Thursday, September 17, 2015

Austrian school: Coffeehouse of cherished consequence


IIFL | Mumbai | March 09, 2015 10:20 IST
The individualism of the Austrian economic thought – call it methodological or plain logical - deserves acknowledgment ahead of analysis. Far from blind worship or brutal dismissal, we need to collectively enhance the import of this non-conformist philosophy whose presence is more important than its predictions.

courtesy: http://www.indiainfoline.com/article/general-blog/austrian-school-coffeehouse-of-cherished-consequence-115030900064_1.html



The Austrian ‘coffeehouse’ city of Vienna is best known for the legendary neurologist Sigmund Freud whose folklore reputation as the father of psychoanalysis has not been shaken even by the posthumous rejection of most of his theories. But for the Austrian school of economics, no less Freudian in import, a few of its debatable beliefs have unfortunately made a serious dent into the veneration it so richly deserves.

There’s no doubt about the fact that all social behavior is the result – whether subtle or obvious - of individual beliefs, dispositions and circumstances. That there is a thin line between governmental intervention and governmental interference is also not hard to concur with, so is the argument that raw data and mathematical models are effective analytical tools but certainly not ready-to-wear substitutes for thought. And we instinctively agree that any emblem of public good – whether an academic institution or a healthcare organization – need not be a government prerogative by default.

And when it comes to the subjectivity of individual psyche and response to events, we all have a fair idea of the possible hues and colors and how they can belie even the most perceptible economic projections. How higher prices need not always curb demand, how the ostentation effect may enthuse the poor to defy adversity, how common investors often get stuck with high-priced stocks lured by market swings, how citizen responses differ from geography to geography, from culture to culture and from time to time. That there’s very little scope to predict the strange liaison between individual reactions and collective responses is well known.

But when all these obvious truisms come packaged as Austrian School, at times a tad more vociferously than necessary by some of its aggressive practitioners, they immediately meet with stiff opposition from those mainstream quarters invariably keen to launch an impugned attack. A crucial debate is then unknowingly reduced to a silly Objectivity Vs Subjectivity tug of war knowing rather well that real life is an intricate mix of both realities. Individual non-conformity often has a say in herd mentality and vice versa but economic generalizations hardly take cognizance of this fact.

This piece is not a prescriptive essay on the Austrian school. It rather argues against that black and white positions are wholly extraneous in the context of such critical debates that are likely to help the larger cause of Economics.

Needless to say, there’s a lot about the Austrian school that makes you wonder about the logic of its theory and unassailability of its practice. You may strongly detest the Austrian belief that all governmental interventions are necessarily uncalled for at all times, you may dismiss their ‘malinvestment’ theory, you may even find many other assumptions simplistic but why should your reservations take the form of outright dismissal. The boorish manner in which opponents of the Austrian school across spheres spiritedly gang up to launch an all out attack simply gives away their political agenda. And the quality of the Austrian school retaliation leaves a lot to be desired.

In the context of rightsizing the Austrian thought for the right reasons, our economist friends can take a leaf out of Bryan Caplan’s book. The 43-year old American author-economist presents a neat case against the Austrian school’s assumptions, not against the school itself, in his paper titled ‘Why I Am Not an Austrian Economist’. Of course, Austrian school detractors view this incisive document only as their potent ‘attack weapon’ while subtly cornering Caplan as a former Austrian school sympathizer but that hardly takes away the substance of Caplan’s argument.

Caplan begins with a heartfelt acknowledgment of the Austrian contribution and of his initial faith in and fascination for the school’s conviction. He calls his ensuing disagreement a sequel which is a welcome departure from the usually arid academic arguments that invariably tend to erase lyrical trysts from clinical post mortems.

Caplan points out the haste and inadequacy of the Mises and Rothbard rejection of the foundations of modern neoclassical economics. In attacking the utility function describing individual preferences countering it with the value scale approach, he contends, Rothbard erroneously divides utilities as quantities (when they are only ranks) and accuses neoclassical theory of assuming cardinality where it clearly doesn’t. In effect, while neoclassical economists are able to logically decipher the income and substitution effect of price changes, Rothbard’s derivation seems adhoc, thanks to the restrictive nature of his value scale postulate.

Caplan challenges another Austrian assumption in rejecting the neoclassical indifference curve theory: that no preference can exist which cannot be revealed in action. Caplan calls it ‘a peculiar importation of behaviorism into a body of economic thought which purports to be militantly anti-behavioral?’ Caplan further states: ‘Just as there is more to my action than my behavior, there is more to my preferences than my action… one can only observe that I choose a green sweater; but this does not rule out the possibility that I was actually indifferent between the green sweater and the blue sweater.’

Caplan goes on to point out many more Austrian flaws and inconsistencies under suitable heads – the unruly attack on the assumption of continuity that seeks to render the application of calculus redundant in economics, the unreasonability of Rothbard’s welfare economics and proprietary claims over subjectivism, overuse of the economic calculation agreement, pros and cons of the Austrian Business Cycle theory, weak premise of the malinvestment theory, and the extreme disdain for the expressive language of modern economics, i.e. Mathematics and Econometrics, notwithstanding the empirical evidence of its negative contribution over the years.

Citing Rothbard’s elucidation of the numerous ways in which the government creates monopoly as one of his greatest achievements, Caplan agrees with Rothbard’s views on the maintenance of market monopoly and the wrong-headedness of forcefully imposing perfect competition given the presence of factors like economies of scale and taste for variety. Caplan feels Rothbard should have acknowledged the obvious drawbacks of imperfect competition in the same breath before ‘pointing out its numerous attendant advantages.’

Hailing the work of Lawrence White and George Selgin on free banking and monetary issues, he highlights the meta-economic fixation of the Austrian school which, though doesn’t make for a purging case, raises fundamental questions about its longevity, nay legitimacy, detached that it is from the living waters of economics. He urges Austrian economists ‘to give up their quest for a paradigm shift and content themselves with sharing whatever valuable substantive contributions they have to offer with the rest of the economics profession - and of course, with the intellectually involved public.’ Now, is this not a dignified way of putting forth one’s argument? You may concur with the views but there is no insistence in the first place. Wish Economics is blessed with more Caplans in the time to come.

If the Austrian school scholars disagree, they are still free to claim the paradigm shift but even otherwise their priceless contribution is never dismissed. It still remains a coffeehouse of cherished consequence. But let their argument be convincing, not counterproductive. They can’t take a Freudian stand of “no cure” in advocating their ‘subjectivity’ case. Some amount of neurosis in everyday life is acceptable only in psychoanalysis, not in Economics.

In any case, refining the tenets of Austrian economics is part of the larger cause. Whether Austrian or Australian, academicians and practitioners need to rescue Economics from the deepening eddy of mistrust. Why feed the growing belief that Economics is only a pseudo science rooted in political purports rather than scientific postulates. For a change, why can’t warring factions gang up in a healthy debate focused on functional solutions, not factional positions? Else, how do we cope with the complexities of economics where exactitude is only an approximation at best, and, aberration at worst...

Wish economists across tribes and tributaries allot more room to introspection, grace and humility in their intellectual escapades while unanimously showing politics the door. No point closing the barn door after the proverbial horse has bolted.

Tax e-filing: Verification calls for illumination


Tax e-filing: Verification calls for illumination
IIFL | Mumbai | September 05, 2015 10:57 IST

The e-verify glitch, though certainly not the Achilles heels for the exceptionally robust system, can certainly be weeded out, given that it’s causing perplexment for users.

Courtesy: http://www.indiainfoline.com/article/general-others-factiva/tax-e-filing-verification-calls-for-illumination-115090500014_1.html

After helping the Ministry of Corporate Affairs reap rich rewards of digitization through the mission-mode MCA 21 programme and after having revamped the Indian Passport office through the unique Passport Seva Project, both key achievements of far-reaching impact among several sterling e-governance breakthroughs, IT major Tata Consultancy Services (TCS) has successfully managed yet another feat – the end to end transformation of the e-filing portal (https://incometaxindiaefiling.gov.in/) which has seen as many as 1.5 million returns being filed per day during the last four days of the crucial month of August with about 3000 e-filings recorded per minute. Kudos to the team led by Tanmoy Chakraborty, the highly competent VP and Global Head – Government Business, TCS.



Having said that, one particular interpretation – whether of the government or TCs, we do not know - deserves a closer scrutiny. It attributes the ‘more time spent on the portal for e-verification’ to tax payers’ insistence on completing the process on the same day. This, we believe, is a convenient conclusion.

Actually, the real reason for the fixation with verification could well be the lack of proper notification in the ‘e-verify’ process. Once the tax payer goes about generating EVC through Netbanking, he/she is directed to a page which flashes a four step process along with a small note (most likely to be ignored by lay users)

“Once you click on Continue you will be logged out of e-Filing portal and will be redirected to a page where you can select the bank through which you would like to go for Net Banking.”

Most users, post clicking ‘Continue’, are clueless as to the next step. All they see is a list of banks for the log in but, having missed the earlier instruction are found staring at their screens, wondering what they did right or wrong.

Most abandon the process midway and it takes quite some time for the supreme realization to dawn – either self-sprung or gained through friends and associates – that one needs to log into the respective bank and click on the Tax services link, proceed to the income tax e-fling link and complete the verification, a progression that seems simple but only in hindsight.

To add to the confusion is an alternative option of e-verifying through the elusive Aadhar route which in most cases flashes an “authentication failed” message owing to a possible data mismatch in Tax and Aaadhar databases. And many don’t know what to do with the EVC code sitting in their mail inbox which comes with a validity of 72 hours. For most, the bewilderment exceeds that time frame.

The whole ‘e-verify’ process can be made more user-friendly if there’s a proper notification at the most appropriate juncture that guides the hapless lay user to fruition. The e-verify glitch, though certainly not the Achilles heels for the exceptionally robust system, can certainly be weeded out, given that it’s causing needless perplexment for users.



SpiceJet: A Take-off with a ‘Turnaround’ promise


IIFL | Mumbai | July 30, 2015 08:18 IST

SpiceJet’s restrained media strategy is as commendable as its achievement of a near-90 per cent load factor and 42 per cent cost reduction. The consciously worded management commentary - cheerful and cautious in the same breath – lends credibility to its future plans riding on the hope of capital infusion from international bigwigs.

Courtesy: http://www.indiainfoline.com/article/opinions/spicejet-a-take-off-with-a-%E2%80%98turnaround%E2%80%99-promise-115073000302_1.html



Gurgaon-based SpiceJet has come a long way, from the 2014 June quarter loss of Rs 124.1 crore to a profit of Rs. 71.8 crore for the June quarter of this year, a good jump from its modest March 2015 quarter profit of Rs. 22.1 crore that ended a mega loss spree of seven prior months. Lending the Midas touch is undoubtedly the original promoter Ajay Singh who swung into action when the airline was on the verge of closure towards the end of last year.

To its credit, the airline has achieved a load factor of 90 percent in the latest quarter and brought costs down by 42 per cent compared to the previous year. In a cost-heavy sector of numerous vendors, this is no mean feat, more so in a quarter known for sluggish travel. The cushion of fuel price drop and currency advantage can’t diminish its significance. So also the 34 per cent decline in sales.

SpiceJet’s restrained media strategy is as commendable as its achievement of a near-90 per cent load factor and 42 per cent cost reduction. The consciously worded management commentary is cheerful and cautious in the same breath. The profit, the management affirms, is suppressed largely owing to its wet-lease (leasing arrangement providing flight along with crew included to resolve short-term capacity constraints) operations; else it could have been much higher. But the financial stress is gone for good, the top brass confirms. This is like saying ‘we are aware that this take-off is far from a turnaround but more than worthy of a hefty capital infusion from external sources.’ This measured stance renders most of the fervently emphasized media counsel focused on the company’s flip side obvious if not superfluous. Now whatever the actual progress on the ‘intermittent talks’ with overseas heavyweights, the subtle management sketch of possibilities do make investors hopeful of a global tie-up in the offing, especially given the airline’s awesome network depth with the lower-tier towns of India that may lure international players with Pan India aspirations.

It may be recalled that not long ago, the airline was fighting a losing battle on multiple fronts. Some of its reckless moves – like the acquisition of Bombardiers in the mad pursuit to tap uncharted regions and the lavish discount spree in the vain hope of boosting passenger load –ultimately brought it down to a near-hopeless situation that could have easily swung the Kingfisher way. Of course, had it stuck to its original low-cost value prop of solo-type carrier, no-frill service and point-to-point ops, it could have gone the Indigo way.

The June quarter results are hence a good leap forward, far from a turnaround they may be. This is not to negate the negatives that yet plague the company – the massive burden of accumulated losses and liabilities, disproportionately large fleet size, impending operating challenge of cut throat competition amidst a weakening rupee, an expectedly ensuing weaker travel season as also the obvious need for significant investment to stay afloat.

From a market perspective, SpiceJet yet looks a risky bet given its exclusive woes as also the sector’s supply-side warfare and demand-side uncertainties. Besides, the IPO of the most efficient player Indigo is expected to be a game changer of sorts. The SpiceJet scrip doesn’t look firm at current levels. Down to par or higher than par, the downside risk is a possibility one can’t overlook. Even retail investors with a healthy appetite for risk would do well to wait and watch for positive developments (news of capital infusion primarily) before betting big on the SpiceJet turnaround which, given the promoter’s conviction, is by no means a far-fetched proposition.