China’s Growth Factor

India increased its per capita income/GDP by 4.5 times in the last 35 years (since 1984) In the same period, China increased its PCI/GDP by a remarkable 26 times! 

The reasons are manifold and debatable and include in no particular order

  • Leadership – Practical as opposed to intellectual, religious or ideological leadership
  • Common language. Most Chinese speak Mandarin or a dialect close enough to that. In India, we have over 200 languages. English was the official language that helped Indians internationally but also sub-optimized the productivity of a vast percentage of the population that didn’t speak it.
  • Totalitarian or single-party government versus a democracy led to the inability to create infrastructure for e.g. roads. China was able to formulate and implement a long term vision for the future – one that relied on them being the world’s manufacturing factory. 
  • The caste system – in essence, India willy-nilly left a vast percentage of its population out of the labour force. This is changing for the better now.
  • Demographics were in China’s favour with working-age people being at a high percentage of the country’s overall population. India’s demographics between 2020 and 2027 will be superior
  • Brain drain – Chinese who studied at the world’s best universities were aggressively re-hired back and offered higher salaries to come back and work in China versus what they would earn in the West. This was an example of regional governments and the State using its power for good. The Indian diaspora did not have that positive inducement in the past.

In summary, China had a vision and a steady and stable government to implement the vision.

Fredrick Hayek

Fredrick Hayek

Global populism is approaching levels last seen in the 1930s and there is pressure for governments to change incentives. Fredrick Hayek, a Nobel prize-winning laureate, has inspired the leaders such as Margaret Thatcher and Ronald Reagan in addition to other liberal economic thinkers.  

In this 3 minute video, economic booms and busts are explained in a manner that a 10-year-old can easily understand. The core insight of Hayek is that government interference even if done with the best of intentions changes people’s behavior by changing incentives and changing signals in the market. These changes result in investments that are not sustainable and which ultimately lead to recessions and busts.

Thoughts on the Conduct of Monetary Policy

Thoughts on the Conduct of Monetary Policy

Communication is important. And more so when communicating about Inflation! Trying to decipher Central Bank-speak is never easy. Philip R. Lane, a member of the Executive Board of the ECB, discusses medium-term inflation goals in the article linked below. He suggests using specific guidelines for households, firms and market participants in forming inflation expectations. This requires a consistent communication strategy, especially when inflation has been very low versus the target rate.

Click Here To Read The Article


Looking Ahead – Thoughts on World News

From MindWealth Coach Rohit:

I don’t think the Chinese will wait for much more than a couple of months before quelling the HK uprising. Nearly a million HK residents marched in the rain today. China cannot lose face and they will worry that if this carries on for long it may give the mainland Chinese people ideas… and make them look weak. China may attempt to avoid this by replacing HK police with Chinese police and giving them more power or also by simply bringing in the tanks. The latter would mean that HK’s status as a financial center is under question, which is bad for China. It feels like they may be stuck between a rock and a hard place. But will “saving face” eventually dominate economic sense, I don’t have that answer yet? So post-mid-September I would be careful.

For the UK, October will be a fascinating and exciting month with the Brexit drama reaching its denouement. Elections on November 1 or on October 25-26 look likely. The Conservatives plus Brexit Party (performance depending on whether elections are before or after the actual Brexit) may win a historic majority given that Labor and Liberal Dems are competing for the same votes now. Labour will get wiped out. Problems won’t end. People will call for Brexit to be reversed etc. At the borders, I think things will go much smoother than people expect. The old remain campaign is using no-deal as an excuse to campaign for essentially no Brexit – and get its energy up for an election- a good strategy but with Dominic Cummings batting for the conservatives I would expect all other parties will be outwitted and many will vote for a low tax, fiscal spending Conservative Party that delivers Brexit. While all this is happening, Extinction Rebellion will also be on the streets of London fighting for climate change.

History before our eyes at all levels.

– Rohit