Wednesday, February 28, 2018

Interesting Readings 28 Feb 2018


Bank Crisis Watch
  • The roots of the current banking crisis  Manas Chakravarty says "The roots of the current crisis in our banks lie in the great boom of 2003-08, which was then prolonged in India by a fiscal and monetary stimulus".  And that is true. When we are in phase of high growth all credit expansion seems good. It is only tested during downturns. Even now if India starts growing broadly  at 10% the bad debts will soon go away. [Rather their materiality to the balance-sheet will diminish]
  • But Manas Chakravarty refuses to blame anyone further. The boards of banks - PSU and private sector, also companies too, are not functional. There a substantial level of checks and balances just dont work. Unless you have functioning boards which uphold the shareholders interest banks will continue to pander to political will. There is also substantial corruption - both at RBI and Finance Ministry- that has corrupted the banking top management of all PSU banks.
  • Fault lines in the Indian banking industry - Rajrishi Singhal asks the right questions. This seems to be the first part of his analysis. Must read. One quote
One trend is unmistakeable: money is diverted out of the banking system with the active connivance of either the bank’s senior management or a couple of rogue officers. This is what makes both the PNB and BoB cases incredulous: with Reserve Bank of India (RBI) putting so much emphasis on anti-money laundering mechanisms, and with an increasing number of prosecutions against either money laundering or diversion of bank funds, it is indeed curious how both the banks persisted with lax risk mitigation and supervision frameworks.
  • SBI chief Rajnish Kumar hits back at critics seeking PSB privatisation. The SBI chief is not wrong. If you look at the accounting books of most of Indian companies - Public sector units have cleaner books than many private-sector listed companies. Sometimes I really don't know what these companies are hiding in those books. PSU is more wyswyg-types.

Reforms
  • T. V. Mohandas Pai and S. Krishnan complain about unfairness of taxation - View: Every year the same old story — Punish the honest, let the dishonest make merry. They are not wrong. The incentive system in India is stacked against the honest. I had earlier written about this somewhere. In India, the cost of complying with the law is quite high and punishment on breaking the law is not great and certainty of getting caught is almost zero. It is exact opposite of what it should be -  cost of complying with law should be low, punishment should be substantial and certainty of getting caught should be almost 100%.
  • Two Governments, Parliament And An Expert Body - How ICAI Is More Powerful Than All Of Them, Menaka Doshi highlights how ICAI is trying to scuttle creation of "National Financial Regulatory Authority". It is a must read. Government should get cracking on this. 
    • In the article Menaka Doshi highlights MCA's reply with statistics
Of the 1,972 cases taken up by the Disciplinary Committee/Board of Discipline of the ICAI, only in the matter relating to Satyam Computers have the members been permanently removed. 
Penalties of one year or more have been imposed on members in only 14 of these cases. In a majority of the cases, the members have been found as not guilty. 
Further, in majority of the cases where members have been found guilty, they have been merely reprimanded or cautioned. 
Astonishingly, the MCA noted that the ICAI has not moved even on complaints made by the Ministry. 
    • Most of the financial scams in this country including tax evasion and money laundering are product of the Chartered Accountants. They are hand-in-glove with tax authorities and Finance Secretariat in leaving huge loopholes in the law. NFRA will be a significant development. Staff it with clean officers and you will start cleaning the system.
  • Airlines Are Backing a Startup That Could Fix the Overbooking Problem
    • They are trying to solve the problem of overbooking. In the process the article states they want to collect more data.
    • This has been another pet peeve of mine. The airline booking systems, to my mind, are unnecessarily complex. The variety of factors are being unnecessarily tampered with to create opaque complexity. And whenever there is opaque policy there is fleecing of customers. I recently read an article about the different fare categories and it is complex. CNN Travel asked the question why airlines do not go flat-fee? They also have another article explaining airline pricing secrets.  
    • My suggestion to get lower prices on your tickets is search for tickets in "private mode". Using cookies airlines know you are searching for specific flight and hike up the prices for the same. It is my suspicion and based on my experience.
  • The confusion over rural electrification in India Dipti Jain explains the problems in rural electrification. 
    • A village is considered electrified if at least 10% of its households are electrified, among other conditions. Intensive electrification, on the other hand, refers to deepening the electricity infrastructure to provide access to the remaining un-electrified houses.
    • While progress is being made on the rural electrification front, proper accountability and monitoring is critical if the government is to set a date for achieving universal electrification.
Others
  • Fred Wilson has an excellent post called VC Funnel where he links to another article from CB Insights.  Read the CB Insights article and Fred Wilson's comment too. The chart is quite interesting though so here it is.
    • This chart is easily explained by the "bargaining power" logic I used in Subverting Capitalism and Democracy. Whenever there is an opportunity to grant loan so that the loan is difficult to be waived (student loan does not get waived by bankruptcy) and the bargaining power is favorable then you can increase the exposure. The rate of growth is increasing because lenders are keen to lend any amount (higher the better) and colleges keep hiking fees (because students have no bargaining power). The logic worked for the top courses like say Harvard MBA where pay-off from salary was quite substantial. But it hurt the lesser courses where the pay-offs were not as high. 
    • Dont forget to read Yves' comment right at the start of the article.
  • Next year, we may have a market crash, says eminent economist Andy Xie. I agree with some of his points and disagree with others. But worth a read.
World war watch
  •  HAL carried out hot-refuleing trial on Tejas. Tejas is quite important aircraft for India. Lower cost of purchase, low operating costs and supersonic fighter will be a baseline for large capacity deployment for India. Hope it functions well.
  • View: Why India should not delay its fighter jet procurement. This article argues that India will need a 5th generation fighter aircraft. India has invested in design of Su-57 but India is not happy with the engine and stealth characteristics of the aircraft. The choice is going all in for either Su-57 (we have good equation with Russia) or with F-35 one of the costliest aircraft as on date though they have now achieved lower prices with scale F35 cost is about 80million. With Su-57 having improved the engine to Saturn 2, I think Su-57 makes a better bet than F-35. It will need a super deal to tilt scales in favour of F35. (The order book for F35 is quite full). My sense is India will have to maintain both F-35 and Su-57 fleet. My vote for workhorse aircraft still goes to Gripen E and Tejas. In air, there is superiority in numbers.
  • Germany's armed forces are not quite ready says Judy Dempsey in Germany: From Machine Guns to Broomsticks. The article highlights how German army is ill-equipped. Two quotes are relevant
    • Back in 2014, a year after Ursula von der Leyen became defense minister, the armed forces were lacking such essential equipment that the aircraft that was supposed to take 150 German soldiers home from Afghanistan broke down. There wasn’t a back-up one available. That same year, at one stage during a NATO exercise, because they lacked machine guns, tank commanders instead used broomsticks. They had them painted black. This was not a joke.
    • As for the Eurofighter and Tornado fighter jets and the CH-53 transport helicopters, they can only be used on average four months a year. They are in constant need of repair. And by the way, there’s a shortage of spare parts for maintenance. Just to add to the miserable state of the armed forces, the troops lack night-vision equipment and automatic grenade launchers.

Tuesday, February 27, 2018

Interesting Readings 27 Feb 2018

One particularly weird thing I noticed today was the lack of reaction to the Xi Jinping constitutional amendment allowing him to become the defacto dictator of China. A few decades ago, I thought, US or Western nations would have made some noise about it. In fact I also tweeted about it in my reaction to FT story on the topic.

And soon enough I got to some other articles also voicing these very concerns.

My issue really is that any totalitarian regime is not good for the world. And particularly so in case of China which is on its way to become the leading power in the world. In a sense, the future world leadership is not democratic. That saddens my heart. It is possible that within this lie the roots of China's downfall. 

World War Watch
I have developed some respect for the Saab Gripen E fighter. It makes more strategic and economic sense than some other fighters. Gripen is a cluster fighter - it hunts in packs. It has lower per-sortie cost than most of the aircraft. Gripen also has beyond visual range fighting capability thanks to its superb radar.

There are shortcomings - for example, its max take-off weight is about 16000kgs, comparable for F-35 is 22000Kgs. But Gripen has better combat radius of 800nm v F35's 600nm.

The Dassault Rafale is a good aircraft too. So is Eurofighter Typhoon. But these aircrafts are more than 2X the price of Gripen E/F and a costlier to operate. Gripen is the cheapest to operate. 

Saab also is not able to find many buyers for its aircrafts. At present it has order of about 100 planes and it needs to find at least 200 more. It looks like promising bulk fighter for Indian Air Force along with Tejas. Indian Air Force inventory breadth is quite exhaustive. I hope they are maintaining some sensible plan. Girpen also looks to be good option for smaller nations.

Other Things I read
Mint has a story about Uncle Pai the creator of Amar Chitra Katha and Tinkle. I loved reading Amar Chitra Katha books and I am at a stage where I will be getting a complete set for my child. I hope the new team can export these stories across the world.



Monday, February 26, 2018

Interesting Readings 26-Feb-2018

Some interesting readings for today:

Bank Fraud watch
Business Standard details the fraud of Rotomac pens. Per the reading of FIR, it appears this is well established modus operandi. This scam uses rerouting money meant for processing export orders. There is also the usual siphoning off the loans by promoters going on. Usual suspects - chartered accountants, Bank officers and unscrupulous businessmen seem to be involved. Politicians are surely involved. I am also sure that such kind of scam cannot be undertaken without knowledge of RBI. 
If found guilty all the directors should be sent to jail. This will force the boards of other entities to be more vigilant. There is not much cost to board members for negligence.

Meanwhile Knowledge@Wharton asks What’s Behind One of the Biggest Financial Scams in History. Thankfully that is about LIBOR scam.

Here is another way people are using for money laundering. They are selling books for $555 per book. This book is entirely gibberish.

Gulzar Natrajan asks Is corporate India failing India? which is a follow up to another article about Corporate India ethics. I venture this lack of ethics and corporate failure is why India lacks formal, salaried Jobs a question posed by Alex Tabarrok and consequently does not sustainable middle class.

Currency
Vox has a fine post Money and monetary stability in Europe, 1300-1914 by K. Kıvanç Karaman, Sevket Pamuk, Seçil Yıldırım-Karaman
. Notable is the chart titled Index of the value of monetary unit, 1500-1914 (in silver/gold)
It leads to these three implications -

Our review of centuries of European experience offers a historical perspective on a number of ongoing debates in monetary economics. One debate concerns the relationship between technological and institutional innovations and monetary stability. Through the period we study, monetary systems were transformed more than once with the introductions of ledger, fiduciary, and fiat monies. These new monies were made possible by technological innovations in minting and printing and institutional innovations in banking and legal systems. Our findings suggest that these innovations by themselves did not necessarily make monetary systems more or less stable. Instead, depending on their fiscal capacity and political regime, states could employ the innovations to stabilise or destabilise the monetary units.

A related second debate is whether states can institute mechanisms to insulate monetary policy from politics. Historically, this debate has revolved around preventing discretionary monetary policy by adopting the gold standard, and currently, by central bank independence. Leaving aside the question of whether preventing discretion is desirable in the first place, historical evidence suggests that unless political preconditions are satisfied, it is not feasible. In particular, we find that neither the gold nor the earlier silver standard was a hard commitment. On both standards, states retained the prerogative to reset the silver or gold equivalent, or switch to fiat standard altogether. Consequently, when silver or gold standards kept the monetary units stable, it was ultimately because the underlying politics favoured stability.

A third debate concerns whether the state can be shut out of the monetary system altogether. Historically, the debate has centred on the feasibility of monies issued by private institutions, and currently, digital currencies. The long-run evidence suggests that the prospects for privately run monetary systems are dubious. Historically, it was private banks, goldsmiths, and moneychangers that innovated and developed new forms of money. States, however, sooner or later appropriated and monopolised these innovations, supported or banned them, and retained the control over the monetary system. Money was, and arguably will continue to be, too important to leave to private prerogatives.
 The paper is must read.

Interesting Working Papers to read 
  • Can poverty be alleviated in China?, 
  • Regulatory Soft Interventions in the Chinese Market: Compliance Effects and Impact on Option Market Efficiency,
  • Government Affiliation and Fintech Industry: The Peer-to-Peer Lending Platforms in China
  • Credit Allocation Under Economic Stimulus: Evidence from China
  • Bank Competition and Innovation: Evidence from Banking Deregulation in China

Wednesday, February 21, 2018

Interesting Readings 21 Feb 2018

Here are some interesting readings/listen today:

Adventures in Finance by Real Vision Episode 53 - Unfixed Income: The Bond Market Meltdown: Grant Williams and team talks to Jeffrey Snider of Alhambra Partners & Greg Weldon of “Weldon Live” about the Bond Market. The episode was recorded on Feb 8 but nevertheless it is a must listen. 
  • Jeff believes current correction is similar to Oct 2014.
  • Jeff believes we are trending lower on the neutral interest rate and analyst believe the cap around 3%. There is merit in the argument. Look at the chart of 10-yr rates (annotations are mine). He states this looks like "Japanification".
  • Greg takes a different view - he implies that this trend is unhealthy and may reverse for a long time. 
  • Greg compares this time frame to 1987.


Cash, Cat and Mouse by JP Koning discusses the cat and mouse game between tax authorities and taxpayers in the domain of retail payments.
There are two weak points in the sales process that allow cash-accepting retailers to avoid paying sales taxes or VAT. The first weak point is at the very outset of a payment. When a customer pays with cash, the person behind the till can avoid ringing up the payment. Without a record of the payment having been made, the retailer needn't pay tax. 
But even if a retailer rings up all cash payments and provides receipts, they can still avoid paying taxes. At the end of the business day, they need only doctor the cash register's data using a zapper—add on hardware or software designed for this purpose—in effect purging all or a portion of the cash payments registered during the course of business. With the only record of that day's cash payments now being the paper receipts held in customers' wallets—most of which will have been thrown away—the retailer needn't worry about the tax authority discovering the doctoring. (Erasing card based payments is much riskier for the retailer because a paper trail still exists with the card-issuer.)...
One neat trick to get retailers to provide receipts—and therefore run all transactions through the tamper-proof cash register—is to recruit the customer into the cat and mouse game as helper. Public information campaigns exhorting people to ask for receipts are one technique. But the more interesting trick is implementing a tax-receipt lottery. All invoices issued from the tamper-proof cash register come with a unique lottery number. Anyone who keeps their invoices will be able to participate in a periodic lottery. Customers thus have an incentive to ask the retailer for a receipt, obliging the retailer to run the transaction through the fiscal till. 
This is another aspect of going cashless. Can payments app help in this? I think so.

India Bank Fraud 
Banks vulnerable to hackers without online interface between CBS, SWIFT says Leslie D'Monte in Mint. While the premise is not wrong, it is not the complete picture. There are multiple control systems in any organisation. IT system is one, management control is other. Management control includes operational control and audit systems. All these systems work together. The article airs another misgiving about cybersecurity. Cybersecurity does not imply one technology -but it is a set of processes. Each part by itself does not always grant complete security but the process, taken together, should make it secure. PNB, I suspect, did not fail at that. I suspect there is involvement of few more people at PNB and also few from regulatory agencies. So I was happy when I saw this:

CBI widens PNB fraud probe to include bank’s top brass. I hope they also look into the RBI and Finance Ministry. Alternatively, Subramanium Swamy may already be on that one.

World war Watch
Turkey will attack Syria's Afrin 'in the coming days', Erdogan says. The situation in the middle east is turning bad quite quickly. Just a few months ago ISIS was cramped and it seemed that the situation may stabilise soon. Yet, this new intervention will fuel further problems. The problems of middle east arise from the random drawing of borders by the British and the Americans after the Second World War. But they have been aggravated by what I believe is Kissinger policy. Thus, the rulers and their armies (who want control), the population (who want peace and prosperity) and challengers (who are being oppressed by the rulers) have completely divergent interest resulting in continuous festering. 


The Maldives, since its independence in 1965, has had an “India first” policy and leaders of both countries have held high-level exchanges on regional issues. But since Yameen took office, he has aligned with China, which has defended his authoritarian rule. The Maldives now owes about 80% of its foreign debt to China, which has been spreading its wings rapidly in South Asia and has been eyeing the atoll nation for its strategic location. China has already cosied up to Nepal by helping the latter reduce its significant trade deficit; it has invested heavily in Sri Lanka and Pakistan. China is strategically encircling India under the fancy name of the “Silk Road Project”. A part of the road will also pass through Pakistan-occupied Kashmir and may eventually help further Pakistani ambitions in Kashmir. 
Dhruva Jaishanker counters this with an article titled Reports of India’s demise as a regional power are greatly exaggerated 

Tuesday, February 20, 2018

Interesting Readings 20-Feb-2018

It has become increasingly difficult to keep tabs on interesting articles I read. Almost always when I need to reference them, I am unable to find those. I started using Zotero to keep references but I also want to write some short comments on the articles so I remember what thoughts were triggered by the article. Hence I am starting this series as a personal bookmarking feature. 

Interesting readings for today

PNB/Nirav Modi/Chokshi scam coverage claims highlights.

Mint did a basic profile of Nirav Modi - Who is Nirav Modi, the man linked to $1.77 billion PNB fraud? It is short but interesting.

Tamal Bandyopadhyay answers basic questions about The anatomy of the PNB fraud. This follows a short but smart note by Deepak Shenoy titled How The 11,400 cr. Import Ponzi Scam at PNB Unfolded. Both are must read.

Once investigations start then skeletons will tumble out. Shasswati Das from Mint writes Shell firms, benami assets on the radar amid fresh raids on Nirav Modi, Choksi.  
investigating agency and the income-tax department have zeroed in on 200 shell companies—both in India and overseas—that were being used to receive funds as part of the alleged fraud, in order to create benami assets in the form of land, gold and precious stones.

I cannot believe there is only one culpable officer and one errant company (or one bunch). There must be more officers involved and surely more companies using similar modus operandi.

Bank Stability
Fourth and finally, I would like to quote this important paragraph from the Financial System Stability Assessment Programme for India done by the International Monetary Fund (IMF) and published in December 2017: “India’s key banks appear resilient, but the system is subject to considerable vulnerabilities. Stress tests show that while the largest banks are sufficiently capitalized and profitable to withstand a deterioration in economic conditions, a group of public sector banks (PSBs) are highly vulnerable to further declines in asset quality and higher provisioning needs. Capital needs range from 0.75% of GDP in the baseline to 1.5% of GDP in the severe adverse scenario.”

The IMF added: “The authorities recently announced a recapitalization plan for the PSBs amounting to approximately 1.3% of GDP, as well as the establishment of a mechanism to seek consolidation across these banks.... This recapitalization package will effectively address the capital gap assessed in the FSAP (Financial Sector Assessment Programme) exercise even under the severe stress scenario.”

Mihir Sharma takes the attack on Government ownership in his Bloomberg Quint article State Control Has Opened India's Banks to Fraud. He is not wrong. But the next logical step in this process is not fully correct. Debashis Basu highlights it. He believes if we change ownership - i.e. sell off the banks then the problem will go away. [Behind paywall] I am all for private banking. The government needs to own just one bank - State Bank of India - rest can be privatized. The reasons for this one exception is a topic for another post. However, I am not in favour of selling banks or any PSUs at this stage. The best way is to turn it around and then sell it. The assets of people should fetch full value.

Ila Patnaik discusses some other solutions in addition to bank privatisation in her article titled Lessons from a fraud. They include improving bond market, small savings scheme, increase deposit insurance cap and narrow banking. Read the quote about narrow banking:
Fourth, if the government decides that PSBs should offer risk-free deposits above the cap on deposit insurance they should be allowed to invest only in government bonds, or, do “narrow banking”. Then the implicit sovereign guarantee could effectively turn into explicit sovereign guarantee. The business of giving loans, making decisions, figuring out risk management systems, hiring competent staff, provisioning for bad loans, creating mechanisms for accountability and punishing management when systems fail can be left to private banks. Today the taxpayer pays when PSBs fail to perform these functions properly. Narrow banking by PSBs can take this burden away from the taxpayer.

Ajay Shah, as is his wont, targets the RBI in this Business Standard artcile - First, build a capable RBI. V Ananthnageswaran counters this in his post Problem disguised as solution!


World-War watch
Building maritime capacity in South-East Asia
Article by Swee Lean Collin Koh says many important things.
What New Delhi has in South-East Asia is what Beijing has only in the past decade started doing and so far not yet accomplished in the Indian Ocean

Other things
Municipal corporations are increasingly offering through app services such as online ticketing booking and local services that has have so far been the reserve of start-ups such as UrbanClap, Quikr and Housejoy
The services that should be provided by public bodies cannot be abdicated to private players. However, public bodies may find it difficult to design the most optimum solutions to public service delivery. I prefer the PPP model here - DBOOT -or design build Operate own and transfer. 


In this article Vrinda Bhandari, Amba Kak, Smriti Parsheera, Faiza Rahman and Renuka Sane from NIPFP submit their suggestions for The Justice Srikrishna Committee developing comprehensive cross-sectoral data protection law for India.



Wednesday, February 07, 2018

Revenue Deficit vs Fiscal deficit and Fiscal responsibility

"Ballooning Revenue Deficit is far more worrisome than nominal slippage in fiscal deficit" said Mythili Bhusnurmath in ET. Her views are correct. But how to curb Revenue deficit. Let us understand the terms a bit more in detail.

Revenue deficit is amount by which Revenue expenditures exceed Revenues. 

What are revenues or Revenue receipts?
Revenues can be tax or non-tax. Tax component includes share of tax of Union Government in general taxes and "cess" or specialized taxes accruing to Union Government alone. [Refer Note 1]. Non-tax revenues includes interest on loans to various entities (state governments, etc.),  profits and dividends from enterprises, duties and fines received, grants from multilateral agencies or other governments etc.

What are revenue expenditures?
Revenue expenditures includes:
  1. Salaries and pension paid to government employees
  2. Subsidies
  3. defense expenditure (relates to national security)
  4. Government procurement from stationery to vehicles to arms and ammunition for police (internal security)
  5.  Expense required for running government schemes and programs
  6. Interest paid on borrowings - domestic and external.

Fiscal Deficit is more like capital account deficit.
Capital Account Receipts side includes recovery of loans to States etc., receipts from disinvestment or privatization and borrowing (external and domestic). Capital expenditures includes investments in Public sector companies, investments in public projects, etc.

Further, accounting 101 will tell you that revenue deficit accumulates in the Fiscal side and it has to be financed through borrowing which sits on the capital account. The servicing of this borrowing is done through revenue expenditures. These twin deficits thus, are quite interlinked. Mathematically, it is true that we can reduce Fiscal deficit (FD) while Revenue Deficit (RD) remains high. But it is true only for small values of RD. But a more ideal situation is when FD is higher (though less than the 3%) and RD is zero or lower. Then, one presumes, your excess FD would be mostly because of high quality capital expenditure. This capital expenditure will yield more Revenues and thus lower RD in the future. [Refer Note 2].

The Problem
For past decade or more, reverse is true. Most of borrowing is used for revenue expenditures - i.e. payment of salaries to bureaucrats. In return, bureaucrats and government employees have stifled any possible revenue growth for citizen or companies thereby reducing the revenues. This widens the revenue deficit and pushes the system into a negative spiral.

It is clear that the present malaise is largely self-inflicted. Imposing FRBM target without first having a RD at zero or lower is a recipe for disaster. At present, government appears to throw disinvestment money after revenue expenses and that is very bad idea. It erodes the structure of the economy.

How to kickstart the positive spiral?
The government is now required to first ensure that RD is reduced to zero but using revenue receipts. That requires expansion of tax base which is impossible without taxing agriculture. Thereafter, using asset sales i.e. disinvestment or privatization route, reduce the lower quality borrowing. Most of the borrowing by the government should be directed towards investments that yield revenues in the future and thus create structural zero- revenue deficits or revenue surpluses. This is the improvement in quality of budget is what prudent observers seek.

Notes:
  1. Indian federal structure implies that both center and states have power to tax and they have share in the tax. Most of the taxes are shared and go into "consolidated fund of India" for central share and "consolidated fund of the state" for state taxes.
  2. Ideally, the any borrowing or loan or debt should create more revenue than expenses required to service it. To do that, borrowing must be invested in revenue boosting ventures. Companies borrow to buy new machine that can increase production. Similarly nations should invest in those assets that will increase profits for citizens and companies and thus improve tax receipts.

Monday, February 05, 2018

Taxes and the contract of Government

Taxes got me thinking about the kind of contract we have with the government. 
[Note: The following post is a thought process - neither complete nor complete in arguments]

Are we born into a government or do we grow up and contract with the government?

If we grow up to contract with a government, the contract begins when we enter into this contract - usually when we turn 18 years old. The contract is transitory and government is what I agree in the contract to be. People, who are present, come together to surrender some of their freedoms and money in return for the collective services that government shall enable these people to have. Now by implication, these collective services are best procured for the entire group and thus more or less obligatory. Like for example, security. It is easy for a group to protect itself from predators hence animals form into groups - giving up freedom to wander anywhere. In this transaction is the kernel of democracy. The freedom to roam / wander away is not denied. It is just that when you exercise your freedom to wander, you lose your security. This give and take is missing in modern democratic contracts.

A counter-view implies that we should not let an individual cancel her contract with the government. There are humane reasons behind this. If a person wants to opt out of this contract and he becomes ill and without access to some public benefit he may die. The question before the government is whether they should let him die or use the public services to prevent his death. If you think we should use public services to prevent his death then it starts sounding like "socialize the losses and privatize the gains". Then, he should not be allowed to renege on the contract in the first place. It leads us to a situation as if we are born into a government - where the government predates us. That is a bit queer. Governments i.e. countries are supposed to be perpetual entities. They can never die. So this every present, always alive and thus omnipotent (or rather more potent that any living person) government bestows upon us some benefits for which we are to return some favors. The benefits includes everything - air we breathe, water, public services, schools etc. and favors imply taxes. Now don't you want the government to give you more benefits, more sops and more things? Then you must pay more taxes! Next 50% inheritance tax.