Scaling new heights

The Times of India has set a new standard as far as pragmatism goes. Just when you think they have extinguished all possible avenues, they manage to invent new ones. This is today’s edit-

Switzerland has long been a secret treasure chest for much of the world’s offshore wealth. Its banks including financial giants UBS and Credit Suisse offer clients privacy and personalised service. But the discretion it treats as brand value is also associated with suspicious opacity. Swiss banks have a point in saying their contracts with clients are based on the promise of privacy. So, disclosures-on-demand are a breach of trust, so important in their trade. But client confidentiality is valid only so far as account-holders’ assets accrue from legitimate activity. That indulgence can hardly be extended to law-breakers seeking tax havens or places to park illegal assets.

Nor should confidentiality mean stonewalling of regulatory scrutiny into tax fraud, diversion of embezzled funds, money laundering and other illicit activity.

[...]

By fetishising banking secrecy, Switzerland runs the risk of appearing to side with the bad guys. Banks should maintain secrecy as required by professional norms but also consent to providing client data to regulatory authorities or criminal investigators. That may be the way out of this impasse.

When principles becomes fetishes, anything goes.

Throughout history, governments have been the biggest murderers, rapists and law breakers, ever, and have killed, raped and plundered more people than all the criminals in the world put together. And, therefore, any case of “regulation” should be taken with more than a pinch of salt. Should banks like UBS provide information only to countries like the US and India, or should they also “comply” with the regulations of countries like Zimbabwe. If Mugabe imposes 100% wealth and income taxes on all “rich” people (don’t know if he has) and they rush to keep their money in Swiss banks, should a UBS then be accused of “fetishising” secrecy?

Philosophically, taxation as practiced in the world today is similar to highway robbery; in both cases a gun is held to your head and you are asked to pay up or face the “consequences.” Indira Gandhi once had a 97.5% marginal income tax rate – if you earned more than (middle class) subsistence level incomes, you essentially had to hand the entire amount over to the government. The stupidity ended years later, and it was during Chidambaram’s dream budget and the grudging acknowledgment of the “Laffer curve” phenomenon that the present day 30% marginal rate (excluding various surcharges and cesses) came into being. Governments have no moral right to impose any kind of taxes, or demand that citizens report all their activities – financial or otherwise – to them. The “transparency” they seek is because such “tax havens” prevent them from engaging in egalitarian wealth “redistribution.” No wonder people make heavy use of every loophole available in tax laws as also destinations like Switzerland and the Cayman Islands. Why do you think accountants and tax lawyers exist and earn handsome fees? Further, as far as I am concerned, terrorism is a bogey that governments are using to eliminate the few liberties that individuals have left. If banking secrecy “enables” terrorism, so does the internet, telephones, letters, homing pigeons, government bureaucrats, and politicians. Why not reverse the presumption of innocence principle on all of them?

The Times probably knows its audience – most people will simply drink in everything it writes, and the politicians will politely acknowledge its presence, but a lot of people do exist who have memories that last beyond today’s edition. And that is why today’s edit comes as a surprise. If you remember, the Times Group was once a victim of the dreaded Enforcement Directorate (they picked up the name from the KGB it seems) that falls under the Ministry of Finance. The case dates back to 1997, the finance minister was – Chidambaram – and the victim was Ashok Jain, the father of the present owners of the group; swiss banks and foreign exchange regulation violations were involved. Read this article for a summary of what happened, and try this google search if you want to know more. The poor man died after the ED hounded him for more than a year. The bureaucrats who did the hounding were later arrested on charges of extortion and blackmail-

In his three-year stint at the ED, Aggarwal allegedly intimidated a swathe of bigwigs. Some of his cases in which harassment charges have surfaced include Ashok Jain. The late chairman of Bennett, Coleman and Co. Ltd, publishers of The Times of India Group of newspapers, Jain fell victim to Aggarwal’s ploy after an ed raid on his house in January 1997 in which some visiting cards of Swiss bankers were found. Using it as the trump card, Aggarwal hounded Jain, a heart patient, for two years, with summons and threats, until the press baron had a fatal cardiac failure.

For anyone who is familiar with the workings of the normal face of the MoF, the Income Tax department – if you are just a salaried person filing your tax returns, you don’t know how it works – this is not a surprise. They can slaughter you – make you pay though the nose even if you are not at fault. And the same is true in the US.

Did the Times suffer from amnesia when it wrote this edit? It probably did. But then, these are dangerous times when dissent is equated with crime. So, maybe, amnesia is a good idea.

Fact, fiction and short stories

The UCLA has come up with a theory about the exact whereabouts of dreaded terrorist mastermind Osama bin Laden. And an Economic Times edit this morning pokes fun at the theory by invoking O.Henry’s Shamrock Jolnes-

The famed American short story writer, O Henry, perhaps more prescient in having known how his beloved nation would behave in the future, invented his fictional Jolnes as a counterpoint to Sherlock Holmes. Whereas the latter’s methods, as any Doyle fan would know, consist of eliminating all possibilities until the last one standing would have to be the truth, Shamrock Jolnes’ method of choice is to proceed immediately to a conclusion, however improbable it may appear.

This brilliant method, of course, eliminates all unnecessary doubt. Which, as we now know, quite came in handy when searching for all those WMDs in Iraq.

Of course, the UCLA team isn’t all that brazen. They do have some theories to fall back on. One is called the “distance decay theory,” which, scintillatingly, says that a person is likely to be found near the locale last seen at. The other bit, called “island biographic theory,” [sic] basically has it that life-sustaining resources attract sentient beings.

Just how these whiz Americans figure out these secrets of the universe is, of course, a civilisational mystery.

Now Shamrock Jolnes beats Sherlock Holmes hands down. Can Holmes ever manage to come up with stuff like this-

“Why have you that string on your finger?” I asked.

“That’s the problem,” said Jolnes. “My wife tied that on this morning to remind me of something I was to send up to the house. Sit down, Whatsup, and excuse me for a few moments.”

[...]

“Now, to get at the solution of this string.”

After five minutes of silent pondering, Jolnes looked at me, with a smile, and nodded his head.

“Wonderful man!” I exclaimed; “already?”

“It is quite simple,” he said, holding up his finger. “You see that knot? That is to prevent my forgetting. It is, therefore, a forget-me-knot. A forget-me-not is a flower. It was a sack of flour that I was to send home!”

Absolutely knot!

To more serious stuff, while the authors do seem to be confident, the fact is that the UCLA study is based on probabilities – given these observed geographical phenomena, and these necessary conditions, what are the chances of … Though the Times of India calls it “science” (“but to return to the science, the UCLA findings rely on two principles used in geography to predict the distribution of wildlife…”), it is in fact a “model” or a theory; and the authors are not claiming that it is anything but.

Moving beyond the study, this is not to disparage the use of models or theories – they do have their own uses; after all, every scientist and researcher starts with them and then moves on to validate them. But models, and theories, have to be recognized as such, and so should their limitations. Further, there is nothing wrong in calling a field of study a science, if it follows the scientific method; the problem however is that as far as the general populace is concerned, “science” conjures up an image of incontrovertible facts; that something has been proven beyond doubt. And this is hardly the case, more often than not. As Hayek said in the lecture I linked to the other day-

Why should we, however, in economics, have to plead ignorance of the sort of facts on which, in the case of a physical theory, a scientist would certainly be expected to give precise information? It is probably not surprising that those impressed by the example of the physical sciences should find this position very unsatisfactory and should insist on the standards of proof which they find there. The reason for this state of affairs is the fact, to which I have already briefly referred, that the social sciences, like much of biology but unlike most fields of the physical sciences, have to deal with structures of essential complexity, i.e. with structures whose characteristic properties can be exhibited only by models made up of relatively large numbers of variables.

Though he refers to economics (and other social sciences), and particularly to Keynesianism and its fixation with aggregate demand and full employment – they are after all statistically measurable, this applies to everything including the notoriously politicized “climate science.” When models that are based on certain assumptions are used as if their results are incontrovertible and universally applicable, we have a problem. And this is what Hayek calls a “scientistic” attitude-

It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences – an attempt which in our field may lead to outright error. It is an approach which has come to be described as the “scientistic” attitude – an attitude which, as I defined it some thirty years ago, “is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed.”

[...]

Unlike the position that exists in the physical sciences, in economics and other disciplines that deal with essentially complex phenomena, the aspects of the events to be accounted for about which we can get quantitative data are necessarily limited and may not include the important ones. While in the physical sciences it is generally assumed, probably with good reason, that any important factor which determines the observed events will itself be directly observable and measurable, in the study of such complex phenomena as the market, which depend on the actions of many individuals, all the circumstances which will determine the outcome of a process, for reasons which I shall explain later, will hardly ever be fully known or measurable. And while in the physical sciences the investigator will be able to measure what, on the basis of a prima facie theory, he thinks important, in the social sciences often that is treated as important which happens to be accessible to measurement. This is sometimes carried to the point where it is demanded that our theories must be formulated in such terms that they refer only to measurable magnitudes.

“Scientism” is just as bad as the outright denial of the applicability of science to a particular field. The answer lies in knowing the assumptions under which a particular scientific theory hold true.

—

The IRS is going after Swiss bank UBS and wants it to disclose the names of Americans who have accounts there. Naturally the money is illegal since the IRS hasn’t been paid its due – the protection money also known as the voluntary income tax. It reminds me of a Jeffrey Archer short story – “Clean Sweep Ignatius”(its google books, some pages will be visible, some won’t). Its the story of a Nigerian finance minister who starts a “war on corruption,” to paraphrase an American insanity. After arresting a few ministers and sundry bureaucrats on corruption charges, he tells his president that many Nigerians have stashed their money in Swiss bank accounts. The president gives him carte-blanche, and Ignatius lands up in Geneva. He asks for, and gets, an appointment with the chairman of a bank. He first demands the names of all Nigerians having accounts there on the basis of the authority of the Nigerian president. The banker denies the request. He then offers a carrot – business with the Nigerian government; denied. Then Ignatius uses the stick – a complaint with the Swiss Foreign Office about non-compliance; denied. Immediate embargo on all trade with Swiss nationals, recall of the Nigerian Ambassador, exposure in front of the world press – all threats useless.

Finally, Ignatius pulls out a gun, places it on the chairman’s temple, and asks for the list of names. He doesn’t give it up, still. Ignatius removes the gun. “Excellent” he says, and opens the briefcase that he’s brought with him-

The two bankers stared down at the neatly packed rows of hundred-dollar bills. Every inch of the briefcase had been taken up. The chairman quickly estimated that it probably amounted to around five million dollars.

“I wonder, sir,” said Ignatius, “how I go about opening an account with your bank?”

Unfortunately for the Americans, Ignatius’ bank surely isn’t UBS.

—

Some days back, I started writing a satire based on the US stimulus package; “The Tale of Three Countries, by Darles Chickens” I called it. The character included Canard Maims, Mall Klarx, Adam’s Myth, Kruel Plugman, ARack ForMama, Splurge N. Gush and a few others. But what started as a satire soon turned into a dark tragedy – Darles Chickens became Edgar Allan Poe, and “The Tale…” began to sound like “The Masque of the Red Death.” And I stopped writing. Maybe I should finish it all the same.