There was a time when The Maanga used to focus on puking and used to puke very well. Sadly, by mindlessly diversifying its portfolio, it has lost focus. By trying to mix puking with intelligent commentary, it has ended up doing neither.
A puke is like a surgical strike. To be successful, it has to be well-planned. You have to not only injure the target, but devastate it in the first attempt. Once you are done with it, you should be back in safe, well-defended territory. If you fail at these, your battle is apt to go awry. Your alternatives will be to call in reinforcements to defend a weak position or to stage a difficult retreat. Neither choice is pretty.
A case in point is Avataram declaring that Ajay Shah is a moron and then following it up with a search for reasons to back up his point.
First he says that Ajay Shah is a moron because he does not realise that India’s real economy does not respond to monetary policies. This would be a valid point if it were true. But it is half true. It is, in fact, true that we have a communist country hidden inside our capitalist one. It is, in fact, true that in this communist country, government actions – price controls, customs duties – have a much larger effect on inflation than the RBI tweaking the exchange rates or interest rates of the capitalist India. But the problem is that Shah explicitly addresses the point in his article. He has a graph that shows that inflation has a correlation with the exchange rate. When the rupee is strong, inflation is down. This is both because imports become cheaper when the rupee is strong and because when the rupee is strong, it means that the RBI has not flooded the market with rupees, and this leads to low inflation. Avataram realises this, so he has to find other reasons to justify his conclusion.
So he says:
Every country wants to have a strong currency, low inflation and so, the ability to lower interest rates. This needs credible policy, like the ECB has. Or wishful thinking, like Ajay Shah or young Sabnis have.
By this standard any article that lays out policy prescriptions is “wishful thinking”. Unless we stage a revolution and capture India’s financial system and the Nashik printing press, writing to call for reform is futile.
Next he expands on his claim that “One of these [strong rupee, low interest rates] precludes the other. The problems with the argument are:
- Avataram has his own definition for “precludes”. I always used to think that when one says “one precludes the other”, he means that one made the other impossible. It turns out that Avataram uses it to mean that one makes the other unnecessary.
- Avataram has his own interpretation of what Shah said. Shah had said that the RBI should not keep interest rates high in an attempt to keep the rupee weak, as it will worsen the slowdown in the Indian economy. Instead, it should let the rupee strengthen so that inflation reduces and it becomes possible to cut rates to fight the slowdown. Avataram forgets the bit about the slowdown in India and decides that Shah wants to cut interest rates solely to fight dollar inflows. Then he decides that the straw Ajay Shah he has just created is a moron.
In any case, once Avataram has been forced into a defence of why Ajay Shah is a moron, he has lost the war whatever he does next.