The distinction between effectiveness and efficiency is patently obvious to those who have understood it. But for those who have not, it may be worth a recap.
Many people are confused between effectiveness and efficiency. A sign of the confusion is that they tend to use the two terms together - as in: "for greater effectiveness and efficiency."
But which is which.
Leaders should be concerned with effectiveness - doing the "right" thing.
Subordinates should be concerned with efficiency - doing the thing "right."
The leader's concern is direction. He points a finger and says: "Go there."
The subordinate's job is not to worry about the "correctness" of the direction - but simply to "go there" as quickly as possible - as efficiently as possible. For if subordinates start arguing about the correctness of the direction, then the team will get nowhere.
What if the whole project fails?
If the failure is the result of inefficiency of the execution, then the subordinates should be punished.
If the failure is the result of wrong direction, then the leader should be punished and not the subordinates.
There is much confusion in the apportioning of blame of policy in Malaysia.
The civil servants seem to be getting the short end - for most of the blame is on the efficiency of the "delivery system."
But the national chaos that we get now is not the result of the slowness of execution - but the speediness by which bad policies get executed so that the whole economic system of incentives and rewards and effort is all upside down.
The civil servants seem to be causing the mess when in fact they may not be the culprits.
The politicians may be calling all the wrong shots.
If the people cry out because of the error in policy, it is tempting to shut them up in order that the culprits do not be made to appear stupid.
But the people have a voice in a democracy - not matter how faint.
Wednesday, April 15, 2009
Tuesday, April 14, 2009
The Essence of Leadership
The essence of leadership is the ability to inspire.
By inspiration means that the very name or the very image or the very concept or the very idea energises in one a desire to act or a desire to do good or an heigthened state of being or even a happy state of well-being.
The inspiration may have come from observation or perception of their past words or past actions, or the words or actions of their parents or ancestors. It is entirely evidenced based, although some may argue that some of the evidence may be judgmental.
This is where many everyday images or symbols or icons help to inspire ordinary men and women to live happily in their quiet humble little ways.
When we think of leadership, we are thinking of something that is good - something on the side of light and not of darkness.
Why?
Because ordinary people are good and therefore the world in general is good.
This is why the world is abhor at the very thought of having to endure a leadership that is perceived to be not-good.
That abhorance may not be warranted, if the truth be known, but in a world of imperfect knowledge or understanding, we have to live with the informational handicap - which then is the reality that we have to be content with.
In other words, leadership is something that is intangible but visible from the effects it has on others. By the reaction of the surrounding, we know whether that leadership is inspiring or not inspiring - good or not-good.
Inspiration is something money cannot buy. Stimulation, yes!
By inspiration means that the very name or the very image or the very concept or the very idea energises in one a desire to act or a desire to do good or an heigthened state of being or even a happy state of well-being.
The inspiration may have come from observation or perception of their past words or past actions, or the words or actions of their parents or ancestors. It is entirely evidenced based, although some may argue that some of the evidence may be judgmental.
This is where many everyday images or symbols or icons help to inspire ordinary men and women to live happily in their quiet humble little ways.
When we think of leadership, we are thinking of something that is good - something on the side of light and not of darkness.
Why?
Because ordinary people are good and therefore the world in general is good.
This is why the world is abhor at the very thought of having to endure a leadership that is perceived to be not-good.
That abhorance may not be warranted, if the truth be known, but in a world of imperfect knowledge or understanding, we have to live with the informational handicap - which then is the reality that we have to be content with.
In other words, leadership is something that is intangible but visible from the effects it has on others. By the reaction of the surrounding, we know whether that leadership is inspiring or not inspiring - good or not-good.
Inspiration is something money cannot buy. Stimulation, yes!
Monday, April 13, 2009
2Malaysia: People Second, Performance Later
2Malaysia.
2Malaysia is a slogan that is much more original than the original one because the original one sounds more like 1Utama or 1Borneo - and both are commercial shopping complexes - are we up for sale?
2Malaysia is a slogan that is also much closer to the truth - that there are two Malaysias (2Malaysias?!) - (1) My Malaysia and (2) Your Malaysia.
My Malaysia is my Malaysia and it is mine.
As in - Your Malaysia is your Malaysia and it is not yours.
People Second
Me first.
This motto is that of a selfish person or society.
The big brother bullies the small brother. The big brother joining the big brother to bully the small brothers.
In a recession, the electee of the people and the servant of the people are kings. People are an irritation like mosquitoes around the ankles. We kick and kick, and kick ourselves.
What is there to be gained by being charitable - others first, me second? There is too much of this all around - the boss taking credit for every piece of rubbish you put out, and thinks he's clever. Maybe, he is!
Performance later.
But promises now. Yess, yess, yes, sir!
Talk big, walk and talk, do nothing.
What is the reason for a person to perform now and not tomorrow - because if he does not perform now, he would be dead. Ask the Loan Shark victim. Ask the unemployed. Ask the diabled. But ask a potential pensioner who can never be sacked!
"Performance now" is something you tell others now.
"Performance later" is something you do yourself.
2Malaysia is a slogan that is much more original than the original one because the original one sounds more like 1Utama or 1Borneo - and both are commercial shopping complexes - are we up for sale?
2Malaysia is a slogan that is also much closer to the truth - that there are two Malaysias (2Malaysias?!) - (1) My Malaysia and (2) Your Malaysia.
My Malaysia is my Malaysia and it is mine.
As in - Your Malaysia is your Malaysia and it is not yours.
People Second
Me first.
This motto is that of a selfish person or society.
The big brother bullies the small brother. The big brother joining the big brother to bully the small brothers.
In a recession, the electee of the people and the servant of the people are kings. People are an irritation like mosquitoes around the ankles. We kick and kick, and kick ourselves.
What is there to be gained by being charitable - others first, me second? There is too much of this all around - the boss taking credit for every piece of rubbish you put out, and thinks he's clever. Maybe, he is!
Performance later.
But promises now. Yess, yess, yes, sir!
Talk big, walk and talk, do nothing.
What is the reason for a person to perform now and not tomorrow - because if he does not perform now, he would be dead. Ask the Loan Shark victim. Ask the unemployed. Ask the diabled. But ask a potential pensioner who can never be sacked!
"Performance now" is something you tell others now.
"Performance later" is something you do yourself.
1Malaysia vs Flatened World
"1Malaysia: People First, Performance Now" is a good slogan.
First, it says there is one Malaysia - which is a very good starting point.
Second, it says put the people first - which means that the government and that includes the politicians and the Civil Service must put all the people first - which is certainly a noble point.
But to put it into action means dispensing with case by case consideration (apart for exceptional cases) and go for a rule-based system - a rule that applies to all.
Third, it says act now - which is good - but only if the government, including politicians and the Civil Service, are competent, if not experts in their jobs.
If not, instant action without competence will bring the society and economy to ruin - and this is where we could be as a result of past policy actions.
So far, we are only dealing with self-correction - in other words, for the government to get back to doing its job properly.
But what are those proper jobs. (The KPI Minister may have something to say on this.)
The most important task of the government today is to position the economy properly in the new international economic order.
Do we continue to squabble over history and tear down our own house - or do try to expand and strengthen our economic boundaries and compete in the world arena - or do we simply allow some low-ranking civil servants to let in the enemies through the back door while the top dogs play office politics?
The priority for the government is as follows:
1. Build confidence among the citizenry on the basis that this country wants and treasures them all. National peace and harmony and goodwill.
2. Encourage all citizens to invest in the future of this country - children's education, businesses.
3. Encourage all citizens to re-invest in the future of this country - bring back top students, build more businesses.
4. Provide technical assistance to all economically-disadvantaged citizens to help them participate fruitfully in the economic mainstream. Avoid political corruption of the economic system. There will be jobs for people to teach methods and systems to others.
5. Bring the best of the human capital to the top - regardless of race - so that the nation can compete with the best in the global economic arena. Chop off the link between the political elite and the business elite.
6. Ensure that politicians do not amass wealth while in office - yes, they have sworn to serve and survive on their official salaries - and their families too.
7. Provide a good social safety net for all citizens (not just politicians and civil servants) when they grow old or are incapacitated. This is the real "People First." If we don't, the whole nation is poorer by it.
8. Develop world-class universities and technical colleges in the country. Measure performances with peer-review researches, linkages to industry and success of students in getting jobs or finding useful occupations in society.
9. Institute the highest moral standards for all politicians and civil servants and other leaders. Integrity, diligence, charity.
10. Make sure existing infrastructure and mechanisms work smoothly.
First, it says there is one Malaysia - which is a very good starting point.
Second, it says put the people first - which means that the government and that includes the politicians and the Civil Service must put all the people first - which is certainly a noble point.
But to put it into action means dispensing with case by case consideration (apart for exceptional cases) and go for a rule-based system - a rule that applies to all.
Third, it says act now - which is good - but only if the government, including politicians and the Civil Service, are competent, if not experts in their jobs.
If not, instant action without competence will bring the society and economy to ruin - and this is where we could be as a result of past policy actions.
So far, we are only dealing with self-correction - in other words, for the government to get back to doing its job properly.
But what are those proper jobs. (The KPI Minister may have something to say on this.)
The most important task of the government today is to position the economy properly in the new international economic order.
Do we continue to squabble over history and tear down our own house - or do try to expand and strengthen our economic boundaries and compete in the world arena - or do we simply allow some low-ranking civil servants to let in the enemies through the back door while the top dogs play office politics?
The priority for the government is as follows:
1. Build confidence among the citizenry on the basis that this country wants and treasures them all. National peace and harmony and goodwill.
2. Encourage all citizens to invest in the future of this country - children's education, businesses.
3. Encourage all citizens to re-invest in the future of this country - bring back top students, build more businesses.
4. Provide technical assistance to all economically-disadvantaged citizens to help them participate fruitfully in the economic mainstream. Avoid political corruption of the economic system. There will be jobs for people to teach methods and systems to others.
5. Bring the best of the human capital to the top - regardless of race - so that the nation can compete with the best in the global economic arena. Chop off the link between the political elite and the business elite.
6. Ensure that politicians do not amass wealth while in office - yes, they have sworn to serve and survive on their official salaries - and their families too.
7. Provide a good social safety net for all citizens (not just politicians and civil servants) when they grow old or are incapacitated. This is the real "People First." If we don't, the whole nation is poorer by it.
8. Develop world-class universities and technical colleges in the country. Measure performances with peer-review researches, linkages to industry and success of students in getting jobs or finding useful occupations in society.
9. Institute the highest moral standards for all politicians and civil servants and other leaders. Integrity, diligence, charity.
10. Make sure existing infrastructure and mechanisms work smoothly.
Friday, March 27, 2009
Keynes vs Monetarism vs Libertarianism
Which comes first, monetarism or libertarianism?
Monetarism is the value judgement that comes out of Milton Friedman, after his study of the long history of US money supply figures, that changes in the money supply has an impact on the real economy.
I don't think Friedman was trying to take a different stance from JM Keynes.
Keynes who was saying, under conditions of a liquidity trap whereby people are holding on to cash even if interest rates were cut down to zero because it is a far better way to preserve capital value and the expansion of the money supply will not help to boost the real economy, the government may need to step in to spend in order to create employment - on the assumption that there is a direct relationship between an increase in the output level and in the employment level.
The concept of the multiplier comes in as an afterthought to this basic Keynes proposition and the multiplier was then taken up as the symbol of the new religion by Keynesians when in fact the concept of the multiplier was invented by Richard Kahn. The multiplier helps Keynes to sell his basic proposition of the need for government spending - the selling point is this: You only have to spend a little, and the economy will take care of itself. The multiplier concept is now an integral component of the Keynesian mental apparatus (not Keynes') as taught in university mathematics courses disguised as economics that the first thing that policy makers with primary education in economics think instantly of whenever they think about policy is the multiplier. This is clearly a mental rut.
Friedman was basically a Keynesian but he was no Keynes. He sought to modify the Keynes proposition by saying that indeed you cannot flood the market with the money supply in a down market in the hope of boosting the real economy because you may get instead inflation - but you can that pre-emptive monetary measures to sustain the real economic growth by controlling inflationary expectations and inflationary forces by restraining the growth of the monetary base and hence the money supply. Hence, the x% rule on monetary growth by the Monetarists.
A technical note was made by Don Patinkin in a big thick book who argued that in a recession when prices fall there will be a real balance effect that will, technically if pushed to the extreme, be able to restore the economy back to full employment on its own without Keynesian interference in the system.
Many other economists also came into the fray to generate the glory days of the bloom of a thousand economic flowery ideas but they were only of two species - only different colours. We shall not enter through this door.
Instead, let's talk about the two species.
The Classical economists, as Keynes labelled them, were in fact excellent thinkers and they had done excellent work, in my view. Classical economists were fundamentalist economists. They thought in real value terms, they thought in the long term. This was necessary at the start of a new thought process. In fact, I would call the Classical economists the Zen masters of economics. What they thought was real in the long run - that's the absolute fundamental - and the Classical economic analysis remains true today in the long run.
But the policy translations of Zen masters are the same everywhere: Do nothing. Let things be what they are suppose to be. Observe the rise and fall. Be at peace even in the midst of apparent chaos. It is chaos because you do not understand it. Once you've understood it, it is nothing.
Perfect Market Competition and the Free Market
Perfect market competition is a theoretical concept invented by Neoclassical economists principally Alfred Marshall to describe the mathematics of economics that he was trying to create. Mathematically, the intersection between two lines is a point which is not a dot. How do you describe the intersection of the supply line and the demand line. For things to be absolutely perfect, you need perfect market competition.
Of course, Joan Robinson and others came in to poo-poo Marshall's mathematical schematics. But the Marshallian scissors were perfect tools for teaching young initiates into the abstract world of economic theory. I think it is the Marshallian scissors that started the teaching of economic theory as an industry in the universities.
But perfect market competition is not the same as Free Market Enterprise.
Free market is an ideology created to counter mercantilism. Free market is an ideology along the line of the French Revolution.
Miltion Friedman, in all his later writings, was a free market enterprise ideologue. This dovetails very nicely into his x% monetary rule. So Monetarism was packaged with Libertarianism as a new industry that runs very profitably as the Chicago School of Economics. The success of the Chicago School has become the scourage of the free world. This is where we are today.
Greenspan violated the x% monetary rule by accelerating US monetary growth to cure what was essentially US loss in global competitiveness. To justify this fundamental monetarist violation, he brought in the Free Market ideology. His current defence of his misrule is that the problem was not the policy makers but the failure of the industry to regulate itself.
The violation of the x% monetary rule simply means the creation of inflationary pressures, inflation and inflationary expectations.
Instead of monetary restriction to cure the inflation, current policy thinking calls for more "monetary measures" by which is meant physically to increase the quantity of money in the system. It is no ordinary monetary increase; it is senseless monetary expansion. Flood the market.
The basic point in my policy prescription is this: We know we are going to pump in more water in a flooded situation. Instead of just simply pumping water mindlessly, we should be more vigilant and more mindful how and where we are pumping that extra water in. We should pump in water to dry areas, areas that need water, and not areas that are already flooded unless there are people in boats who need extra water to take them over the bumps they are trapped in. We have to be mindful of the collateral damage.
I do mind inflation. Sustained inflation of domestic prices - like sustained depreciation of the external value of the currency - is the quiet robber of the lives of ordinary people who know that their lives are getting harder and harder but do not realise how they are being robbed of the little asset values they spent their whole lives collecting drop by drop.
I do mind zero interest rates because zero interest rates is the most intellectually defunct idea I have ever come across - and countries that practice it are disenfranchising the future of their children. Zero interest rates destroy the role of money in the intertemporal allocation of resources.
But we have totally ignored the most fundamental required action: Building the future.
Monetarism is the value judgement that comes out of Milton Friedman, after his study of the long history of US money supply figures, that changes in the money supply has an impact on the real economy.
I don't think Friedman was trying to take a different stance from JM Keynes.
Keynes who was saying, under conditions of a liquidity trap whereby people are holding on to cash even if interest rates were cut down to zero because it is a far better way to preserve capital value and the expansion of the money supply will not help to boost the real economy, the government may need to step in to spend in order to create employment - on the assumption that there is a direct relationship between an increase in the output level and in the employment level.
The concept of the multiplier comes in as an afterthought to this basic Keynes proposition and the multiplier was then taken up as the symbol of the new religion by Keynesians when in fact the concept of the multiplier was invented by Richard Kahn. The multiplier helps Keynes to sell his basic proposition of the need for government spending - the selling point is this: You only have to spend a little, and the economy will take care of itself. The multiplier concept is now an integral component of the Keynesian mental apparatus (not Keynes') as taught in university mathematics courses disguised as economics that the first thing that policy makers with primary education in economics think instantly of whenever they think about policy is the multiplier. This is clearly a mental rut.
Friedman was basically a Keynesian but he was no Keynes. He sought to modify the Keynes proposition by saying that indeed you cannot flood the market with the money supply in a down market in the hope of boosting the real economy because you may get instead inflation - but you can that pre-emptive monetary measures to sustain the real economic growth by controlling inflationary expectations and inflationary forces by restraining the growth of the monetary base and hence the money supply. Hence, the x% rule on monetary growth by the Monetarists.
A technical note was made by Don Patinkin in a big thick book who argued that in a recession when prices fall there will be a real balance effect that will, technically if pushed to the extreme, be able to restore the economy back to full employment on its own without Keynesian interference in the system.
Many other economists also came into the fray to generate the glory days of the bloom of a thousand economic flowery ideas but they were only of two species - only different colours. We shall not enter through this door.
Instead, let's talk about the two species.
The Classical economists, as Keynes labelled them, were in fact excellent thinkers and they had done excellent work, in my view. Classical economists were fundamentalist economists. They thought in real value terms, they thought in the long term. This was necessary at the start of a new thought process. In fact, I would call the Classical economists the Zen masters of economics. What they thought was real in the long run - that's the absolute fundamental - and the Classical economic analysis remains true today in the long run.
But the policy translations of Zen masters are the same everywhere: Do nothing. Let things be what they are suppose to be. Observe the rise and fall. Be at peace even in the midst of apparent chaos. It is chaos because you do not understand it. Once you've understood it, it is nothing.
Perfect Market Competition and the Free Market
Perfect market competition is a theoretical concept invented by Neoclassical economists principally Alfred Marshall to describe the mathematics of economics that he was trying to create. Mathematically, the intersection between two lines is a point which is not a dot. How do you describe the intersection of the supply line and the demand line. For things to be absolutely perfect, you need perfect market competition.
Of course, Joan Robinson and others came in to poo-poo Marshall's mathematical schematics. But the Marshallian scissors were perfect tools for teaching young initiates into the abstract world of economic theory. I think it is the Marshallian scissors that started the teaching of economic theory as an industry in the universities.
But perfect market competition is not the same as Free Market Enterprise.
Free market is an ideology created to counter mercantilism. Free market is an ideology along the line of the French Revolution.
Miltion Friedman, in all his later writings, was a free market enterprise ideologue. This dovetails very nicely into his x% monetary rule. So Monetarism was packaged with Libertarianism as a new industry that runs very profitably as the Chicago School of Economics. The success of the Chicago School has become the scourage of the free world. This is where we are today.
Greenspan violated the x% monetary rule by accelerating US monetary growth to cure what was essentially US loss in global competitiveness. To justify this fundamental monetarist violation, he brought in the Free Market ideology. His current defence of his misrule is that the problem was not the policy makers but the failure of the industry to regulate itself.
The violation of the x% monetary rule simply means the creation of inflationary pressures, inflation and inflationary expectations.
Instead of monetary restriction to cure the inflation, current policy thinking calls for more "monetary measures" by which is meant physically to increase the quantity of money in the system. It is no ordinary monetary increase; it is senseless monetary expansion. Flood the market.
The basic point in my policy prescription is this: We know we are going to pump in more water in a flooded situation. Instead of just simply pumping water mindlessly, we should be more vigilant and more mindful how and where we are pumping that extra water in. We should pump in water to dry areas, areas that need water, and not areas that are already flooded unless there are people in boats who need extra water to take them over the bumps they are trapped in. We have to be mindful of the collateral damage.
I do mind inflation. Sustained inflation of domestic prices - like sustained depreciation of the external value of the currency - is the quiet robber of the lives of ordinary people who know that their lives are getting harder and harder but do not realise how they are being robbed of the little asset values they spent their whole lives collecting drop by drop.
I do mind zero interest rates because zero interest rates is the most intellectually defunct idea I have ever come across - and countries that practice it are disenfranchising the future of their children. Zero interest rates destroy the role of money in the intertemporal allocation of resources.
But we have totally ignored the most fundamental required action: Building the future.
Thursday, March 26, 2009
Monetary Measures
When we talk about economic recovery or growth, we talk about life and living.
We talk about how to live, ways of living and how to be excited about life.
The current talks about policy measures and responses to the economic collapse are like the talks of pharmacists and doctors. You have a headache, take a panadol. You have stomach cancer, remove your stomach.
But the economy to come alive only when the world has a direction.
Where in the world is the future?
Economic planners have to sit down with bankers to figure out which way to go in future. If economic planners know where the future lies.
Or do we leave it to the innovators to come up with new products to excite new customers.
Or do we leave it to the speculators and holders of cash to take advantage of sharp asset price reduction as a basis for the world to engineer for itself somehow a recovery?
An economy grows because there are investors who are brave enough to put their assets on the line to produce goods and services for which there is a demand.
What does the world want?
Certainty, investment, production and consumption - in this order.
Certainty is currently being bought by the holding of cash.
Investment will come in when asset prices are seen to have stopped falling - and only after what potential investors feel have fallen to their proper values and not because some politicians stopped the decline at some inflated prices.
Production will then arise out of those investments.
After investments comes growth in income and hence consumption.
Monetary measures, ha!
We talk about how to live, ways of living and how to be excited about life.
The current talks about policy measures and responses to the economic collapse are like the talks of pharmacists and doctors. You have a headache, take a panadol. You have stomach cancer, remove your stomach.
But the economy to come alive only when the world has a direction.
Where in the world is the future?
Economic planners have to sit down with bankers to figure out which way to go in future. If economic planners know where the future lies.
Or do we leave it to the innovators to come up with new products to excite new customers.
Or do we leave it to the speculators and holders of cash to take advantage of sharp asset price reduction as a basis for the world to engineer for itself somehow a recovery?
An economy grows because there are investors who are brave enough to put their assets on the line to produce goods and services for which there is a demand.
What does the world want?
Certainty, investment, production and consumption - in this order.
Certainty is currently being bought by the holding of cash.
Investment will come in when asset prices are seen to have stopped falling - and only after what potential investors feel have fallen to their proper values and not because some politicians stopped the decline at some inflated prices.
Production will then arise out of those investments.
After investments comes growth in income and hence consumption.
Monetary measures, ha!
Tuesday, March 24, 2009
Whither the Global Economy Part II
The world awaits with abated breath the recovery of its economy, as nation after nation try to spend their way out of the recession which has emanated from the collapse of the US financial system and the excesses of the China economy.
The first order of business is to look for a bottom.
The bottom is formed when the stimulus is sufficient to overcome the forces of depression.
The forces of depression are:
(a) The end of mortgage lending as the real estate bubble burst.
(b) The end of consumer spending as the real estate bubble burst.
(c) The end of investment in real estate as the real estate bubble burst.
(d) The end of consumer spending as the stock market bubble burst.
(e) The end of investment in businesses as the economy collapses.
If the depressive force is 5% and the stimulus is 2% of GDP, then we should still get an economic contraction of 3%.
If there is no additional stimulus the next year, the economic contraction may continue.
This is why there is a certain urgency to get the banks to start lending again.
In the US, this involves:
(a) Recapitalising the banks. The capital and reserves are insufficient to cover the bad loans. Cash injection is necessary to boost capital to be sufficient to (i) cover the bad loans and (ii) have excess to support additional lending.
(b) Removing bad loans. Usually, the cash injection is underestimated because new bad debts keep coming up in a declining economy as unemployment spreads. The other method is to remove bad debts by having someone with a lot of cash (usually the government through bond issue) to buy and keep the bad debts which are usually real estate where value can be preserved in the long term.
The bottom will form when sufficient amounts of new money are poured into the banking system to take care of the bad debts and to form the new base for new loans.
New Lending Direction
The commercially viability of new loans depends on the new visions that bankers share with businessmen and government leaders.
The global economy needs to know where it wants to go in the future.
In the past, the world has merely been satisfied with producing cheap consumer goods to feed US consumers paid for with US paper money debts.
The world has paid for the senseless consumption with the massive abuse of its own limited global natural resources.
The global economy must go in the direction of productive investments with the purpose of relieving the misery of the majority of the human and animal population. There should be production and consumption but judiciously. These mean:
(a) There should be full cost accounting for agriculture production, which means eliminating the use of harmful chemicals on the soil.
(b) There should be full cost accounting for industrial production, which means putting in strict regulations on industrial emissions and effluences.
With the proper accounting of the cost of production, less volume but better quality should be produced. This should lead to a slower growth in world population and a better quality of life.
The world economy should slow down in growth, to take time to develop step by step, so that there is proper care in growth.
There is no point in hurrying to our own global demise. The only future the world has is in slowing down its growth so that it can preserve as much of its original natural self as possible. Everything that is man-made is a derivative.
The first order of business is to look for a bottom.
The bottom is formed when the stimulus is sufficient to overcome the forces of depression.
The forces of depression are:
(a) The end of mortgage lending as the real estate bubble burst.
(b) The end of consumer spending as the real estate bubble burst.
(c) The end of investment in real estate as the real estate bubble burst.
(d) The end of consumer spending as the stock market bubble burst.
(e) The end of investment in businesses as the economy collapses.
If the depressive force is 5% and the stimulus is 2% of GDP, then we should still get an economic contraction of 3%.
If there is no additional stimulus the next year, the economic contraction may continue.
This is why there is a certain urgency to get the banks to start lending again.
In the US, this involves:
(a) Recapitalising the banks. The capital and reserves are insufficient to cover the bad loans. Cash injection is necessary to boost capital to be sufficient to (i) cover the bad loans and (ii) have excess to support additional lending.
(b) Removing bad loans. Usually, the cash injection is underestimated because new bad debts keep coming up in a declining economy as unemployment spreads. The other method is to remove bad debts by having someone with a lot of cash (usually the government through bond issue) to buy and keep the bad debts which are usually real estate where value can be preserved in the long term.
The bottom will form when sufficient amounts of new money are poured into the banking system to take care of the bad debts and to form the new base for new loans.
New Lending Direction
The commercially viability of new loans depends on the new visions that bankers share with businessmen and government leaders.
The global economy needs to know where it wants to go in the future.
In the past, the world has merely been satisfied with producing cheap consumer goods to feed US consumers paid for with US paper money debts.
The world has paid for the senseless consumption with the massive abuse of its own limited global natural resources.
The global economy must go in the direction of productive investments with the purpose of relieving the misery of the majority of the human and animal population. There should be production and consumption but judiciously. These mean:
(a) There should be full cost accounting for agriculture production, which means eliminating the use of harmful chemicals on the soil.
(b) There should be full cost accounting for industrial production, which means putting in strict regulations on industrial emissions and effluences.
With the proper accounting of the cost of production, less volume but better quality should be produced. This should lead to a slower growth in world population and a better quality of life.
The world economy should slow down in growth, to take time to develop step by step, so that there is proper care in growth.
There is no point in hurrying to our own global demise. The only future the world has is in slowing down its growth so that it can preserve as much of its original natural self as possible. Everything that is man-made is a derivative.
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