Monday, November 17, 2014

Modern Guillotine

Now, we have a state in our great Nation that proposes to chop off offenders' limbs for crimes which are now considered minor by modern standard, such as stealing. I do not like people stealing from me, and I certainly do not like to see their hands chopped off for that either. For all I care, I could have also been inadvertently stealing from others, such as ideas, and I certainly do not like either to have my head chopped off.

Total elimination has always been the simplest method for solving problems by people with little ideas and no compassion. The cruelest punishments are devised by people with the more devious minds, those who cannot imagine why others can resort to desperate acts. It is unfortunate to have to live in a society where desperate acts are common, for it must mean life is very hard for many. It is the duty of the leader of the state or the nation to think of ways and means to lighten the burden of people who cannot help themselves except to do things that they know society despises them for.

I don't think it is ever possible for society to be homogeneous for long. Imagine a society that stays the same forever, doing the same thing day in and day in, year by year, decade by decade, century by century. Japan may immediately spring to mind. But Japan is last of the feudal states of the world, and look at what desperate acts it had chosen to undertake in the name of survival, not just of its neighbours but also of its own people. In the end, everything boils down to the preservation of an old institution which has refused to change in the face of change. Everything else must adjust to it.

Ancient philosophers had taught us that it is possible to build a society of civil people where stealing does not exist, not because people are not hungry but because people are honest. They may not have to beg, but people will give. In this world of economic exchange, the market is a devise constructed whereby it is encourage that people should exchange things which they have too much for what they want, even if among perfect strangers. But this thesis presumes that outside the market, people do exchange because of their kindness and their friendliness and their attempt to be nice to each other. In olden days, this friendly giving is called charity; now, it is called corruption.

In this world of polarity, we think in terms of black and white. This is how the world has been mostly explained, so far that my books tell me. Positive or negative, yes or no, male or female. One is unity; it is also stagnation. Two is the minimal that is required to exchange motion, dynamics, and hence the rest of the world with its myriad manifestations. I am more inclined to think in terms of spectrum and distribution, whereby everything exists, in all its infinite realities, but it varying quantities. Amidst this natural spectrum, we are not likely to see black overwhelming white, or light overwhelming dark. The world is as it is without domination; thereby without elimination or annihilation of others who are different from you.

It is of course for self development and self improvement that one chooses to cultivate oneself in a certain direction. While I think think of the good stuff that one can try to cultivate for oneself, I can also imagine situations where individuals simply mutilate themselves to look different. I have nothing to say to them except to have fun. To each his own. But be restrained, very restrained in doing it to others.

This great Nation has seen the modern guillotines operating in many spheres of our daily lives. You cannot be involved in this economic sector and hence cut off because you are of the wrong race or religion. You are cut off from government funding because you are of the wrong r&r. You are not allowed promotion because you are of the wrong r&r. You cannot think these thoughts because they are seditious, even though you are peaceful. It is therefore not a great surprise that we should come to this frame of mind, to think it is even now in this day and age quite all right to chop off someone's limbs, as a matter of rule. Is this law?

Tuesday, November 4, 2014

Creating Expectations

I wish to suggest that this government has finally managed to do what most economists feared most in realty - the creation of inflationary expectations and following close by expectations of handouts in the face of the policy of reducing or cutting subsidies.

It is a sign of poor policy formulation and implementation (in lieu of a more accurate single word which I think is not so polite to use in public disclose) that a simple idea that requires a clear decisive action is being dragged out along a long series of half-baked pronouncements which nobody in the world understands what they are all about.

At the root of the whole debacle is politics mixed up with bad economics.

The fundamental issue is that the oil money is running out, but how much and how fast is a question that needs to be properly answered. The days of roses are over. The old prime minister has resigned and is smiling. The fundamental economic policy is government mega projects to stimulate the economy (which is a junk idea) funded by borrowings which are now hitting their limits. The proposed solution is that there should be more mega projects, but the government deficit to be reduced by increased government revenue sourced from the GST and the reduction of subsidies. This is pure static analysis.

The dynamics of the reality is that increase fuel prices is working through the economy like wild fire. The transportation industry is the first hit, which quickly translated into all goods and services that have to be transported - which is everything. The Ministry of Domestic Trade, like a poor midwife as the baby's head is showing, tries to hold the head and all prices as long as possible, with danger being put on the life of the baby and the economy. The formal pricing system does not work and everybody tries to work around the formal system through the black market. Smuggling becomes rife, and the customs are now into the game to catch the smugglers, but not the culprits.

While all these are happening, the big announcement came that the 6% GST will be implemented on April Fool's Day in 2015. This is the straw that breaks the camel's back. There are now no holds barred. Everybody now comes out to say that they cannot hold on to the old prices any more. Price adjustments are proposed to be as large as 40%. These proposed price adjustments are what we read in the papers. In realty, these are price increases already happening on the ground. There is no way that any one government agency can supervise every nook and cranny of the country, unless we transform ourselves into an authoritarian state. The reality is that price adjustments have already taken place on the ground as a result of the multiple sequential announcements of price increases on inputs. It just requires so much time for the government to accept formally that these price increases have in fact taken place.

Against this series of announcements of price increases for inputs, the politics says that the poor must not be unduly affected. This brings forth a series of announcements on livelihood support entitlements for the poor. Everybody is poor if they are in the right constituents. The poor wake up every morning asking where is my next entitlement coming from. It is a full time job receiving entitlements, for you have to register yourself and your family, and you have to queue up to receive. You now cannot concentrate on working hard to survive. There is a greater certainty in receiving the handouts, as they are a steady flow. The creation of expectations of entitlement is always dangerous for it creates dependence.

I would suggest that the third force that is going to take this country out of the quagmire is for this government to create the expectations among the private sector that there are opportunities in this country for making money. The quality of the management of our financial system is debatable. We have no special qualities, and we justify everything here by saying that we are a small open economy which we cannot possibly insulate. So, as with the rest of the world, we enjoy asset inflation in real estate, we welcome foreigners to buy up properties and push up and hold property prices at high levels - thanks no doubt to our weak currency.

The property market now is at a stalemate. This is the clincher. Of course, local interest rates will rise, "in line with the rest of the world." The US and Europe are hesitant. But the US economy seems to be doing better, thanks to fracking. We are at the inflection point of the QE. How strong are our banks? As strong as their reserves. How much reserves. As much as their exposure to real estate.

The management of the loan books of the banks, no manner how big or small, depends on their ability to diversify them out of real estate and into entrepreneur activities. Where these entrepreneurial prospects lie is the problem and challenge for everyone, not just the ordinary citizens looking to a future at home, not just the bankers hoping to diversify their loan books, but also the government policymakers who are being entrusted with the responsibility of charting out the future of this country, "from middle income to high income."

The excessive focus of policy, and the media, on politics and religion and everything that is unhealthy and unsavory is detrimental to the future of this nation. There is simply too much politics in public life. There should be greater focus on economic and business opportunities in this country, and how these are being promoted for the general public. Instead, with very nice announcements, we are subjected to minions in government agencies acting big because their non-attention can be detrimental to you, and there is reward for doing bad jobs. You get bribed or you get promoted out.

The current focus of the government on its mega projects to get the economy out of its hole is only self-serving, with no benefit whatsoever to the general public on how to earn a living.

It should not be surprising that, in this tough environment, the desperate are reacting badly to their daily conditions in order just to survive the day.

There is much that the government must do for this great country of ours. But, first and foremost, the government must manage the expectations of society so that we can begin to invest in our future knowing that after all the hard work, there will be light at the end of the day. We have to contain our inflationary expectations, kill expectations of handouts and entitlements, and improve our expectations that there is a future for us through hard work, not playing politics and stealing from others.

Monday, November 3, 2014

Creativity & Dogma

I must say I am greatly pleased by the reprinting of this classic book by Edward de Bono on Lateral Thinking now entitled "An Introduction" after all the years of elaborating on the teaching of the concept, as opposed to the original title of "The Use of Lateral Thinking."

Lateral thinking is as opposed to vertical or logical thinking. In vertical or logical thinking, the whole argument is built upon a particular premise which, in a broad perspective, must be seen as arbitrarily came upon in the first place. From that one premise is built the whole gamut of logical conclusions of various types and eventually ending up with the ultimate extreme logical conclusion. Philosophers are familiar with the situation when logic, taken to extreme, is reduced to absurdity.

de Bono cited the case of the science of physics when physicists felt utter confident of themselves thinking that they really had attained the full knowledge of the physical laws of nature until Einstein came along which then threw the physicists into a tailspin and the realisation that the study of physics was only starting for real.

The same application of logic taken to extreme would apply to all branches of knowledge including branches of religion which claim to have a logical fundamental premise. The clinging onto a single basic premise and the building up of the whole infrastructure of logic to support ultimate conclusions must, in the extreme, lead to absurdity when the conclusions can no longer be supposed by facts and the observations of reality. This is pure dogma.

Lateral thinking seems to challenge the fundamental basic premise used in any branch of knowledge, and to explore alternative basic premises in the hope of discovery one that is most useful for explaining the world as we currently observe it to be, or the beginning of a better understanding of the world or where we as human beings are in the world. de Bono likens this search to the oilman who dig holes in different locations in the hope of discovery more oil, rather than digging deeper and wider a single hole. I would liken the exercise to the venture capitalist who is looking for projects that will give supernatural returns, and the venture capitalist must spread his investments among many projects in the hope that even a small handful of successful projects will be worth his troubles.

In Malaysia, we are fighting a hard and battle to stimulate some form of creativity in our cultural and living environment in the hope that this economy of ours can stand on each of our own two feet, before we finally run completely out of oil and gas to comfort us. There is now the changing climate in education where English is now slowly reclaiming some of its rightful ground as a medium of instruction so that our children can learn to read works of knowledge in their originally written language. There is still plenty of work to be done for creativity to reign in our society. Perhaps we need to think laterally as we fight age-old dogmas and rigidity of minds promulgated by the uneducated and unlearned and the ignorant.

Monday, October 13, 2014

Malaysian Budget 2015

1. The first question is whether the overall Budget 2015 is going to be expansionary or contractionary on the economy? Is the government sucking money out of the economy or is it putting money into the system? The answer is obvious since this is widely acclaimed in the local newspapers that Budget 2015 is good because the government is going to cut its overall deficit from RM37.3 billion in 2014 to RM35.7 billion in 2015, a reduction of RM1.6 billion. We can say that Budget 2015 will be contractionary on the overall economy by this amount of RM1.6 billion.

The government will be taking out from the general public RM10.1 billion in tax revenue while increasing its spending on operating expenditure by RM2.3 billion and development expenditure by RM6.2 billion.

2. Where is the critical assumption in the whole calculations in Budget 2015? The trick is in the GDP deflator. The government expects the headline inflation (the CPI) is expected to be 3.4% in 2014 and about 4% to 5% in 2015, because of the 6% GST and the cut in fuel subsidy. The GDP deflator is assumed at 4.2% in 2014 and 4% in 2015. With an economy that is expected to grow by 5% to 6% in real terms, it is not surprising that nominal GDP will grow by 10.2% in 2014 and 9.4% in 2015. All these inflationary effects are very good in lowering ratios of nominal debts in nominal GDP terms.

3. There is clearly a shift in direction from direct to indirect taxes. The attempt at avoiding the entrapment of average salary earners in obsolete income tax brackets is to be applauded, principally because salaries have been unable to keep up with rising costs of living and the escalation of property prices. Personal income taxes are reduced by 1% to 3% points to take into account contemporary income levels.

4. Corporate income tax is also reduced by 1% to 2% points. This may not have been necessary. Corporates are among the richest entities and foreign ones do not even have to pay tax.

5. Bumi Agenda. It is heartening to see the government's relentless pursuit of the bumi agenda. It is good to see help to the needy. But it is also strange for a government that is concerned with inclusiveness and private sector growth to neglect any section of society which may also be in want of assistance in entrepreneurs. The Budget even has encouragement for foreign start-ups in Malaysia with one year work pass. I hope I am wrong, but there seems to be a serious gap in economic thinking.

6. In general, I do not have much other complaints. There are lots of little smatterings of everything all over the place. In economics, these are considered marginal adjustments. The big item is the GST. Let's see whether that will bring the economy up to speed.

Tuesday, September 23, 2014

Independence: Scotland The Great

The Scottish referendum on independence was a show of the greatness of the Scottish people.

No where on earth have we seen a referendum that was so intense and yet so peaceful, except for a few scuffles on the Friday evening of the counting. In an imperfect world, it was as ideal a demonstration of the proper practice of democracy as we can even imagine that a group of people can perform.

We saw people from both sides debating the pros and cons of independence for Scotland, with great emotion and with great restraint.

The argument for independence for Scotland, as with the argument for independence for any notion of nationhood, is a highly emotionally charged one. Who does not want to be independent, to be the master of oneself, not to be controlled by someone else? It is this very notion of being the master of one's own destiny that is so at once romantic and so compelling. It is this very notion that now drives many other states to try to split from a federation or a union, in order to again a sense of freedom and liberation.

The argument against independence and for Scotland to stay within the union of the United Kingdom is an argument of great economic practicality. It is the economic argument that has created the European Union, for example, and that is pulling more states in peripheral of the EU towards the union. Most people want to be part of a bigger economic bloc so that ordinary people can also find good jobs outside their homeland. This is economic freedom. Which also means that there are people in the homeland who do not find jobs, and therefore blames the union of their inability to find something decent to do at home. If creating good jobs at home is easy, jobs can also be created while within the union.

Unless, of course, we are talking about some macroeconomic policy changes, the biggest of which is the currency which must be devalued in order to make the homeland more competitiveness, which then of course devalues the wealth of the rest of the population and since the unemployed is only a small fraction of the population, there is overwhelming argument against independence because of the currency issue.

The pro-independence camp arguing that the economic uncertainties highlighted by the other camp is pure fear mongering, which is incorrect. The economic uncertainties are real, and I think it is the reality of the economic argument that finally won the day over the romanticism of the political argument.

This is true of almost every country on earth where democracy is properly practiced, that the prime concern of all citizens is the day-to-day reality of survival and earning a living, and with it the importance of proper education, and law and order. In any union, therefore, the pulling force lies in the soundness of national policies, their fairness or "social justice" as the Scots said recently. It must be this sense of fairness in the treatment of all citizens that people feel they truly belong to the place which they were born and not be rejected considered as weeds in a monoculture plantation.

The greatness of the Scottish people, as shown by the recent referendum on independence, is that they give confidence that level-headed and rationality can prevail even in a highly contentious situation. Bear in mind that the Scottish mind is probably one of the most enlightened of the human mind, which gave birth to the idea of independence of the French Revolution which the French then exported it to America. For economists, of course, the greatness name is Adam Smith who fought for economic freedom for all people and nations. And David Hume who gave the idea of rent and rent-seeking, as well as the marginal returns to land. There are many more.

The greatness of the Scottish people is their elevation of mind from the primitive and irrational to the rational and disciplined. May the whole world learn and follow.

Monday, September 8, 2014

Joan Rivers: Brute Honesty

What is wrong being yourself?

If you find a reality that is an upfront to polite society and you find that you can make a living out of it, then it is not a bad thing. Nor is it a wrong thing.

Of course, polite society will say you are being caustic, acidic, sharp tongue, abrasive, etc.

But there is another section of society who is with you. And if you are popular with the general public - and as a result, you are successful - then that is really not a bad thing.

The truth is that it is really hard to be really nice and popular with everybody. There are people who are jealous and hate to see you do well. There is no need to obtain general acceptance.

I am probably spending too much time with people who want you to endear to them. There is so much hypocrisy when people pretend to be nice but in reality hate your guts. There is so much pretense that you do not know the reality.

Equally, I would probably not want to live in an environment where everybody shouts at you in your face all the time, and wish you ill or death.

The bottomline is the ultimate intention of the person. If you know that the person is ultimately kind, may not be nice, doesn't really mean the words used, but merely describing things the way she sees it without mincing words, and to be brutally honest, then I suppose one would not take offense, if the blunt words are not directed at you or are directed at someone else.

It is really a fine line. And only a master can walk that fine line and not fall.

Not everybody likes the jokes by Joan Rivers, but she was a master that brute honesty.

Tuesday, September 2, 2014

Independence & Nationalism

Between the 31st August and the 16th September, Malaysia have more than two weeks to contemplate what this so-called independence of ours means. Whose independence, who should have the upper hand - or are these entirely silly questions.

Independence is a claim on self-government by all the people in a certain geographical area. This is as opposed to the government of the local area by some foreign powers such as the UK or Japan, or Holland, France, US or China. Independence is the government of the local people by the local people, in the best way they see fit.

The 31st August is significant because some 57 years ago the UK government had graciously agreed to allow the local people of Malaya to determine their own destiny. The 16th September is significant because some 51 years ago, the UK government has graciously agreed to allow the local peoples of the now three entities of Malaya, Sabah and Sarawak to govern themselves and form a federation called Malaysia.

This idea of Malaysia was then as advanced as we have today of the idea of the European Union. The EU is a union at several levels. First, is the monetary union which uses the Euro among all EU members, except the UK. We have this in the ringgit. Second, there is the customs union where there are practically no barrier to trade among EU members. There is no barrier to trade among Malaya, Sabah and Sarawak. Third is the removal of barriers to intra-EU migration. This is now a big problem among EU member states where weakness in the control of non-EU immigration in a remote corner of the EU can cause havoc in other member states. There is now a growing call among EU member states to review this feature. What is meant as good solution to unemployment in some states and high wages in others - which it still is - is now a contentious issue in individual EU-member sovereign nations. The tendency to look at the good side while underestimating the problems is a major problem when sovereign states come together to create a larger economic bloc, often at the expense of politics.

The idea that Sabah and Sarawak can come together with Malaya is form a bigger bloc - ostensibly to fight a potential neighbourly military threat - is now being increasingly questioned by the educated group as to the implications on the economics as well as culture and religion.Independence does not appear, to them, to be a case for self-governance by the local peoples but the dominance of the majority on the large minorities in all spheres of life - politics, economics, religion, culture - the name of nationalism.

The real problem is, of course, the drive towards monoculture as the saving grace for nationalism masquerading as unity. This is a dubious proposition. Unity is always about cohesion, not uniformity. The constant struggle for survival and betterment is the driving force for the national strength - on as level a playing field as any humans can provide for their fellow human beings. It is not about complete domination of oneself over others, not the complete annihilation of others. It is the varying quality of the fertility of the ground that will define the structure of economic activities and social practices and general sense of well-being of different sections of society.

Taken to extreme, the inflictions of pain and death on others seem to be the way to new ways of life through bloody revolutions in some parts of the world, enabled no doubt by the arms industries of dysfunctional economies. Extreme ideology is an extremely potent and dangerous stuff.

The response to extremism is not extremism - no matter how righteous - but alertness by being always alert and to be ready to respond to counteract whenever there is a need to. In this, we need discipline and training and expertise. We do not have anymore the luxury to allow incompetence to take leadership position and leading all critical parts of the economy and society into disarray. We have got to wake up if this independence of ours is to have any value to us who live in this great nation.