand curve arising at a higher level. But yes, nativist feelings of racism towards the outsider or the newcomer would have to be controlled especially in employment — racists after all are often rather “sub-prime” themselves and hence unable to accept characters who may be “prime” or at least less “sub-prime” from foreign immigrant communities. Restoring a worldwide idea of an American dream fuelled by mass immigration may be the surest way for the American economy to restore itself.
Subroto Roy, Kolkata, India
May 7, 2006 — drsubrotoroy
MODERN WORLD HISTORY
by Subroto Roy
First published in The Sunday Statesman, Editorial Page Special Article May 7 2006
MUCH as we in India might like to think we were the central focus of Britain’s national life in the 19th and 20th Centuries, we were not. India’s matters were handled mostly by a senior cabinet minister to whom the governor-general or viceroy reported. Though possession and control of India gave the British a sense of mission, self-importance and grandeur, and events in India (mostly bad ones) could hog the newspapers for a few days, it was never the case that India dominated Britain’s political consciousness or national agenda for any length of time. British prime ministers and diplomatists, from Pitt through Canning, Palmerston, Peel, Gladstone, Granville, Disraeli and Salisbury, mostly had other concerns of foreign policy, mostly in Europe and also in the Americas, Africa, and the Near and Far East. India was peripheral to their vision except as a place to be held against any encroachment.
A French historian used to begin lectures on British history saying “Messieurs, l’Angleterre est une ile.” (“Gentlemen, Britain is an island.”) The period of unambiguous British dominance of world diplomacy began with Pitt’s response to the French Revolution, and unambiguously ended in 1917 when Britain and France could have lost the war to Germany if America had not intervened. Since then, America has taken over Britain’s role in world diplomacy, though Lloyd George and Churchill, to a smaller extent Harold Wilson, and finally Thatcher, were respected British voices in world circles. Thatcher’s successor Major failed by seeming immature, while his successor Blair has failed by being immature to the point of being branded America’s “poodle”, making Britain’s loss of prestige complete.
Between Pitt and Flanders though, Britain’s dominance of world affairs and the process of defining the parameters of international conduct was clear. It was an era in which nations fought using ships, cannon, cavalry and infantry. The machine-gun, airpower and automobile had been hardly invented. Yet it is amazing how many technological inventions and innovations occurred during that era, many in Britain and the new America, vastly improving the welfare of masses of people: the steam-engine, the cotton gin, railways, electricity, telecommunications, systems of public hygiene etc. The age of American dominance has been one of petroleum, airpower, guided missiles and nuclear energy, as well as of penicillin and modern medicine.
It was during the period 1791-1991, between the French Revolution and the collapse of the Union of Soviet Socialist Republics, that world diplomacy created the system of “Western” nation-states, from Canning’s recognition of Mexico, Brazil, Argentina, Colombia etc to the emergence of the European Union. There is today peace in Europe and it has become unthinkable there will be war between e.g. France and Germany except on a soccer pitch. Even the unstable Balkans have stabilised. The transition from British to American dominance occurred during and because of the 1914-1918 World War, yet that war’s causes had nothing to do with America and hence America’s rise has been somewhat fortuitous. The War superficially had to do with those unstable Balkans in the summer of 1914 and the system of alliances developed over the previous 100 years; beneath was the economic rise of the new Germany.
Austro-Hungary went to war against Serbia, causing Germany its ally into war with Russia, Serbia’s ally. Belgium’s neutrality was guaranteed through British diplomacy by the Treaty of London in 1839 signed by Austria, France, Britain, Russia and Prussia. This “scrap of paper” Germany tore up to invade Belgium on 4 August 1914, because it was easier to attack France through Belgium than directly as most French generals had expected. Though Germany had no dispute with France, France was Russia’s ally, and the Germans had long-feared fighting on two fronts against larger but more slowly mobilising forces. Violation of Belgian neutrality caused Britain into war with Germany. So all Europe was at war from which it would fail to extricate itself without American intervention. This arrived in 1917 though it too had been provoked by German submarines sinking American ships in the Atlantic. The actual impact of American forces entering the battlefields was small, and it was after the Armistice, when the issue arose of reparations by Germany to everyone and repayments by Britain and France to America, that America’s role became dominant. New York took over from London as the world’s financial capital.
Woodrow Wilson longed to impose a system of transparent international relations on the Europeans who had been used to secret deals and intrigues. He failed, especially when America’s Senate vetoed America’s own entry into the League of Nations. America became isolationist, wishing to have nothing more to do with European wars ~ and remains to this day indifferent towards the League’s successor. But the War also saw Lenin’s Bolsheviks grab power after Russia extricated itself from fighting Germany by the peace of Brest-Litovsk. And the Armistice saw the French desire to humiliate and destroy German power for ever, which in turn sowed the seeds for Hitler’s rise. And the War also had led to the British making the Balfour Declaration that a Jewish “National Home” would arise in Palestine in amity and cooperation with the Arabs. The evolution of these three events dominated the remainder of the 20th Century ~along with the rise and defeat of an imperialist Japan, the rise of communist China, and later, the defeat of both France and America in Vietnam.
Hitler invaded Poland on 1 September 1939, and Britain and France declared war on Germany on 3 September. The next day in faraway India, the British in a panic started to place Jinnah on an equal footing as Gandhi ~ astounding Jinnah himself as much as anyone since his few supporters had lost the 1937 elections badly, especially in the provinces that today constitute the country he wished for. After the defeat and occupation of Germany and Japan, America’s economic supremacy was unquestionable. Utterly exhausted from war, the British had no choice but to leave India’s angry peoples to their own fates, and retreated to their fortified island again ~ though as brown and black immigration increased with the end of Empire, many pale-skinned natives boarded ships for Canada, Australia and New Zealand. America came to have much respect for its junior British ally during the fight against Hitler and later in the political battle against the USSR. It was Thatcher who (after battling Argentina in the South Atlantic) led Reagan to make peace with Gorbachov. With the end of Soviet communism, Germany would be unified again. All across Christendom there was peace for the first time ever, and a militarily powerful nuclear-armed Israel had been created too in the old Palestine. In this new period of world history, the Security Council’s permanent members are the modern version of the “Great Powers” of the 19th Century. The American-led and British-supported destruction of Baathist Iraq, and threatened destruction of Khomeinist Iran mark the final end of the League of Nations’ ethos which had arisen from the condemnation of aggression. In Osama bin Laden’s quaint idiom, there seems a battle of “Crusaders” and “Zionists” against Muslim believers. Certainly Muslim believers (which means most Muslims as there are relatively few agnostics and atheists among them) think that it is obvious that the Universe was created, and that its Creator finally and definitively spoke through one human being in 7th Century Arabia. Many people from North Africa to the Philippines are not often able to conceive how things might have been otherwise. The new era of history will undoubtedly see all kinds of conversations take place about this rather subtle question.