Customers at a bank counter exchanging old notes for new
Snapshot
  • Steve Forbes recently wrote a “critique” of India’s currency swap move, calling it “sickening and immoral”.

    But Forbes fails to provide evidence or facts to back up his over-the-top claims such as “millions” are being threatened into “destitution” because of the move.

    Unfortunately, India’s Alt-Left intelligentsia lapped up and widely shared Forbes’ piece simply in an attempt to score a cheap political point.

The swap of old high-denomination currency notes for new ones, announced by Prime Minister Narendra Modi on 8 November, has created the interesting byproduct of poorly-written and argued, over-the-top, opinion-based and largely fact-free commentary by a who's who of well-known economists and commentators.

Luminaries who've weighed in have included Harvard economist and former United States Treasury Secretary Lawrence Summers, Harvard economist and former International Monetary Fund chief economist Kenneth Rogoff, India's former chief economic adviser Kaushik Basu and failed economy Greece's "alternate" foreign minister who happened to be visiting India, among others.

To his credit, Nobel prize-winning economist Paul Krugman confessed on a visit to India that he didn't know much about the country and, therefore, was hesitant to comment definitively on the ongoing currency exchange.

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So, it appears the only well-known people who haven't commented at this point are Pope Francis and Kim Kardashian, but we shouldn't rule out that one or both will weigh in soon.

Even when those weighing in are well-known economists, such as some I've mentioned, they don't always get it right, substituting hearsay and opinion for fact and argument. Earlier, I had debunked a poorly-argued piece by Summers and a co-author,  which in a country with a sensible discourse would have debunked itself. But this is India.

The latest unfortunate entry in this starry list of uninformed people using the currency swap as a vehicle to trot out their own pet theories and biases is millionaire, failed presidential candidate and magazine publisher Steve Forbes.

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The over-the-top headline gives the show away, claiming that India's swap of old notes for new is "sickening and immoral". Without a shred of evidence, Forbes asserts that the economy is being damaged and that "millions" are threatened with "destitution".

He trots out some of the well-known and well-rehearsed glitches in implementation, including delays in printing the new notes and restocking ATMs. What he misses, however, is that there is simply no precedent for anything like the scale of the operation being undertaken in India. Indeed, when you consider the scale, what's remarkable is that despite the many well-known glitches, the operation has proceeded fairly quickly with already 80 per cent or more of the old notes exchanged or deposited with no major incidents of violence or unrest breaking out. That is a pretty remarkable achievement which critics such as Forbes simply ignore.

What Forbes and others fail to acknowledge is that Modi's move was so bold and radical that it simply wasn't on the radar screen of well-known economists and policy analysts I've spoken to before it actually happened. So, serious analysts are now grappling with analysing and interpreting the many different effects of the currency exchange, and any sensible and honest analyst will say that we don't fully understand the consequences. Of course, that doesn't stop the flow of ill-informed and agenda-driven, fact- and argument-free assertions.

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Forbes then takes a bizarre detour into the World Bank's ease of Doing Business survey where India ranks poorly. What this has to do with the currency swap is anyone's guess. But Forbes' next point is the topper, where he compares the currency swap with, wait for it, Indira Gandhi's forced sterilisation drive in the 1970s. I'm surprised he didn't compare it to the Holocaust itself.

But Forbes really gives away where he's coming from when, as part of his "critique" of the government's move, he argues "the best cure for tax evasion is a flat tax".

Forbes is well-known as an advocate for the US moving to a flat tax, a proposal which does have support among some mainstream Republicans but has never seriously been in contention to replace the current progressive income tax structure in the country. The truth is that for many dyed-in-the-wool American libertarians, the utopia is a world with zero or very low tax, and a flat tax is a stepping stone on the road to utopia.

Now, I went through my Ayn Rand phase too, but that was when I was 16. The reality is that textbook libertarianism is on the fringe even in the US, and in India, with its long history of government intervention in the economy, is not even in the ball park.

And if you don't believe me that Forbes’ core libertarian beliefs is where he's coming from and not from any real analysis or understanding of the currency exchange, note that he describes the government's move as attacking "privacy", and "inflicting more government control over your life".

This brings us to another of Forbes' cherished beliefs, which is that fiat currency is immoral and we must return to some version of the gold standard where currencies have real value in terms of commodities. Indeed back in 2011, he predicted that in five years, the US would move to a gold standard. So, unless something dramatic happens in the next few days, he will have been proved wrong.

The age-old debate about fixed versus flexible exchange rates and a return to the gold standard is an interesting debate in its own right, but obviously is at right angles to discussing the pros and cons of the currency swap in a country such as India, which has a fiat paper currency just like the US. It's a bit like bringing in a debate over quantum mechanics or string theory if you're trying to calibrate your bathroom scale.

After the comparison to forced sterilisation comes Forbes’ unbacked assertion that the Indian government has committed "a massive theft of people's property". Perhaps Forbes is unaware that people have the right to deposit or exchange the old notes. So, where is the theft? And the fact that holders of the unaccounted money that has been turned in are subject to taxation just means that India levies taxes, and everyone is obliged to pay what they owe.

Of course, for a libertarian who believes that taxation is theft, perhaps Forbes condones the fact that holders of black money were able to evade taxation and not pay what they owed?

Thankfully, this mercifully short piece wraps up with Forbes trotting out his standard formula for fixing the economy, which is cutting income and business taxes and simplifying the tax structure, along with deregulation and improving the business climate.

For the record, all of these are well-known policy prescriptions which I and many others support: but what exactly does this have to do with the currency swap? Nothing. If anything, as I've argued many times, the temporary liquidity crunch caused by the currency swap will force the hand of the government in pushing ahead with all of these much-needed reforms.

The real irony is that the folks who lapped up and widely shared Forbes' piece with glee because it slammed the Modi government are India's Alt-Left intelligentsia who most certainly don't share his beliefs in low taxes, small government and a return to the gold standard. But what's the point of intellectual coherence and honesty when you're trying to score a cheap political point by piggy-backing on an ill-informed celebrity commentator?

Now that's what's really immoral.

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