If we refuse ourselves to be fooled by the politicians about the need for "sustained rapid" economic growth, then I think we have a chance to live a more self-satisfying life. In what way?
After all, are we all not free to live the life that we so choose? If we are, then what should we do?
I think any reasonable person would want to exert himself as fully as he can and be happy with that exertion because it is motived by his inner self - the result of an understanding of life which he has obtained from his parents and family, his society and the encounters in his life. As such, the inner self will evolve, and with it, the things that he will do to be self-satisfied.
I think we all know the above. Only, that we do not have the courage to execute it. Why?
We fear we will not have enough money to feed ourselves and our family. We fear illness and we fear death.
Our whole beings are formulated right from the start by the fears of our parents. Through their keen observations of life, they know the way to live life successfully under the prevailing circumstances - and their keenness to see us successful in life is expressed in the disciplines they have placed on us. From there, our whole beings are respectively created by a figment of our parental fears who come across time as cultural values.
If we have created for ourselves a benevolent society, then there is a social network which provides opportunities for the capable to exert themselves and be productive and for them to support the whole of society especially the young, old, sick and the less fortunate. Such a society may draw from the best of each of us - insofar as our education, intelligent and insight allow us. This is where enlightenment as to what life is all about produces a happy society. In such a society, there probably will be many acts done out of devotion and concern and care for people and the environment where no money is exchanged.
The GDP of the benevolent society will be lower than that of the purely commercially market-oriented society. The market economy transacts every act with the exchange of money. Millions die in the midst of plenty because they have no money to buy, rather than there is no food. I am not against the market economy; the market is good as an outlet for those who want to monetise their efforts. What I am trying to say is that not everything should be monetised through the market. There are some things we do which we wish to keep private and localised only for the enjoyment of ourselves, our families and our friends.
I have tried to motivate my children to do things other than the vocational courses which are obviously geared for the commercial world. There are the arts and other creativity ways of life where the commercial values may not be as great (at first blush) but the personal self-satisfaction may be tremendous. I have often yearned for a more vibrant arts scene in our midst if only for a better and more balanced way to while away our lives.
For this, workers and employees have to be better educated and better paid, employers to put plough back their profits to improve productivity rather than hidding them in other countries, policymakers to design clear operational systems for the people, and politicians to keep a low profile (as opposed to smiling heedlessly from billboards).
It started with the Japanese but now the Chinese have shown themselves to be the real masters of the invincible. But we do not have to follow the antics of these strange and hardened people. Those of us who are in Malaysia, born and bred, have been nicely softened by the humidity that we are quite happy to be good but not that brilliant. We are happy not to be the best, but be the happiest. If we can be happy with little, then we should so that we have to spare time to do the things we really want to do.
Of course, we leave it to the civil service - not the politicians - to plan for the common good; by the civil service, I mean our best and brainy who know how to organise the farms and improve the supply chain, the urban cities with integrated residential and commercial functions so that the night life can be colourful, the industrial estates that are clean and integrated so that they will have great architecture to admire.
In other words, we should make our civil service strong and professional for our future is in its hands. I think the civil service should be put under EPF and not pension, their wages raised to be at par with the private sector but their annual leave trimmed to be the same number of days. In this way, we will have a civil service that is working when the rest of the economy is working, so that there will be more synergy in the whole economy.
If we can mobilise the full energies of our people to work together, we can conjure up a wicked brew for us all to get drunk - rather than be suspicious and distant. After all, we have the best concentration of all the ancient cultures in a tropical paradise where the colours are stark and clear.
We need a wholesome vision for our society and economy, not a sectarian one.
Monday, December 29, 2008
Friday, December 26, 2008
Reboot V: Target Lower Economic Growth
For the world to go back to equilibrium, with respect to Mother Earth, the world should not tolerate rapid economic growth of 8% and 10% and be thought clever or responsible.
The most decent growth should at the rate of the growth of the labour force which in China should be around 1% to 2% while for Malaysia it should be about 2% to 3%.
An excessively rapid economic growth target is often a political devise for the government of the day to justify its continuing mandate to govern. This has been used for a long time some island economies where the strategy has effectively displaced the original population while waves and waves of foreign investors and foreign workers. The state becomes a concept and GDP growth a statistical measurement that is used to argue for political legitimacy.
This economic lull is a good time to defocus on economic growth as a aggregate statistic and to come down at least to the agency levels and the state government levels to scrutiny these important interfaces for the ordinary people. The monopoly of the federal government of the income tax and the use of this income tax to concentrate on areas that politicians see everyday which is necessarily the capital city means that areas outside the capital tend to be neglected. Furthermore, leaving state governments to source their income from natural resources is a sure way for the rapid destruction of the natural environment and the tendency to seek rent from urban development.
To turn around the economy from decline, the immediate should be zero economic growth if the economy has been declining. If the economy is growing at 3%, then I would say this is satisfactory growth given the circumstances. In other words, the policy focus should not be to pump prime. The policy focus should be to engage in structural changes for the economy. The tendency for the home economy to grow in fits means that the old structure based on privatisation and mega projects should be put to the past. The future policy should engage the people by opening up opportunities for them through enlightened policy and by providing them support in the form of establishing or re-establishing the proper institutions for justice, fairness, security and the protection of individual rights and property rights.
We are now suffering from a high in economic growth and should down come down to more realistic levels.
The most decent growth should at the rate of the growth of the labour force which in China should be around 1% to 2% while for Malaysia it should be about 2% to 3%.
An excessively rapid economic growth target is often a political devise for the government of the day to justify its continuing mandate to govern. This has been used for a long time some island economies where the strategy has effectively displaced the original population while waves and waves of foreign investors and foreign workers. The state becomes a concept and GDP growth a statistical measurement that is used to argue for political legitimacy.
This economic lull is a good time to defocus on economic growth as a aggregate statistic and to come down at least to the agency levels and the state government levels to scrutiny these important interfaces for the ordinary people. The monopoly of the federal government of the income tax and the use of this income tax to concentrate on areas that politicians see everyday which is necessarily the capital city means that areas outside the capital tend to be neglected. Furthermore, leaving state governments to source their income from natural resources is a sure way for the rapid destruction of the natural environment and the tendency to seek rent from urban development.
To turn around the economy from decline, the immediate should be zero economic growth if the economy has been declining. If the economy is growing at 3%, then I would say this is satisfactory growth given the circumstances. In other words, the policy focus should not be to pump prime. The policy focus should be to engage in structural changes for the economy. The tendency for the home economy to grow in fits means that the old structure based on privatisation and mega projects should be put to the past. The future policy should engage the people by opening up opportunities for them through enlightened policy and by providing them support in the form of establishing or re-establishing the proper institutions for justice, fairness, security and the protection of individual rights and property rights.
We are now suffering from a high in economic growth and should down come down to more realistic levels.
Thursday, December 25, 2008
Reboot IV: Monetary Values
In real values, we do not have money as an intervening factor. Everything is at a technical engineering-type hard case, or nuts and bolts and no flippant monetary factor. The understanding of real value makes up the core of a real economist - in the sense that the economist understands the fundamental forces affecting the economy.
Money is a very naughty entity in the world which has all the wise men and religious leaders throwing their wrath at it - and money even threatens to destroy the integrity of politicians and the political process.
Money is this thing that we have all collectively decided to be the most valuable thing in this world and that we have all collectively agreed - implicitly - to compete for it and be judged successful or otherwise in life with its measurement. Hence, our clamouring for money.
The Theory of Money. The traditional theory of money says that money is a veil and an illusion to the real economy. Given the underlying working of the real economy, the quantity of money defines the level of prices in monetary terms - such that if the government chooses to pump primp and double the stock of money supply.
But clearly money is not an aberration to the real economy, as the current financial crisis has shown. Since money is the necessary intervening entity in the economic system that the world is currently embracing, the flow of money plays a critical role in the flow of the economy.
The expansion of the money supply will lead to an increase in demand and the greater utilisation of capacity and if sustained will lead the economy hit full capacity and if further expanded will lead to the import of foreign capital and foreign labour.
Can the money stock be continually expanded without end?
No, as the previous Asian financial crisis and the current US financial crisis have shown.
The flow of money can stop when banks make mistakes in their lending - in terms of specific customers, or specific economic sectors. In a nutshell, the future of an economy is in the hands of the credit officers in banks who process individual customers and the CEO who sets the overall direction of lending - with the guiding hands of the central bank. If the central bank and banks do not know what makes a good economy, or if there is interference in the workings of banks by politicians, then we will get a problem economy.
A problem economy comes about when banks, having lent out money borrowed from depositors, cannot get the loan back, then they have no more money to lend out or pay back their depositors. This happens when they are financing bad projects which are usually related to the stock market, the real estate and consumer spending. The best loans go to agriculture and industries, but I suppose banks have gotten lazy in their job around the world.
When the stock of money does not increase, there will not be a fall in prices but a fall in quantity sold given the existing prices. When prices fall, it is the time for the business to close shop because they may not be earning enough to pay their workers and the banks, and not to say make a profit.
Profit in Money Terms. We have seen that in the real economy, profit is the output that is left after having paid the workers and the other costs of doing business. The businessman is quiet happy to take the stock that is left after sale as profit.
But in a monetary economy, profit is sales proceeds after having paid for workers and the other costs of doing business. The stock that is left in the shop, which the real-economy entrepreneur would have been happy to use to feed his family, is now called unsold inventory. Money must be found to buy this stock in the shop, before he can be said to make a profit. This peculiar feature arises because many of the things we produce today cannot be eaten to keep one's soul together (as we depend on the poor farmers around the world for that).
Money is not a veil. The flow of money drives the direction of the economy and the money managers should know what they are doing. If the money markets are driven by greed and fear (and ignorance), then the world is set for trouble and turbulence.
Money is a very naughty entity in the world which has all the wise men and religious leaders throwing their wrath at it - and money even threatens to destroy the integrity of politicians and the political process.
Money is this thing that we have all collectively decided to be the most valuable thing in this world and that we have all collectively agreed - implicitly - to compete for it and be judged successful or otherwise in life with its measurement. Hence, our clamouring for money.
The Theory of Money. The traditional theory of money says that money is a veil and an illusion to the real economy. Given the underlying working of the real economy, the quantity of money defines the level of prices in monetary terms - such that if the government chooses to pump primp and double the stock of money supply.
But clearly money is not an aberration to the real economy, as the current financial crisis has shown. Since money is the necessary intervening entity in the economic system that the world is currently embracing, the flow of money plays a critical role in the flow of the economy.
The expansion of the money supply will lead to an increase in demand and the greater utilisation of capacity and if sustained will lead the economy hit full capacity and if further expanded will lead to the import of foreign capital and foreign labour.
Can the money stock be continually expanded without end?
No, as the previous Asian financial crisis and the current US financial crisis have shown.
The flow of money can stop when banks make mistakes in their lending - in terms of specific customers, or specific economic sectors. In a nutshell, the future of an economy is in the hands of the credit officers in banks who process individual customers and the CEO who sets the overall direction of lending - with the guiding hands of the central bank. If the central bank and banks do not know what makes a good economy, or if there is interference in the workings of banks by politicians, then we will get a problem economy.
A problem economy comes about when banks, having lent out money borrowed from depositors, cannot get the loan back, then they have no more money to lend out or pay back their depositors. This happens when they are financing bad projects which are usually related to the stock market, the real estate and consumer spending. The best loans go to agriculture and industries, but I suppose banks have gotten lazy in their job around the world.
When the stock of money does not increase, there will not be a fall in prices but a fall in quantity sold given the existing prices. When prices fall, it is the time for the business to close shop because they may not be earning enough to pay their workers and the banks, and not to say make a profit.
Profit in Money Terms. We have seen that in the real economy, profit is the output that is left after having paid the workers and the other costs of doing business. The businessman is quiet happy to take the stock that is left after sale as profit.
But in a monetary economy, profit is sales proceeds after having paid for workers and the other costs of doing business. The stock that is left in the shop, which the real-economy entrepreneur would have been happy to use to feed his family, is now called unsold inventory. Money must be found to buy this stock in the shop, before he can be said to make a profit. This peculiar feature arises because many of the things we produce today cannot be eaten to keep one's soul together (as we depend on the poor farmers around the world for that).
Money is not a veil. The flow of money drives the direction of the economy and the money managers should know what they are doing. If the money markets are driven by greed and fear (and ignorance), then the world is set for trouble and turbulence.
Reboot III: Real Values
Real value can be seen more clearly in the rural areas, particularly in agriculture.
To live, we need food. This is basic. How do we get food?
1. Paradise. In the Garden of Eden, food is provided by nature. What we only need to do is to exert effort to pluck the food or harvest it. We do not even need to plant it.
2. Husbandry. Outside the Garden of Eden, we need to plant for the food. We need technology and seed. We need to take care of the crop and wait for it to grow. The end result is an output at the end of the planting season which we can harvest.
Supply Creates Its Own Demand. The output may be more what we and our family need. We may use the surplus to help those who do not have enough to eat or we can store up the surplus for the future when the harvest may not be as good.
If the harvest is insufficient, we use our savings or borrow from neighbour or we simply starve. The sharing among neighbours becomes an insurance against bad times.
But there is no room for those who not choose to work when they are able-bodied.
But society takes care of the young and aged and sick or incapacitated, to the best of the skills that are available (witch doctors and fortune tellers included).
3. Problem. The problem comes when the surplus is kept only the organiser or headman. If there is overwhelming success in the enterprise such that there is a lot of surplus, the headman may resort to hiring people to entertain him with payment from his surplus, whereas agriculture workers may be left unemployed. The workers may organise themselves. They may or may not have problem with land and seed and technology. If they can organise themselves, they can become self-sufficient. If they are incapable of organising themselves, then they are doomed to exploitation by the headman who may proceed with the agriculture production but requires a payment for his involvement. But at the end of the day, there is no unwanted output or inventory. All production is for the satisfaction of a specific aspect of life.
4. Real Price. Things may be exchanged at a rate of exchange, such as one papaya for two rambutans. The price of one papaya is two rambutans. The price of one rambutan is half a papaya. This is price in real terms, not money terms. Exchange may come about because people want variety to break the monotony of life or to search of balanced nutrients.
5. Distribution. Distribution is by way of tradition which is seen by all to be just. The harvest may be equalled divided among all individuals or all families. The harvest may be used to pay workers at a certain wage rate and the surplus taken by the organiser (or headman) as profit. The nature of the distribution is defined by any arrangement that can keep the peace and sustain the system. Distribution is at the core of the shape of society. This is where politics comes together with economics and philosophy - and all these shape culture and a particular way of life. The resultant culture and way of life is whatever that is capable of sustaining a society; otherwise, civil war simply obliterates that society or cause their people to be enslaved.
To live, we need food. This is basic. How do we get food?
1. Paradise. In the Garden of Eden, food is provided by nature. What we only need to do is to exert effort to pluck the food or harvest it. We do not even need to plant it.
2. Husbandry. Outside the Garden of Eden, we need to plant for the food. We need technology and seed. We need to take care of the crop and wait for it to grow. The end result is an output at the end of the planting season which we can harvest.
Supply Creates Its Own Demand. The output may be more what we and our family need. We may use the surplus to help those who do not have enough to eat or we can store up the surplus for the future when the harvest may not be as good.
If the harvest is insufficient, we use our savings or borrow from neighbour or we simply starve. The sharing among neighbours becomes an insurance against bad times.
But there is no room for those who not choose to work when they are able-bodied.
But society takes care of the young and aged and sick or incapacitated, to the best of the skills that are available (witch doctors and fortune tellers included).
3. Problem. The problem comes when the surplus is kept only the organiser or headman. If there is overwhelming success in the enterprise such that there is a lot of surplus, the headman may resort to hiring people to entertain him with payment from his surplus, whereas agriculture workers may be left unemployed. The workers may organise themselves. They may or may not have problem with land and seed and technology. If they can organise themselves, they can become self-sufficient. If they are incapable of organising themselves, then they are doomed to exploitation by the headman who may proceed with the agriculture production but requires a payment for his involvement. But at the end of the day, there is no unwanted output or inventory. All production is for the satisfaction of a specific aspect of life.
4. Real Price. Things may be exchanged at a rate of exchange, such as one papaya for two rambutans. The price of one papaya is two rambutans. The price of one rambutan is half a papaya. This is price in real terms, not money terms. Exchange may come about because people want variety to break the monotony of life or to search of balanced nutrients.
5. Distribution. Distribution is by way of tradition which is seen by all to be just. The harvest may be equalled divided among all individuals or all families. The harvest may be used to pay workers at a certain wage rate and the surplus taken by the organiser (or headman) as profit. The nature of the distribution is defined by any arrangement that can keep the peace and sustain the system. Distribution is at the core of the shape of society. This is where politics comes together with economics and philosophy - and all these shape culture and a particular way of life. The resultant culture and way of life is whatever that is capable of sustaining a society; otherwise, civil war simply obliterates that society or cause their people to be enslaved.
Wednesday, December 24, 2008
Reboot II: What We Really Want of Ourselves
What do we really want of ourselves, or rather, of our children?
There are several things:
1. Education. This is probably the most crucial thing. Maybe I am being romantic and entertain the idea that one can be educated in many different aspects of life - of what life is and what life is not - and be happy with that knowledge. I have been so keen on this idea that I have even embedded this idea of knowledge in the names of my children - in the belief that with knowledge, one can be happy with the bare necessities - although with knowledge, one can see many opportunities as well. To be able to read and write, to analyse, to think and to communicate - in whatever language (one may need two languages - one to communicate with others and another to communicate with oneself) - so that the thinking is deep enough to be insightful. I see the internet has replaced the library, and knowledge being imbibed in small sips. There probably is too much opinion and too little lessons from the reality out there. Sitting at the computer can make one feel rather hapless (being not directly involved) and hence a tendency to pontificate. But education I would include every little thing that one can learn - from home, people, school, college, environment and the experiences of others.
2. Purpose. Many of us have used a large chunk of our lives finding out about ourselves and what this life is all about. At the end of the day, it doesn't matter precisely what but the important thing is to have a sense of purpose. It is a treacherous path to take by being self-centred in purpose for one can never be satisfied (until the system collapses and then we panic); instead, it is a far better path to walk with others and see how one can be helpful. It is this helpfulness and services that make this world a better place for everyone. To have a sense of purpose is the foundation of happiness for oneself and the foundation of the economy.
3. Faith. Faith is as much a system as it is a surrender to the ultimate which we cannot comprehend. To have faith is to remove fear and uncertainty. To be certain even of death is a peace that many dare not enjoy. Fear is the perpetual gnaw at our soul which turns perfectly decent fellows into devils as they seek to control all aspects of life, to be certain of everything. I have often said that to live the good life is to live only half a life; to live a full life, one must live both the good and the bad side of life - and to be happy under all circumstances. It's all an experience and education and self-knowledge. It is good if the system in which we live in provides for a comfort level that removes the fear of living for each of us; failing which, we end up scrambling for our individual selves. I have tried to expose my children to as many different systems as I can where faith is being propagated. In the end, I suppose the answer is in self-knowledge which gives one a certain level of self-confidence and purpose (but others may treat it as pride and arrogance, and hence one needs to tamper onself with a smile and a certain level of humility or I would rather of humanity).
4. Money. In my mind, money is a concept and it's purpose is to provide a level of comfort that many feel justified in having lots of. Money is a man-made concept borne out of practical need but which many have mistaken having lots of it to be the raison detre for being alive. As economists would love to put it: Money is a necessary but not a sufficient condition for being alive. The relationship one has with money is a crucial one - a good relationship means one has managed to live a balanced life (just enough money for the things we want to do in life) and a bad one (too much or too little) means that either one is being burdened with money management (and the financial crisis) or money is giving one a real constraint in life (but not to life). Many urbanites have been taught a tough lesson sometime in their lives the benefits and sting of money. By smarting up to what money really is, one can swim with money but not be distracted by it. It has been a crucial concern of mine when trying to teach my children the value of money. I find it is a tough lesson to design, and I suppose the real meaning of money will come to them when they start earning their own keeps. It is tempting to define everything in life with how much money one has, but as the financial crisis has shown, it is faith built on a crumbling hill.
5. Enterprise. We hear plenty of exhortation to entrepreneurship and innovation and creativity by, I am dismayed to say, totally boring people who have no one new thing to say about it. My best definition of creativity is by George Bernard Shaw (although I have come across American usage which misattributed): "People see things as they are and ask why; I dream of things that are not and ask why not?" But enterprise requires one to put money where one's mouth is, and if one has no money, then one has to beg, borrow or steal. Conception and birth are always very difficult situations to deal with. Hence, there is always a tendency for a society to think in unison and act in concert as an insurance to the unknown - self-reassurances which give comfort in the face of uncertainty. The last place to go for finance for a real enterprising venture is the bank because banks are built on the basic idea that cash is king and the king extracts the first share thereof. The most innovative form of financing is venture capital which has evolved into private equity financing whereby the financier shares the risk but takes a large cut (to offset the cost of failures elsewhere). I find increasing appealing the true Islamic concept of financing where there is no interest rate but profit sharing - exactly what the world of entreprise needs. But still the entrepreneur has to convince the financier of the commercial viability of the project. A good project requires one to have a knowledge of the world and the market, the technological know-how of how to operationalise it, and the entrepreneurship to hold everything together. Entrepreneurship is very much a way of thinking as it is a way of life. I would leave my children to discover whether they really have the flair for business.
6. Service. Some of us would rather be paid employees rather than be entrepreneurs. Entreprenuers are in a constant state of flux - I saw my father having to plan every night of what he has to do the next day in order to feed his growing family; at the end of it, ill health and an uncooperative economy got him down. It is easy to be an employee, but it is hard to be a good employee. An ordinary employee performs a role set by the boss; a good employee performs a role which he himself can perform for the company and make the difference for the organisation in the market place. A good employee therefore is an entrepreneur who sells his services to an organisation rather than to the market. A good employee takes a basic pay and if lucky a profit share. There are many many opportunities for a good employee especially in a difficult environment. I hope my children's education will set for them a niche in the mass market of the globalised world.
7. Sense of Belonging. At the end of the day, life is meaningful only when we have a sense of belonging - to ourselves, our immediate family, our extended family, the society in which we live in and which we have created for ourselves, and the world at large. All these layers must align so that each and every of our action satisfies all that are important for us. This is a very intricate area for it deals with our sense of being. We each will have to define one for ourselves. At the social level, the trick is how to create a sense of cohesion among ourselves without depriving others of their own existence. I suppose a good education and a broad understanding of what this world is all about are important elements for peace and harmony.
8. Systems Design. Whether we live in the countryside or in town, we need to design a proper system for each. We create the world we live in out of our imagination. The natural terrain may be given to us, but how we live in harmony with nature is very much part and parcel of the study of feng shui. The advent of engineers who have graduated out of the exigency of war have learned to carve and reshape the natural environment to their own whims and fancy. In the rural economy, the essential elements are the planting technology and the supply chain to get the goods efficiently to the market. In the urban economy, it is the design of cities that hold the key to their viability. A city properly designed for work and residence as well as recreation and entertainment will attract more and more people and this pull gives it vibrance. Is this the job of the city hall or the town council or the state government or the federal government? Do we build low-cost housing in the outskirts of town and industrial estates on the other side so that thousands of poor folks have to commute just to work? Do we give the job of city design to developers who are only interested in building pigeon holes that are not big enough for the viability of commercial entreprises and small enough for the creation future slums? The criss-crossing of trasportation lines is a clear sign of bad rural and urban planning.
9. Technology. I think we have to get over our honeymoon with ICT. It is like the invention of telephone which is a piece of equipment that is used for re-organising ourselves and exploring new opportunities in communication - rather than for forcusing on the romance of being a telephone operators or laying of cable lines (which in themselves were important but not that important). We have now the whole world in the palm of our hands literally and what we do with ourselves? Do we be circumvented by this new fangled technology or do we use it to simplify our lives and live more efficiently and peacefully? I have been exposing my children to this new technology from a very young age in the hope that they will incorporate that into their lives to the extent that they will one day get bored with it and find something more meaningful to do in life. I admit this is a long-shot strategy on my part.
10. Real Value. Real value does not lie in the fistful of real estate properties or financial papers that many of us might have been led to believe as a passport to a good life and a good future. The financial crisis shows that financial values rise and fall with greed and fear. The real value in life is in the art of living - to know how the system works - to realise that life is like a buffet lunch. Whether we have a big house or a small hut or that we keep ourselves manicured or be rough and dirty - all these is a product of our own imagined way of life. I do not expect my children to be wealthy, but I do expect them to be happy, under whatever circumstances they happen to find themselves in, on their own volition or as a result of their own purposeful drifting. free of envy, free of greed. free of fear. I only hope they live their lives with their eyes open. The real value of life is the journey.
There are several things:
1. Education. This is probably the most crucial thing. Maybe I am being romantic and entertain the idea that one can be educated in many different aspects of life - of what life is and what life is not - and be happy with that knowledge. I have been so keen on this idea that I have even embedded this idea of knowledge in the names of my children - in the belief that with knowledge, one can be happy with the bare necessities - although with knowledge, one can see many opportunities as well. To be able to read and write, to analyse, to think and to communicate - in whatever language (one may need two languages - one to communicate with others and another to communicate with oneself) - so that the thinking is deep enough to be insightful. I see the internet has replaced the library, and knowledge being imbibed in small sips. There probably is too much opinion and too little lessons from the reality out there. Sitting at the computer can make one feel rather hapless (being not directly involved) and hence a tendency to pontificate. But education I would include every little thing that one can learn - from home, people, school, college, environment and the experiences of others.
2. Purpose. Many of us have used a large chunk of our lives finding out about ourselves and what this life is all about. At the end of the day, it doesn't matter precisely what but the important thing is to have a sense of purpose. It is a treacherous path to take by being self-centred in purpose for one can never be satisfied (until the system collapses and then we panic); instead, it is a far better path to walk with others and see how one can be helpful. It is this helpfulness and services that make this world a better place for everyone. To have a sense of purpose is the foundation of happiness for oneself and the foundation of the economy.
3. Faith. Faith is as much a system as it is a surrender to the ultimate which we cannot comprehend. To have faith is to remove fear and uncertainty. To be certain even of death is a peace that many dare not enjoy. Fear is the perpetual gnaw at our soul which turns perfectly decent fellows into devils as they seek to control all aspects of life, to be certain of everything. I have often said that to live the good life is to live only half a life; to live a full life, one must live both the good and the bad side of life - and to be happy under all circumstances. It's all an experience and education and self-knowledge. It is good if the system in which we live in provides for a comfort level that removes the fear of living for each of us; failing which, we end up scrambling for our individual selves. I have tried to expose my children to as many different systems as I can where faith is being propagated. In the end, I suppose the answer is in self-knowledge which gives one a certain level of self-confidence and purpose (but others may treat it as pride and arrogance, and hence one needs to tamper onself with a smile and a certain level of humility or I would rather of humanity).
4. Money. In my mind, money is a concept and it's purpose is to provide a level of comfort that many feel justified in having lots of. Money is a man-made concept borne out of practical need but which many have mistaken having lots of it to be the raison detre for being alive. As economists would love to put it: Money is a necessary but not a sufficient condition for being alive. The relationship one has with money is a crucial one - a good relationship means one has managed to live a balanced life (just enough money for the things we want to do in life) and a bad one (too much or too little) means that either one is being burdened with money management (and the financial crisis) or money is giving one a real constraint in life (but not to life). Many urbanites have been taught a tough lesson sometime in their lives the benefits and sting of money. By smarting up to what money really is, one can swim with money but not be distracted by it. It has been a crucial concern of mine when trying to teach my children the value of money. I find it is a tough lesson to design, and I suppose the real meaning of money will come to them when they start earning their own keeps. It is tempting to define everything in life with how much money one has, but as the financial crisis has shown, it is faith built on a crumbling hill.
5. Enterprise. We hear plenty of exhortation to entrepreneurship and innovation and creativity by, I am dismayed to say, totally boring people who have no one new thing to say about it. My best definition of creativity is by George Bernard Shaw (although I have come across American usage which misattributed): "People see things as they are and ask why; I dream of things that are not and ask why not?" But enterprise requires one to put money where one's mouth is, and if one has no money, then one has to beg, borrow or steal. Conception and birth are always very difficult situations to deal with. Hence, there is always a tendency for a society to think in unison and act in concert as an insurance to the unknown - self-reassurances which give comfort in the face of uncertainty. The last place to go for finance for a real enterprising venture is the bank because banks are built on the basic idea that cash is king and the king extracts the first share thereof. The most innovative form of financing is venture capital which has evolved into private equity financing whereby the financier shares the risk but takes a large cut (to offset the cost of failures elsewhere). I find increasing appealing the true Islamic concept of financing where there is no interest rate but profit sharing - exactly what the world of entreprise needs. But still the entrepreneur has to convince the financier of the commercial viability of the project. A good project requires one to have a knowledge of the world and the market, the technological know-how of how to operationalise it, and the entrepreneurship to hold everything together. Entrepreneurship is very much a way of thinking as it is a way of life. I would leave my children to discover whether they really have the flair for business.
6. Service. Some of us would rather be paid employees rather than be entrepreneurs. Entreprenuers are in a constant state of flux - I saw my father having to plan every night of what he has to do the next day in order to feed his growing family; at the end of it, ill health and an uncooperative economy got him down. It is easy to be an employee, but it is hard to be a good employee. An ordinary employee performs a role set by the boss; a good employee performs a role which he himself can perform for the company and make the difference for the organisation in the market place. A good employee therefore is an entrepreneur who sells his services to an organisation rather than to the market. A good employee takes a basic pay and if lucky a profit share. There are many many opportunities for a good employee especially in a difficult environment. I hope my children's education will set for them a niche in the mass market of the globalised world.
7. Sense of Belonging. At the end of the day, life is meaningful only when we have a sense of belonging - to ourselves, our immediate family, our extended family, the society in which we live in and which we have created for ourselves, and the world at large. All these layers must align so that each and every of our action satisfies all that are important for us. This is a very intricate area for it deals with our sense of being. We each will have to define one for ourselves. At the social level, the trick is how to create a sense of cohesion among ourselves without depriving others of their own existence. I suppose a good education and a broad understanding of what this world is all about are important elements for peace and harmony.
8. Systems Design. Whether we live in the countryside or in town, we need to design a proper system for each. We create the world we live in out of our imagination. The natural terrain may be given to us, but how we live in harmony with nature is very much part and parcel of the study of feng shui. The advent of engineers who have graduated out of the exigency of war have learned to carve and reshape the natural environment to their own whims and fancy. In the rural economy, the essential elements are the planting technology and the supply chain to get the goods efficiently to the market. In the urban economy, it is the design of cities that hold the key to their viability. A city properly designed for work and residence as well as recreation and entertainment will attract more and more people and this pull gives it vibrance. Is this the job of the city hall or the town council or the state government or the federal government? Do we build low-cost housing in the outskirts of town and industrial estates on the other side so that thousands of poor folks have to commute just to work? Do we give the job of city design to developers who are only interested in building pigeon holes that are not big enough for the viability of commercial entreprises and small enough for the creation future slums? The criss-crossing of trasportation lines is a clear sign of bad rural and urban planning.
9. Technology. I think we have to get over our honeymoon with ICT. It is like the invention of telephone which is a piece of equipment that is used for re-organising ourselves and exploring new opportunities in communication - rather than for forcusing on the romance of being a telephone operators or laying of cable lines (which in themselves were important but not that important). We have now the whole world in the palm of our hands literally and what we do with ourselves? Do we be circumvented by this new fangled technology or do we use it to simplify our lives and live more efficiently and peacefully? I have been exposing my children to this new technology from a very young age in the hope that they will incorporate that into their lives to the extent that they will one day get bored with it and find something more meaningful to do in life. I admit this is a long-shot strategy on my part.
10. Real Value. Real value does not lie in the fistful of real estate properties or financial papers that many of us might have been led to believe as a passport to a good life and a good future. The financial crisis shows that financial values rise and fall with greed and fear. The real value in life is in the art of living - to know how the system works - to realise that life is like a buffet lunch. Whether we have a big house or a small hut or that we keep ourselves manicured or be rough and dirty - all these is a product of our own imagined way of life. I do not expect my children to be wealthy, but I do expect them to be happy, under whatever circumstances they happen to find themselves in, on their own volition or as a result of their own purposeful drifting. free of envy, free of greed. free of fear. I only hope they live their lives with their eyes open. The real value of life is the journey.
Monday, December 22, 2008
Reboot I: What We Really Want of the Economy
What we really want of the economy is a stable and steadily progressing system that is designed to be capable of providing for the material comforts of people when they are capable with a social safety net to take care of people when they are incapable, with an eye to future growth enough to ensure at least the same level of comfort and economic security to the new members of the human race.
This means several things:
1. Food Production. This is a double-edged sword at the meta level. At every bout of improvement in food production, the world population simply explodes - which calls for ever increasing efficiency in food production. There must be a point beyond which the population is too big to be supported by the natural environment without us all end up eating rubbish.
2. Industries. This has got to do with our level of technology. While we marvel at how the human race has mastered the use of materials, we have to dig up the materials and process them before they can be remoulded to shape and design that we like. If we do not like these dirty heavy industries, then we have to rethink our means of transportation and communication and entertainment and labour-saving devices.
3. Services. In this category are accountants, lawyers and financiers, plus all those other things that the whole world is trying to sell to each other under the banner of tourism - things such as food and lodging, the "personal touch," adventure and all things that require a human being to serve another human being. Under this head are Old Religions and the New Age. So would be the developers of real estate. Is this where we would all rather be concentrating in the future?
4. Social Safety Net. It is an enlightened society that provides for its young, aged and the unfortunate as well as the unemployed. When there is a society safety net, there may be a drop in the economic growth rate because people feel confident and do not have to work so hard to earn that extra in order to safe for the future; the alternative is a scrambling for money and wealth at the expense of welfare. The enlightened society may not appear impressive in contemporary terms in physical terms, but there could be greater happiness and sense of security and belonging.
5. Way of Life. At the end of the day, we are talking about the choice of our way of life. To decide on our vision of what life is all about and what we want out of life and the oppportunities offered to us, we are deciding on our way of life - and hence the way we choose to die. There is a price to pay for every choice we make and the question is whether we are prepared to pay the price. In my mind, therefore, there is no utopia - but at least we choose to suffer our own mistakes. (This to me is the essence of democracy and free choice.)
6. Policy. National policy defines how a nation lives and likewise international policy defines how the world lives. The way things are in the world tells us that policies are not right. In fact, the world has become increasing more hostile to human beings and life. Policies should be designed with more meat. I think whoever started this craze for speed in economic growth and labour efficiency has done a great disservice to the world. Policies should be proposed and studied and debated with greater regard to detail. We should move from Grade 3 policy formulation to Grade 1 policy formulation. At the very least, we should know exactly what we are trying to do. We need experts.
This means several things:
1. Food Production. This is a double-edged sword at the meta level. At every bout of improvement in food production, the world population simply explodes - which calls for ever increasing efficiency in food production. There must be a point beyond which the population is too big to be supported by the natural environment without us all end up eating rubbish.
2. Industries. This has got to do with our level of technology. While we marvel at how the human race has mastered the use of materials, we have to dig up the materials and process them before they can be remoulded to shape and design that we like. If we do not like these dirty heavy industries, then we have to rethink our means of transportation and communication and entertainment and labour-saving devices.
3. Services. In this category are accountants, lawyers and financiers, plus all those other things that the whole world is trying to sell to each other under the banner of tourism - things such as food and lodging, the "personal touch," adventure and all things that require a human being to serve another human being. Under this head are Old Religions and the New Age. So would be the developers of real estate. Is this where we would all rather be concentrating in the future?
4. Social Safety Net. It is an enlightened society that provides for its young, aged and the unfortunate as well as the unemployed. When there is a society safety net, there may be a drop in the economic growth rate because people feel confident and do not have to work so hard to earn that extra in order to safe for the future; the alternative is a scrambling for money and wealth at the expense of welfare. The enlightened society may not appear impressive in contemporary terms in physical terms, but there could be greater happiness and sense of security and belonging.
5. Way of Life. At the end of the day, we are talking about the choice of our way of life. To decide on our vision of what life is all about and what we want out of life and the oppportunities offered to us, we are deciding on our way of life - and hence the way we choose to die. There is a price to pay for every choice we make and the question is whether we are prepared to pay the price. In my mind, therefore, there is no utopia - but at least we choose to suffer our own mistakes. (This to me is the essence of democracy and free choice.)
6. Policy. National policy defines how a nation lives and likewise international policy defines how the world lives. The way things are in the world tells us that policies are not right. In fact, the world has become increasing more hostile to human beings and life. Policies should be designed with more meat. I think whoever started this craze for speed in economic growth and labour efficiency has done a great disservice to the world. Policies should be proposed and studied and debated with greater regard to detail. We should move from Grade 3 policy formulation to Grade 1 policy formulation. At the very least, we should know exactly what we are trying to do. We need experts.
Keynesian Irrelevance VII: Zero Interest, Infinite Liquidity
Keynes did not quite foresee the current endless supply of money at zero interest, although he did write about the liquidity trap.
The liquidity trap is a situation whereby there is so much investment uncertainty such as deflation that even if the interest is zero, the general public still hangs onto cash (Cash is king!) - in order to preserve capital value as well as to wait for asset prices to stop falling.
The point that Keynes was making with the liquidity trap argument is that no amount of interest rate reduction would induce investors to put money into the future under conditions of deflation and therefore the government must step in to create jobs.
The point that I have been trying to make in this little series of snippets is to argue that we have gone beyond the liquidity trap argument; we are now in this new world phenomenon of cheap and endless money.
The zero-interest infinite-money supply is an extreme case - the money supply curve is infinite and therefore indefinite. Everything is now defined by the demand for money function alone - which therefore brings us back to square one - what do we do with money?
The demand for money must be for the purpose of investment which is derived by the need for people to consume. But the world has come to a stage of overproduction (due to economies of scale and extraordinary human efforts at efficiency) and the oversupply of money (thanks to irresponsibly ideological central banks) that what the world needs now is a break from these excesses.
But the adjustment costs are high - to only way to trigger a downward adjustment in prices is the destruction of excess money which implies the bankruptcy of banks and factories and the resultant unemployment. The next step is really the redeployment of the labour force to activities that increases human welfare beyong the basic needs of food and shelter. The answer could be the slowdown of the global economy so that people can enjoy their work and their lives - rather than forcing the unfortunate - the migrant workers - to work themselves to death under abject conditions.
While I understand the clever arguments for globalisation, I am increasingly disturbed by the senseless drive for profits and wealth by the elite, with the rise in income inequality and the greed of the financial and construction sectors and the decadence and arrogance of the nouveau riche.
I am increasingly being drawn to the idea of the steady development of a proper community and society whereby the family unit (the Malay concept of "keluarga") is wholesome and intact and that there is a steady drive for greater animal comfort as well as a better grasp of the meaning of human life and the sense of being.
We are now literally drowning in money and liquidity and we are trying to stay afloat.
The real economy must be refocused on the market, the financial system on prudence and risk taking and the government on providing a social safety net for the people.
If we, in the midst of prosperity, cannot take care of our poor, then we are suffering from a poverty of value despite our immense material wealth.
The liquidity trap is a situation whereby there is so much investment uncertainty such as deflation that even if the interest is zero, the general public still hangs onto cash (Cash is king!) - in order to preserve capital value as well as to wait for asset prices to stop falling.
The point that Keynes was making with the liquidity trap argument is that no amount of interest rate reduction would induce investors to put money into the future under conditions of deflation and therefore the government must step in to create jobs.
The point that I have been trying to make in this little series of snippets is to argue that we have gone beyond the liquidity trap argument; we are now in this new world phenomenon of cheap and endless money.
The zero-interest infinite-money supply is an extreme case - the money supply curve is infinite and therefore indefinite. Everything is now defined by the demand for money function alone - which therefore brings us back to square one - what do we do with money?
The demand for money must be for the purpose of investment which is derived by the need for people to consume. But the world has come to a stage of overproduction (due to economies of scale and extraordinary human efforts at efficiency) and the oversupply of money (thanks to irresponsibly ideological central banks) that what the world needs now is a break from these excesses.
But the adjustment costs are high - to only way to trigger a downward adjustment in prices is the destruction of excess money which implies the bankruptcy of banks and factories and the resultant unemployment. The next step is really the redeployment of the labour force to activities that increases human welfare beyong the basic needs of food and shelter. The answer could be the slowdown of the global economy so that people can enjoy their work and their lives - rather than forcing the unfortunate - the migrant workers - to work themselves to death under abject conditions.
While I understand the clever arguments for globalisation, I am increasingly disturbed by the senseless drive for profits and wealth by the elite, with the rise in income inequality and the greed of the financial and construction sectors and the decadence and arrogance of the nouveau riche.
I am increasingly being drawn to the idea of the steady development of a proper community and society whereby the family unit (the Malay concept of "keluarga") is wholesome and intact and that there is a steady drive for greater animal comfort as well as a better grasp of the meaning of human life and the sense of being.
We are now literally drowning in money and liquidity and we are trying to stay afloat.
The real economy must be refocused on the market, the financial system on prudence and risk taking and the government on providing a social safety net for the people.
If we, in the midst of prosperity, cannot take care of our poor, then we are suffering from a poverty of value despite our immense material wealth.
Sunday, December 14, 2008
Keynesian Irrelevance VI: Central Bank
I'm getting a bit tired with this Keynesian stuff. But, since I posed the question in the last post - "Where is the central bank?" - I think I have better answer it.
Keynes did not say much about the central bank directly, but in the General Theory he did lay do the basic principles of money and in real life he was involve in Bretton Woods which dealt with central banking in a global scale.
The job of the central bank is to stablise the value of money - or more specifically the value of the currency. The man in the street may think of the rate of interest to be the value of money which of course is wrong because the rate of interest is the price for borrowing money (which clients of loan sharks painfully realised in the end).
One of the basic principles of the theory of money is that for a thing to hold its value, its supply must be restrained. What gets to become money in the end is the asset that has the most limited supply.
The abandoning of the gold standard by the world at large following the US when it overtook the UK as the world economic power and could not pay for the high oil price in the early 1970s. The removal of the shackles on the money stock and the exprimentation in the liberalisation of the financial market advocated and practicised by the Chicago School of economists in the last two decades have led to the problems of today.
My question of "Where is the central bank?" is a cry of frustration at the ineptitude of the central bank of today in managing the money stock, in not knowing when it has to exercise restrain.
As a result of this lapse in policy judgment, the central bank has allowed the economy to runaway onto a direction of excesses which has distorted the productive capacity of the economy.
The costs to the economy are in the form of inflation and depreciation of the currency which are subtle means of drawing resources away from the general population towards the wealthy - and generally lowering the overall welfare of society.
What can the central bank do after it has violated the basic principles of managing the money stock? Answer: Pay attention to the money stock and make sure that it is properly controlled.
Does the economy have to lurch from one episode to the next on the back of monetary explosions, massively distorting scarce resource in favour of the wealthy elite which the general public is told to keep silent and bear the burden?
It is one thing to recapitilise the banks when necesssary in order to restore public confidence in the existing system. But it does not mean that there is public confidence in the economic system. That is not the job of the central bank but the economic planners.
Of course, to be fair to the central bank, it is not totally in control of the whole financial system. The central bank only takes care of the banks and finance companies as part of what is called the banking system. The investment banks and stockbrokers are under the supervision of the securities commission. This is why to have an overall control of the whole financial system, we need a clever minister of finance.
Keynes did not say much about the central bank directly, but in the General Theory he did lay do the basic principles of money and in real life he was involve in Bretton Woods which dealt with central banking in a global scale.
The job of the central bank is to stablise the value of money - or more specifically the value of the currency. The man in the street may think of the rate of interest to be the value of money which of course is wrong because the rate of interest is the price for borrowing money (which clients of loan sharks painfully realised in the end).
One of the basic principles of the theory of money is that for a thing to hold its value, its supply must be restrained. What gets to become money in the end is the asset that has the most limited supply.
The abandoning of the gold standard by the world at large following the US when it overtook the UK as the world economic power and could not pay for the high oil price in the early 1970s. The removal of the shackles on the money stock and the exprimentation in the liberalisation of the financial market advocated and practicised by the Chicago School of economists in the last two decades have led to the problems of today.
My question of "Where is the central bank?" is a cry of frustration at the ineptitude of the central bank of today in managing the money stock, in not knowing when it has to exercise restrain.
As a result of this lapse in policy judgment, the central bank has allowed the economy to runaway onto a direction of excesses which has distorted the productive capacity of the economy.
The costs to the economy are in the form of inflation and depreciation of the currency which are subtle means of drawing resources away from the general population towards the wealthy - and generally lowering the overall welfare of society.
What can the central bank do after it has violated the basic principles of managing the money stock? Answer: Pay attention to the money stock and make sure that it is properly controlled.
Does the economy have to lurch from one episode to the next on the back of monetary explosions, massively distorting scarce resource in favour of the wealthy elite which the general public is told to keep silent and bear the burden?
It is one thing to recapitilise the banks when necesssary in order to restore public confidence in the existing system. But it does not mean that there is public confidence in the economic system. That is not the job of the central bank but the economic planners.
Of course, to be fair to the central bank, it is not totally in control of the whole financial system. The central bank only takes care of the banks and finance companies as part of what is called the banking system. The investment banks and stockbrokers are under the supervision of the securities commission. This is why to have an overall control of the whole financial system, we need a clever minister of finance.
Thursday, December 11, 2008
Keynesian Irrelevance V: Distribution
Keynes didn't write much about the distribution of income and wealth.
But his heart was with the poor people. Poor people spend all that they have, because they do not have enough money. Their behaviour has a good stimulative effect on the economy that works through the multiplier. Keynes' General Theory can be seen as celebration of the poor people. The rich, with too much money, cannot spend all that they have and have to save some. It is the some of the money that is saved that causes the economy to get depressed.
The money that is left over after consumption is invested, either in cash, financial assets, real estate or businesses, or a combination of these.
As a result, the concept of the rate of return on investment is invented (way before Keynes was born). But according to Keynes, it is the relative rate of return that determines the type of investment.
Cash is held because it keeps its capital value (a dollar is always a dollar; a piece of gold is always a piece of gold).
Financial assets depend on the stock market - this is supposed to be akin to investing in businesses except that there is capital gains when everybody's hobby is to punt the market. (I am glad the stock market is down though not out, because this should force some people to do something tangible like working at a job.) The stock market is active only when there is a lot of excess liquidity, thanks in no small part to the efforts of greedy banking CEOs who want to cash out on their stock options.
Businesses are the best thing to be in because they mobilise resources - capital, people and ideas - to work for the specific purpose of serving society. If a business does not serve any purpose, it will die naturally. If it serves the common needs of people, it will survive for a long time but the margin is low and competition is intense (food stalls). If it serves the specialised needs of a few, then the volume is low, margin high, and it may still go on for a long time (Rolex).
Many years ago, to justify further studies to my father (I was interested in the Theory of Income Distribution at the time), I rephrased it as, "I want to study why people are poor." He replied, "No good. Study why people are rich."
Why are people poor? People are poor when they rely on their labour to do work. They get tired and they can get just enough for subsistence. When they are too young or too old, they become destitute.
Why are people rich? People are rich because they use non-labour assets to gain more non-labour assets. In simple English, they use money to make money. So, money is doing all the hard work, so that the rich people can enjoy their consumption at leisure (rather than eat to live like the poor people).
You find that all the things that we commonly associate the idea of an asset are all man-made objects that are pertinent mainly in urban society - including cash. Wealth, at the end of the day, is nothing but just man-made artefacts of value only to urbanites - valued only because commonly desired.
In a rural community, such as the kampung, you find that different things are deemed to be valuable - social ties, co-operation and the jungle. The basic things are provided by nature - the fish from the river, the fruits from the jungle. Because the environment is so user-friendly, rural folks do not worry too much. They take only what they need for the moment. They try to leave everything as natural as possible - because by keeping things natural the maintenance cost is the lowest, zero.
Wheresas in urban society, nothing is for free. Friendship is not free. So, urbanites must earn as much as they can when they are able, in order to save enough when they become unable as a result of age or health. The creation and accumulation of artificial man-made artefacts is the whole raison detre of urban existence - including even the type of education we pursue or wish our children pursue. Even the use of English in schools is argued on the basis of the need for survival in urban societies. In rural soceities, I suppose they are more concerned about preserving their own quaint little ways, endowed upon them by their foreparents.
But this does not mean that rural communities are perfect beings without envy. They may envy the wealth of the urbanites. That envy may be impressed upon them by would-be individuals who pretend to show them the way to immense pleasure without sweat (apart from golfing).
The path to wealth and prosperity and the removal of poverty in rural areas is to destroy rural societies and rural ways of life and the natural environment and transforming them into urban societies with their concrete blocks as shelters and space for all types of innovative human activities without the chance of placing their feet on the ground, in exchange for little pieces of paper called cash.
In this way, the Keynesian-type policy is used to transform society and redistribute wealth. Money newly printed on the basis of the budget deficit is therefore bestowed upon a select few in the hope of it being spread around but did not because of the inability to regenerate that wealth. So the multiplier effect of the wealth generating machinery failed to boot up.
Keynesian fiscal policy can be appealing on first encounter because it seems to be such common sense. However, on repeated usage and abusage, the fiscal policy has the nasty consequence of creating a ballooning budget deficit and an excess of liquidity that is at once inflationary at home and in terms of the constantly depreciating currency. If you are wondering why you feel poor while surrounding yourself with comfort blankets like financial assets and real estate, it is because of too much Keynesianism.
If our politicians claim to have made the country grown and become wealthy, ask them why the local currency has lost its libido and is always limpid. Where is the central bank?
But his heart was with the poor people. Poor people spend all that they have, because they do not have enough money. Their behaviour has a good stimulative effect on the economy that works through the multiplier. Keynes' General Theory can be seen as celebration of the poor people. The rich, with too much money, cannot spend all that they have and have to save some. It is the some of the money that is saved that causes the economy to get depressed.
The money that is left over after consumption is invested, either in cash, financial assets, real estate or businesses, or a combination of these.
As a result, the concept of the rate of return on investment is invented (way before Keynes was born). But according to Keynes, it is the relative rate of return that determines the type of investment.
Cash is held because it keeps its capital value (a dollar is always a dollar; a piece of gold is always a piece of gold).
Financial assets depend on the stock market - this is supposed to be akin to investing in businesses except that there is capital gains when everybody's hobby is to punt the market. (I am glad the stock market is down though not out, because this should force some people to do something tangible like working at a job.) The stock market is active only when there is a lot of excess liquidity, thanks in no small part to the efforts of greedy banking CEOs who want to cash out on their stock options.
Businesses are the best thing to be in because they mobilise resources - capital, people and ideas - to work for the specific purpose of serving society. If a business does not serve any purpose, it will die naturally. If it serves the common needs of people, it will survive for a long time but the margin is low and competition is intense (food stalls). If it serves the specialised needs of a few, then the volume is low, margin high, and it may still go on for a long time (Rolex).
Many years ago, to justify further studies to my father (I was interested in the Theory of Income Distribution at the time), I rephrased it as, "I want to study why people are poor." He replied, "No good. Study why people are rich."
Why are people poor? People are poor when they rely on their labour to do work. They get tired and they can get just enough for subsistence. When they are too young or too old, they become destitute.
Why are people rich? People are rich because they use non-labour assets to gain more non-labour assets. In simple English, they use money to make money. So, money is doing all the hard work, so that the rich people can enjoy their consumption at leisure (rather than eat to live like the poor people).
You find that all the things that we commonly associate the idea of an asset are all man-made objects that are pertinent mainly in urban society - including cash. Wealth, at the end of the day, is nothing but just man-made artefacts of value only to urbanites - valued only because commonly desired.
In a rural community, such as the kampung, you find that different things are deemed to be valuable - social ties, co-operation and the jungle. The basic things are provided by nature - the fish from the river, the fruits from the jungle. Because the environment is so user-friendly, rural folks do not worry too much. They take only what they need for the moment. They try to leave everything as natural as possible - because by keeping things natural the maintenance cost is the lowest, zero.
Wheresas in urban society, nothing is for free. Friendship is not free. So, urbanites must earn as much as they can when they are able, in order to save enough when they become unable as a result of age or health. The creation and accumulation of artificial man-made artefacts is the whole raison detre of urban existence - including even the type of education we pursue or wish our children pursue. Even the use of English in schools is argued on the basis of the need for survival in urban societies. In rural soceities, I suppose they are more concerned about preserving their own quaint little ways, endowed upon them by their foreparents.
But this does not mean that rural communities are perfect beings without envy. They may envy the wealth of the urbanites. That envy may be impressed upon them by would-be individuals who pretend to show them the way to immense pleasure without sweat (apart from golfing).
The path to wealth and prosperity and the removal of poverty in rural areas is to destroy rural societies and rural ways of life and the natural environment and transforming them into urban societies with their concrete blocks as shelters and space for all types of innovative human activities without the chance of placing their feet on the ground, in exchange for little pieces of paper called cash.
In this way, the Keynesian-type policy is used to transform society and redistribute wealth. Money newly printed on the basis of the budget deficit is therefore bestowed upon a select few in the hope of it being spread around but did not because of the inability to regenerate that wealth. So the multiplier effect of the wealth generating machinery failed to boot up.
Keynesian fiscal policy can be appealing on first encounter because it seems to be such common sense. However, on repeated usage and abusage, the fiscal policy has the nasty consequence of creating a ballooning budget deficit and an excess of liquidity that is at once inflationary at home and in terms of the constantly depreciating currency. If you are wondering why you feel poor while surrounding yourself with comfort blankets like financial assets and real estate, it is because of too much Keynesianism.
If our politicians claim to have made the country grown and become wealthy, ask them why the local currency has lost its libido and is always limpid. Where is the central bank?
Tuesday, December 9, 2008
Keynesian Irrelevance IV: Employment
Keynes assumed a simple employment theory: that a 1% increase in output increases employment by 1%.
1. The reason that the economy must grow each year is more and more graduates and non-graduates are entering the job market and we must create jobs for them. If the labour force increases by 3% a year, the economy must by 3% a year to absorb the new labour.
How do we create jobs for our young people? By employing them.
Even if they are considered "unemployable," they can still be retrained for some simpler jobs. The government must spend money on programmes for our people to find their "calling." Germany has life-long education where some graduates are professional students. Whatever, it is good for the government to be engaged with the youngsters so that their skills can be depoyed into new areas of activity in a positive vein. The sin of the government is to ignore the youth.
Short courses and programmes can be designed to cater to their abilities and interests. The government should pay them subsistence allowance to encourage their training and re-training until they discover themselves. We have become too callous in our approach to our youth. I am sure many are suffering from cultural shock, once they turn away from the TV and into the real world.
Any government programme, of whatever kind (I could fall into the classic "Keynesian literal trap") for the youth is better than building roads that lead to nowhere.
If a road is built that employed illiterate foreign workers and guarantees profit to a man who has already made his million and that road leads to nowhere, I would rather pay money to a fresh secondary school or university graduate to study some course for 9 months or 18 months, with subsistence, so that the young person would have some confidence in a future for himself or herself in this country. The person may do drama or join a rock band or be a poet - and this is a road that leads to somewhere. And it is far better than digging holes and filling them up.
It may not be immediately obvious that the engaged youth is employed - but can be classified outside the labour force, so that being "unemployed" are those actively looking for a job.
2. It is always prejudiced to get industry to dictate to the government which sector should be "stimulated." It is not difficult to imagine that the over-grown and over-sized construction sector will continue to clamour for more money to pile up brick and mortar. This is no doubt driven by land owners who want to capitalise on their assets. But the government should ask final year students and fresh graduates what types of jobs they want to do - and the government should spend money to fund their projects. This may even be in the form of industrial training or in an oversea stint to do volunteer work to gain experience and new insights. This is far better than paying for the overseas trade and investment missions by old men and women who are already quite fed up with seeing the world.
3. I am constantly amazed by the artistic flair of our people. This group should be encouraged through competition which pays a decent prize - meaning sufficient for the winners to survive without earning an income for a year in rented rooms. It is the artists, the poets and the writers who help us as a society to embrace our circumstance and enjoy it rather than harping on how things might have been. (I think the Chinese are too clinical in their artistic pursuits, but they might still be able to make their own mark.)
4. I am fascinated by the infinite ability of individuals and communities to establish their own equilibrium way of life. The social culture is established by people forming their set of habits which they practice day after day. Too much has been pulled to the centre by the central government which is disruptive to traditional societies. This is because some brilliant PM is keen to set up a new town to call his own. It is far better for the common person that the central government decentralises its expenditures so that more is given to the outliers - as a means of creating jobs in areas with lower costs of living.
5. So much talk about ICT. Thanks to ICT, we can actually decentralise faster. It will be interesting if we can have a national IT network that reports news and views from all the little nooks and corners of the nation, to see how our distant cousins are doing at this precise moment at home, so to speak. I am reminded of an observation that the age of globalisation means that we know all about the US financial meltdown but not whether our neighbour is suffering from depression and needed help. We don't need Cyberjaya or MSC to do ICT.
6. Many Malaysians have come to accept a boring way of life. They want a stable job - so they get themselves stuck in the civil service in a boring job for life and end up doing a disservice to themselves and the nation. They want a prestigious job - and get stuck as a doctor in a clinic entertaining rich but miserable clients. They should sample a variety of jobs to see which one gives them the most happiness and just enough cash for their needs and even desires. I think the availability of a wide spectrum of jobs should enrich the job market as well as our culture and the lives of our people.
7. Conclusion
The government could embark on the following mega projects:
i.) The National Battle of the Lead Guitarists with Rock Bands (RM500,000)- first prize: RM250,000; second prize: RM150,000; third prize: RM100,000
ii.) The National Battle of the Drummers with Rock Bands (RM500,000)- first prize: RM250,000; second prize: RM150,000; third prize: RM100,000
iii.) The National Battle of the Stand-Up Comic Artists (RM500,000)-first prize: RM250,000; second prize: RM150,000; third prize:RM100,000
iv.) The National Battle of the Comic Book Artists (RM500,000)- first prize: RM250,000; second prize: RM150,000; third prize:RM100,000
v.) The National Battle of the Cartoonists (RM500,000)- first prize: RM250,000; second prize: RM150,000; third prize: RM100,000
vi.) The National Battle of the Short Story Writers (RM500,000)- first prize: RM250,000; second prize: RM150,000; third prize: RM100,000
vii.) The National Battle of the Novelists (RM500,000)- first prize: RM250,000; second prize: RM150,000; third prize: RM100,000
viii.) The National Battle of the Poets (RM500,000)- first prize: RM250,000; second prize: RM150,000; third prize: RM100,000
ix.) The National Battle of the Short Film Makers (RM1,000,000)- first prize: RM500,000; second prize: RM300,000; third prize: RM200,000
The total prize money of these 9 mega projects is RM5 million.
If in two languages, RM10 million.
Promotion and related events at RM2 million each would cost RM18 million for one language and RM36 million for two languages.
The entire programme for two languages would cost only RM46 million a year. The programme can be repeated every year until the unemployment rate goes down to 2%.
1. The reason that the economy must grow each year is more and more graduates and non-graduates are entering the job market and we must create jobs for them. If the labour force increases by 3% a year, the economy must by 3% a year to absorb the new labour.
How do we create jobs for our young people? By employing them.
Even if they are considered "unemployable," they can still be retrained for some simpler jobs. The government must spend money on programmes for our people to find their "calling." Germany has life-long education where some graduates are professional students. Whatever, it is good for the government to be engaged with the youngsters so that their skills can be depoyed into new areas of activity in a positive vein. The sin of the government is to ignore the youth.
Short courses and programmes can be designed to cater to their abilities and interests. The government should pay them subsistence allowance to encourage their training and re-training until they discover themselves. We have become too callous in our approach to our youth. I am sure many are suffering from cultural shock, once they turn away from the TV and into the real world.
Any government programme, of whatever kind (I could fall into the classic "Keynesian literal trap") for the youth is better than building roads that lead to nowhere.
If a road is built that employed illiterate foreign workers and guarantees profit to a man who has already made his million and that road leads to nowhere, I would rather pay money to a fresh secondary school or university graduate to study some course for 9 months or 18 months, with subsistence, so that the young person would have some confidence in a future for himself or herself in this country. The person may do drama or join a rock band or be a poet - and this is a road that leads to somewhere. And it is far better than digging holes and filling them up.
It may not be immediately obvious that the engaged youth is employed - but can be classified outside the labour force, so that being "unemployed" are those actively looking for a job.
2. It is always prejudiced to get industry to dictate to the government which sector should be "stimulated." It is not difficult to imagine that the over-grown and over-sized construction sector will continue to clamour for more money to pile up brick and mortar. This is no doubt driven by land owners who want to capitalise on their assets. But the government should ask final year students and fresh graduates what types of jobs they want to do - and the government should spend money to fund their projects. This may even be in the form of industrial training or in an oversea stint to do volunteer work to gain experience and new insights. This is far better than paying for the overseas trade and investment missions by old men and women who are already quite fed up with seeing the world.
3. I am constantly amazed by the artistic flair of our people. This group should be encouraged through competition which pays a decent prize - meaning sufficient for the winners to survive without earning an income for a year in rented rooms. It is the artists, the poets and the writers who help us as a society to embrace our circumstance and enjoy it rather than harping on how things might have been. (I think the Chinese are too clinical in their artistic pursuits, but they might still be able to make their own mark.)
4. I am fascinated by the infinite ability of individuals and communities to establish their own equilibrium way of life. The social culture is established by people forming their set of habits which they practice day after day. Too much has been pulled to the centre by the central government which is disruptive to traditional societies. This is because some brilliant PM is keen to set up a new town to call his own. It is far better for the common person that the central government decentralises its expenditures so that more is given to the outliers - as a means of creating jobs in areas with lower costs of living.
5. So much talk about ICT. Thanks to ICT, we can actually decentralise faster. It will be interesting if we can have a national IT network that reports news and views from all the little nooks and corners of the nation, to see how our distant cousins are doing at this precise moment at home, so to speak. I am reminded of an observation that the age of globalisation means that we know all about the US financial meltdown but not whether our neighbour is suffering from depression and needed help. We don't need Cyberjaya or MSC to do ICT.
6. Many Malaysians have come to accept a boring way of life. They want a stable job - so they get themselves stuck in the civil service in a boring job for life and end up doing a disservice to themselves and the nation. They want a prestigious job - and get stuck as a doctor in a clinic entertaining rich but miserable clients. They should sample a variety of jobs to see which one gives them the most happiness and just enough cash for their needs and even desires. I think the availability of a wide spectrum of jobs should enrich the job market as well as our culture and the lives of our people.
7. Conclusion
The government could embark on the following mega projects:
i.) The National Battle of the Lead Guitarists with Rock Bands (RM500,000)- first prize: RM250,000; second prize: RM150,000; third prize: RM100,000
ii.) The National Battle of the Drummers with Rock Bands (RM500,000)- first prize: RM250,000; second prize: RM150,000; third prize: RM100,000
iii.) The National Battle of the Stand-Up Comic Artists (RM500,000)-first prize: RM250,000; second prize: RM150,000; third prize:RM100,000
iv.) The National Battle of the Comic Book Artists (RM500,000)- first prize: RM250,000; second prize: RM150,000; third prize:RM100,000
v.) The National Battle of the Cartoonists (RM500,000)- first prize: RM250,000; second prize: RM150,000; third prize: RM100,000
vi.) The National Battle of the Short Story Writers (RM500,000)- first prize: RM250,000; second prize: RM150,000; third prize: RM100,000
vii.) The National Battle of the Novelists (RM500,000)- first prize: RM250,000; second prize: RM150,000; third prize: RM100,000
viii.) The National Battle of the Poets (RM500,000)- first prize: RM250,000; second prize: RM150,000; third prize: RM100,000
ix.) The National Battle of the Short Film Makers (RM1,000,000)- first prize: RM500,000; second prize: RM300,000; third prize: RM200,000
The total prize money of these 9 mega projects is RM5 million.
If in two languages, RM10 million.
Promotion and related events at RM2 million each would cost RM18 million for one language and RM36 million for two languages.
The entire programme for two languages would cost only RM46 million a year. The programme can be repeated every year until the unemployment rate goes down to 2%.
Keynesian Irrelevance III: Economic Growth
Keynes never wrote about charting our own future. He was clever in inserting money into the economic system and described its volatility - but not growth.
But Keynes does demonstrate one thing - that the economy grows as fast as the new expenditure in the economy. If income Y is consumed to the amount of C, then the remainder is saved (Y-C) which if not invested (spent) will lead to a fall in income. But if the investment is only (Y-C), you have no growth - you have stagnation. So, there must be new investment.
New investment comes from optimism which is derived from confidence - the willingness to stake one's future in the soil under one's feet. After all, if you have to invest more you have saved, you have to borrow and you are basically relying on the stream of future incomes.
It takes a lot to try to pay back loans. You can ask all those poor people who have to run away from the loan sharks. I did loan recovery once; and I can tell you that I was merciless.
To pay back loans, you must believe in the system in which you live. You must really love it in order not to run away when unpaid loans. You want to pay back because you want to the system works, you want your society to be vibrant, to be happy to contribute and pay back.
The Malaysian system has a way of mistreating its people and turn perfectly good citizens into migrants.
How do we build our own future?
1. Educate our people well. If they cannot find jobs at home, they can find jobs abroad. This is OK; we just have to learn to calculate GNP - not GDP.
2. Let us be creative. We should first learn to say exactly the opposite what the authorities are telling us, so that when we all cool down, we can come to a compromise - which we hope will be the middle path.
3. Let us build our own future. Our future is not the one that is being imprinted in our minds by the media. Our future is the one that we feel most happy being. I think all Malaysians love to be truly Malaysians. You can't find Malaysians in Malaysia - you find them abroad in strange places, when we are all out of our own comfort zone. Which really means that Malaysians are really at home in their own homes, during which we just choose to be difficult and idiosyncratic. Malaysians may just be more eccentric than the English.
4. Let us find a way of weaving our various cultural elements into a colourful fabric. I disagree in pushing our economy too fast, as what we have done in the past two decades - creating friction in the process. We should take our own pace - because our social fabric is delicate. We should take time to understand what we are doing. If we are trying to build something new, I do not think we have the experts in our midst - because if really new, no one really has that experience or knowledge before. We only have our own instincts to go by. Once we feel it is right, we have found our home - in our own soil.
5. Let us not look for that clever person to solve all our problems - we do not want a Hitler, Stalin or Mao. We should look to ourselves and our neighbours and our neighbourhoods for ideas and inspirations and grow indigeneous ideas. We should build stable and secure localised networks.
6. Why should we fear when we have resources. We should work to preserve our natural endowments and increase our own satisfactions.
I was once asked by my professor in university abroad: " Why is it that most of knowledge is created in the northern hemisphere and so little in the tropics?"
Answer: "I do not know about knowledge, but I agree there is a lot of mental activity. It is so dark and cold here, whereas in the tropics, there is constant sunshine and fair weather that one is often inclined to just relax and enjoy life."
I think that remark still rings true.
In other words - as my mother would say - grow, my child, but not too fast.
But Keynes does demonstrate one thing - that the economy grows as fast as the new expenditure in the economy. If income Y is consumed to the amount of C, then the remainder is saved (Y-C) which if not invested (spent) will lead to a fall in income. But if the investment is only (Y-C), you have no growth - you have stagnation. So, there must be new investment.
New investment comes from optimism which is derived from confidence - the willingness to stake one's future in the soil under one's feet. After all, if you have to invest more you have saved, you have to borrow and you are basically relying on the stream of future incomes.
It takes a lot to try to pay back loans. You can ask all those poor people who have to run away from the loan sharks. I did loan recovery once; and I can tell you that I was merciless.
To pay back loans, you must believe in the system in which you live. You must really love it in order not to run away when unpaid loans. You want to pay back because you want to the system works, you want your society to be vibrant, to be happy to contribute and pay back.
The Malaysian system has a way of mistreating its people and turn perfectly good citizens into migrants.
How do we build our own future?
1. Educate our people well. If they cannot find jobs at home, they can find jobs abroad. This is OK; we just have to learn to calculate GNP - not GDP.
2. Let us be creative. We should first learn to say exactly the opposite what the authorities are telling us, so that when we all cool down, we can come to a compromise - which we hope will be the middle path.
3. Let us build our own future. Our future is not the one that is being imprinted in our minds by the media. Our future is the one that we feel most happy being. I think all Malaysians love to be truly Malaysians. You can't find Malaysians in Malaysia - you find them abroad in strange places, when we are all out of our own comfort zone. Which really means that Malaysians are really at home in their own homes, during which we just choose to be difficult and idiosyncratic. Malaysians may just be more eccentric than the English.
4. Let us find a way of weaving our various cultural elements into a colourful fabric. I disagree in pushing our economy too fast, as what we have done in the past two decades - creating friction in the process. We should take our own pace - because our social fabric is delicate. We should take time to understand what we are doing. If we are trying to build something new, I do not think we have the experts in our midst - because if really new, no one really has that experience or knowledge before. We only have our own instincts to go by. Once we feel it is right, we have found our home - in our own soil.
5. Let us not look for that clever person to solve all our problems - we do not want a Hitler, Stalin or Mao. We should look to ourselves and our neighbours and our neighbourhoods for ideas and inspirations and grow indigeneous ideas. We should build stable and secure localised networks.
6. Why should we fear when we have resources. We should work to preserve our natural endowments and increase our own satisfactions.
I was once asked by my professor in university abroad: " Why is it that most of knowledge is created in the northern hemisphere and so little in the tropics?"
Answer: "I do not know about knowledge, but I agree there is a lot of mental activity. It is so dark and cold here, whereas in the tropics, there is constant sunshine and fair weather that one is often inclined to just relax and enjoy life."
I think that remark still rings true.
In other words - as my mother would say - grow, my child, but not too fast.
Monday, December 8, 2008
Keynesian Irrelevance II: Multiplier (or Investment)
It is important to recognise the irrelevance of Keynes in today's world because, if we do not, then we will end with with impotent policies of a Keynesian nature. Let me elaborate.
To any slight economic downturn or depression, all of us have "pump-priming" as a policy response at the tip of our tongues - from ministers to bankers and newspapers, and even men and women in the street. At the back of their minds, they are encouraged by their appreciation of the beauty of the concept called "the multiplier."
Mathematically, "the multiplier" is nothing more than just a simple series. If you first have the item "(1-c)Y", followed by (1-c)(1-c)Y, and (1-c)(1-c)(1-c)Y, till infinity, then you can collapse the whole series neatly into a sum of "1/(1-c)Y." So, if c=0.8, then the multilpier is 5.
This multiplier was first put forward by Richard Kahn, a Cambridge professor, as some sort of a theory of employment and appended by Keynes to his Theory of Money and Interest to become the General Theory of Money, Interest and Employment.
If c is consumption out of income Y, then (1-c)Y is saved. This is a no brainer.
Now, the first assumption is that the savings of (1-c)Y is fully invested. There is no necessity of that. In an economic recession like today, may be a fraction or none of (1-c)Y is invested. So, if the government were to pump in a stimulus package G, then cG will lead to consumption and the remaining (1-c)G may be saved in the banks or leaked abroad.
When there is leakage out of the system, there is a need to put more and more in. So G1 will be followed by G2 and G3 and so on. This series of stimulus package has been going on for years in Malaysia. The multiplier just does not get cranked up.
Why?
There are two factors:
(1) type of investment
(2) confidence.
Type of Investment
Keynes never discussed the type of investment in any detail; it would seem he even brushed it off as "employing men to dig holes in the roads and fill them up again." Unfortunately, this little off-handed remark - as a result of trying to persuade the Treasury at the time to spend money - has been used much too common by politicians today to justify dubious projects at the slightest hint of an economic slowdown.
You may think that is good - in keeping the economic growth rate up; but it also has the damaging effect of prolonging its much needed adjustment.
This is what we are seeing in Malaysia. We have been propping up the construction sector that has the effect of creating jobs of illiterate foreign workers, while we have forgotten to create jobs for the young graduated we have generated in our universities. I think there is as much as problem of a mismatch in the education sector where supply has been expanded without the attendant increase in demand for graduates.
There is a need to expand the educated sector of the economy so that we can keep the size of the uneducated in abeyance - whether in construction or politics.
My point is that, instead of thinking in terms of the "stimulus package" with its "multiplier effect" where there is none, it may not be too late for us and if possible the government to come up with a development plan to raise the value-added of the economic activities of the country.
This must work through the education system, giving room for education to be translated into innovative ideas and hopefully commercially-viable ideas, and a stage for the display and execution of these ideas. I am of course talking about industrial ideas - but I am also thinking of agricultural ideas as well as ideas in the services industry - which must include the arts - music, art, drama.
I think the idea of developing areas in other places of the nation outside the Klang Valley is also a very good way of spreading development nationwide. This will create jobs in their neigbourhood instead of getting job seekers to leave their families. It is also a good chance to allow those outside the Klang Valley to make some money, instead of concentrating the wealth of the nation in the hands of a few in the Klang Valley.
Confidence
Although Keynes talked a great length on the effect of confidence on investment, it was in the negative sense - that the loss of confidence has caught investors to run away and keep cash (if at home) and I presume invest abroad (if they have a chance to take their money out).
Let me elaborate the point on confidence in the Malaysian case.
For the moment, confidence is generated by the immediate economic prospect. In recent past, confidence came from government projects. In recent months, confidence jumped out of the window because of the US financial meltdown. Coming up with a modest package of government spending is not likely to have a stimulating effect - for the economy or anyone.
What is important for the country - if the economy is to pick and grow consistently in the coming 20 to 30 years - is for the people to have confidence. Confidence, in this case, comes from credibility of policy or a clear direction for the future (not the V2020 type). We see political troubles ahead because of ideology. We see more political troubles ahead because of the economy.
It has been asked why some countries with high taxes can have high economic growth? The answer: confidence. The high taxes are used to fund a social safety net so that all citizens know they will be taken care of when they are sick or old, so that they are willing to plough back what they earn into the system, after having spent all that they want to enjoy the life that they imagine.
Where does the system come from? Not from migrant workers; it comes from the work of every citizen in the various segments of the society in which they live.
It is therefore against the grain of nation-building to be pitching one group against another, to be excluding any group from the productive workforce, to be inadvertently sabotaging the national system by filling in important positions with wrong skills.
To any slight economic downturn or depression, all of us have "pump-priming" as a policy response at the tip of our tongues - from ministers to bankers and newspapers, and even men and women in the street. At the back of their minds, they are encouraged by their appreciation of the beauty of the concept called "the multiplier."
Mathematically, "the multiplier" is nothing more than just a simple series. If you first have the item "(1-c)Y", followed by (1-c)(1-c)Y, and (1-c)(1-c)(1-c)Y, till infinity, then you can collapse the whole series neatly into a sum of "1/(1-c)Y." So, if c=0.8, then the multilpier is 5.
This multiplier was first put forward by Richard Kahn, a Cambridge professor, as some sort of a theory of employment and appended by Keynes to his Theory of Money and Interest to become the General Theory of Money, Interest and Employment.
If c is consumption out of income Y, then (1-c)Y is saved. This is a no brainer.
Now, the first assumption is that the savings of (1-c)Y is fully invested. There is no necessity of that. In an economic recession like today, may be a fraction or none of (1-c)Y is invested. So, if the government were to pump in a stimulus package G, then cG will lead to consumption and the remaining (1-c)G may be saved in the banks or leaked abroad.
When there is leakage out of the system, there is a need to put more and more in. So G1 will be followed by G2 and G3 and so on. This series of stimulus package has been going on for years in Malaysia. The multiplier just does not get cranked up.
Why?
There are two factors:
(1) type of investment
(2) confidence.
Type of Investment
Keynes never discussed the type of investment in any detail; it would seem he even brushed it off as "employing men to dig holes in the roads and fill them up again." Unfortunately, this little off-handed remark - as a result of trying to persuade the Treasury at the time to spend money - has been used much too common by politicians today to justify dubious projects at the slightest hint of an economic slowdown.
You may think that is good - in keeping the economic growth rate up; but it also has the damaging effect of prolonging its much needed adjustment.
This is what we are seeing in Malaysia. We have been propping up the construction sector that has the effect of creating jobs of illiterate foreign workers, while we have forgotten to create jobs for the young graduated we have generated in our universities. I think there is as much as problem of a mismatch in the education sector where supply has been expanded without the attendant increase in demand for graduates.
There is a need to expand the educated sector of the economy so that we can keep the size of the uneducated in abeyance - whether in construction or politics.
My point is that, instead of thinking in terms of the "stimulus package" with its "multiplier effect" where there is none, it may not be too late for us and if possible the government to come up with a development plan to raise the value-added of the economic activities of the country.
This must work through the education system, giving room for education to be translated into innovative ideas and hopefully commercially-viable ideas, and a stage for the display and execution of these ideas. I am of course talking about industrial ideas - but I am also thinking of agricultural ideas as well as ideas in the services industry - which must include the arts - music, art, drama.
I think the idea of developing areas in other places of the nation outside the Klang Valley is also a very good way of spreading development nationwide. This will create jobs in their neigbourhood instead of getting job seekers to leave their families. It is also a good chance to allow those outside the Klang Valley to make some money, instead of concentrating the wealth of the nation in the hands of a few in the Klang Valley.
Confidence
Although Keynes talked a great length on the effect of confidence on investment, it was in the negative sense - that the loss of confidence has caught investors to run away and keep cash (if at home) and I presume invest abroad (if they have a chance to take their money out).
Let me elaborate the point on confidence in the Malaysian case.
For the moment, confidence is generated by the immediate economic prospect. In recent past, confidence came from government projects. In recent months, confidence jumped out of the window because of the US financial meltdown. Coming up with a modest package of government spending is not likely to have a stimulating effect - for the economy or anyone.
What is important for the country - if the economy is to pick and grow consistently in the coming 20 to 30 years - is for the people to have confidence. Confidence, in this case, comes from credibility of policy or a clear direction for the future (not the V2020 type). We see political troubles ahead because of ideology. We see more political troubles ahead because of the economy.
It has been asked why some countries with high taxes can have high economic growth? The answer: confidence. The high taxes are used to fund a social safety net so that all citizens know they will be taken care of when they are sick or old, so that they are willing to plough back what they earn into the system, after having spent all that they want to enjoy the life that they imagine.
Where does the system come from? Not from migrant workers; it comes from the work of every citizen in the various segments of the society in which they live.
It is therefore against the grain of nation-building to be pitching one group against another, to be excluding any group from the productive workforce, to be inadvertently sabotaging the national system by filling in important positions with wrong skills.
Friday, December 5, 2008
Keynesian Irrelevance I: Banks
There are two major problems in the world economy today:
1. Collapse of banks
2. Collapse of the economy.
In Keynes' General Theory, banking collapse is ignored. The focus is purely on the role of expectations on money demand and investment - in this sense: as uncertainty increases, people keep cash and forgo investment - even if interest rates are lowered to near zero, because the objective of people is to preserve capital value (don't lose money) rather than seek out the higher return (as investors would do).
How do banks collapse? Banks collapse when their bad loans are greater than their capital and reserves. Banking is a very tricky business which requires one to understand simple arithmatic.
Banks expose themselves fully in return for a fraction. If the rate of interest is 10%, a bank lends RM100 to earn RM10 - which means that if there is just a single default (say, RM100), then the bank has to lend out 10 good loans (with no default) earning RM10X10 to cover the default. If the rate of interest is 5%, then the cover is 20 good loans (RM100X20) to earn (RM5X20) to cover the RM100 default. So, if banks are earning a net margin of only 1% (lending rate minus cost of funds minus cost of operations), then we are talking about a cover of 100 times - our terminology for saying that we need 100 good loans to cover 1 bad loan of the same size.
Banks therefore cannot afford to have default. It is a basic banking rule that, if the borrower does not have a good credit rating, don't lend; a higher rate of interest cannot do any justice to lending to bad borrowers. (I lifted this remark from an old banking handbook I read long ago from an old timer who wrote the manual for the Bank of America, if I remember.)
Now, if banks are consciously going after bad borrowers, i.e. sub-prime customers, then they are really looking for trouble. I don't think the bankers and their regulators, especially in the US under Greenspan, understand that.
Now, if banks are lending out 400 times this capital and reserves, then they are really in big trouble. In other words, they have RM1 in capital and reserves for every RM400 they lend out. If they have a default of RM1, they are in trouble. That RM1 default is only 0.25% of their total loans. In other words, at loans 400 times the capital and reserve, they can only afford an NPL (non-performing loan or bad loan) ratio of only 0.25%.
Of course, they are relying on the return of the remaining RM399 to pull through, especially on the expecteed larger rate of return - which simply means higher risks. The scene is thus set for banking collapse.
Using our earlier example of a 5% net return (being generous), we are saying that a RM1 default requires RM20 good loans to cover. So the breakeven NPL ratio is 4.76%, very close to the net rate of return. If the net rate of return is 1%, then the breakeven NPL ratio is 1% from loans.
If we add in the capital and reserves for cover (formally called the capital-adequacy ratio), then the breakeven NPL ratio for a bank is the sum of (i) net rate of return (say, 2%) and (ii) the capital-adequacy ratio (say, 10%). I think you can do your own sums for individual banks.
Proviso: The NPL ratio is a tricky thing. In a booming economy, the NPL ratio is small; in a bad economy, the NPL ratio is high. Why?
Your answer is wrong - that the amount of bad loans increases in a bad economy. Half of the correct answer is that the amount of bad loans increases under all circumstances - during both good and bad times.
The full correct answer is that, in a booming economy, banks are happily giving out loans such that the amount of new loans is larger than the increase in bad loans. In a bad economy like now, bad loans are rising ("I see bad loans arising") while new loans are hard to come by or, if the banks are cash strapped, they may recall the good loans and shrink their loan base. (The latter is called a credit crunch.)
Bad loans don't come, they pour.
Policy Responses
The bailout of banks and financial institutions is only one part of the rescue.
Do you save banks that do not know how to do banking? The last time I was asked by the Board of Directors of a bank to study the major cause of bad loans, my answer was that loan growth was excessive.
Now, why would banks be reckless in giving out loans. Because the deposits are not theirs. Half the answer. The other half (in light of a swinging stock market) is that the CEO's renumeration is tied to his ESOS which depends on the share price to make him an instant multi-millionaire. The only for a bank to push the share price is to register rapid loan growth which is good for earnings as well as for the low NPL ratio and the capital and reserves.
The real test of the strength of a bank is during bad times - to see how little their loan book is bad.
Not only that, whether during trying times, the bank understands the economics and the economic structure and what's happening in the world economy and how new opportunities can be tapped for future growth.
A bank that has relied on bad lending policy such as by lending to shares and real estate and consumers will not know what to do during trying times. Its CEO just bails out
The future of a nation is really dependent on the foresight of its bankers (and dare I say central bankers).
The banker must be able to see like an entrepreneur (but without being greedy himself) and works with the businessman or corporation to go for new opportunities. It is the support a good bank to a good customer that is the backbone of a vibrant economy. If a country has bad bankers and bad businessmen, then the country in for a perpetual series of bailouts in the name of pump-priming or whatever the fancy names that Keynes has invented.
1. Collapse of banks
2. Collapse of the economy.
In Keynes' General Theory, banking collapse is ignored. The focus is purely on the role of expectations on money demand and investment - in this sense: as uncertainty increases, people keep cash and forgo investment - even if interest rates are lowered to near zero, because the objective of people is to preserve capital value (don't lose money) rather than seek out the higher return (as investors would do).
How do banks collapse? Banks collapse when their bad loans are greater than their capital and reserves. Banking is a very tricky business which requires one to understand simple arithmatic.
Banks expose themselves fully in return for a fraction. If the rate of interest is 10%, a bank lends RM100 to earn RM10 - which means that if there is just a single default (say, RM100), then the bank has to lend out 10 good loans (with no default) earning RM10X10 to cover the default. If the rate of interest is 5%, then the cover is 20 good loans (RM100X20) to earn (RM5X20) to cover the RM100 default. So, if banks are earning a net margin of only 1% (lending rate minus cost of funds minus cost of operations), then we are talking about a cover of 100 times - our terminology for saying that we need 100 good loans to cover 1 bad loan of the same size.
Banks therefore cannot afford to have default. It is a basic banking rule that, if the borrower does not have a good credit rating, don't lend; a higher rate of interest cannot do any justice to lending to bad borrowers. (I lifted this remark from an old banking handbook I read long ago from an old timer who wrote the manual for the Bank of America, if I remember.)
Now, if banks are consciously going after bad borrowers, i.e. sub-prime customers, then they are really looking for trouble. I don't think the bankers and their regulators, especially in the US under Greenspan, understand that.
Now, if banks are lending out 400 times this capital and reserves, then they are really in big trouble. In other words, they have RM1 in capital and reserves for every RM400 they lend out. If they have a default of RM1, they are in trouble. That RM1 default is only 0.25% of their total loans. In other words, at loans 400 times the capital and reserve, they can only afford an NPL (non-performing loan or bad loan) ratio of only 0.25%.
Of course, they are relying on the return of the remaining RM399 to pull through, especially on the expecteed larger rate of return - which simply means higher risks. The scene is thus set for banking collapse.
Using our earlier example of a 5% net return (being generous), we are saying that a RM1 default requires RM20 good loans to cover. So the breakeven NPL ratio is 4.76%, very close to the net rate of return. If the net rate of return is 1%, then the breakeven NPL ratio is 1% from loans.
If we add in the capital and reserves for cover (formally called the capital-adequacy ratio), then the breakeven NPL ratio for a bank is the sum of (i) net rate of return (say, 2%) and (ii) the capital-adequacy ratio (say, 10%). I think you can do your own sums for individual banks.
Proviso: The NPL ratio is a tricky thing. In a booming economy, the NPL ratio is small; in a bad economy, the NPL ratio is high. Why?
Your answer is wrong - that the amount of bad loans increases in a bad economy. Half of the correct answer is that the amount of bad loans increases under all circumstances - during both good and bad times.
The full correct answer is that, in a booming economy, banks are happily giving out loans such that the amount of new loans is larger than the increase in bad loans. In a bad economy like now, bad loans are rising ("I see bad loans arising") while new loans are hard to come by or, if the banks are cash strapped, they may recall the good loans and shrink their loan base. (The latter is called a credit crunch.)
Bad loans don't come, they pour.
Policy Responses
The bailout of banks and financial institutions is only one part of the rescue.
Do you save banks that do not know how to do banking? The last time I was asked by the Board of Directors of a bank to study the major cause of bad loans, my answer was that loan growth was excessive.
Now, why would banks be reckless in giving out loans. Because the deposits are not theirs. Half the answer. The other half (in light of a swinging stock market) is that the CEO's renumeration is tied to his ESOS which depends on the share price to make him an instant multi-millionaire. The only for a bank to push the share price is to register rapid loan growth which is good for earnings as well as for the low NPL ratio and the capital and reserves.
The real test of the strength of a bank is during bad times - to see how little their loan book is bad.
Not only that, whether during trying times, the bank understands the economics and the economic structure and what's happening in the world economy and how new opportunities can be tapped for future growth.
A bank that has relied on bad lending policy such as by lending to shares and real estate and consumers will not know what to do during trying times. Its CEO just bails out
The future of a nation is really dependent on the foresight of its bankers (and dare I say central bankers).
The banker must be able to see like an entrepreneur (but without being greedy himself) and works with the businessman or corporation to go for new opportunities. It is the support a good bank to a good customer that is the backbone of a vibrant economy. If a country has bad bankers and bad businessmen, then the country in for a perpetual series of bailouts in the name of pump-priming or whatever the fancy names that Keynes has invented.
Wednesday, December 3, 2008
The Irrelevance of Keynes
Before Keynes, we didn't know that the slump was caused first by the bank collapse and then the inadequacy of aggregate demand. Now we know, thanks to Keynes and his disciple, Milton Friedman (yes, of course, after all, he uttered "We're all Keynesians now!"). So what went wrong today, and how can Keynes be relevant today if despite his advice, we are still in the same type of slump?
I think the problem is bigger than managing aggregate demand and the money supply. We may have all been taught wrongly by our economic professors - who after all are like "nasi lemak" sellers in a row, selling homogeneous products except for the power of the sambal.
Keynes was a liberal in as much as Churchill was, and his great concern was that the prevailing model of democracy of the Western World may be lost to the new Russian order. Can the free economy be discarded for the command economy? As the free world fell into a slump, he was concerned that it would lead to a political change and he responded with the General Theory which argued that the government must add demand to the economy to keep it up, at a time when the UK Treasury was quite happy to let the economy adjust itself properly despite the huge unemployment.
The Classical economist, Keynes argued, has got the economic story wrong. While it is true that the market is an integral component of a modern economy, the market does not operate according to theory initially envisaged - where if the price goes up, demand is reduced, when the price falls, demand increases; and all is well. All has not been well, as we can see today by the effect of the fuel price in recent months and the catastrophic effect that it has caused the economy, despite the current decline in the oil price. I think the point about the market being not symmetrical has been well understood, though not necessarily by policymakers. It would therefore appear that counter-cyclical policy is the way to go - and with the revivial of Bretton Woods (another Keyensian creature) - if Keynes is still relevant. But Keynes is not relevant anymore.
The rise of China economy has shown the world that the market mechanism is not the monopoly of democracy. This puts Adam Smith more at risk than Keynes.
Aggregate demand cannot be the issue today, as the very loose monetary policy of Greenspan has shown. The collapse of the world economy today is not that there is not sufficient money stock in the system or that there is not enough aggregate demand but the contrary - there is too much money printed and incredible amount of aggregate demand as evidenced by the huge budgetary deficit of governments around the world. The ordinary person is simply exhausted from too much consumption and investment. This Keynesian proposition is therefore wrong.
If we observe where the economic failure is, in 1930s or even today, it is the collapse of asset prices - of stocks and real estate.
So the real problem could be that the sustained asset inflation due to prolonged printing of money has created a false sense of security for many people who thought they have been set up for a comfortable retirement. The bursting of the asset bubble has made naught their dream and now they do not know what to do with having practicised a proper profession for some time - apart from punting in the stock and property markets.
The reason for stock market earnings not being taxed is that it is considered by economists not to represent earnings in the proper sense - merely the transfer of payment from the loser in the punt to the winner in the punt. Now, I think that, since the government is invariably caught with having to rescue the stock market with it collapse, we should tax stock market earnings and put that tax in a sinking fund (in cash, please, not stocks). Governments should not use taxpayers' money to prop up share prices.
The tendency for the monetary economy to keep collapsing comes from the tendency of the banking system to lend to create collateral assets such as shares and real estate. This gives rise to a virtuous cycle (which gives huge payouts to bank CEOs) which then collapses into a vicious cycle once banks exhausted their avenues for lending. The pay of bank CEOs should not be tied to bank share prices - because it rewards the building of the foundation for future economic disaster.
I disagree that Keynesian countercyclical policy should be for stabilisation purposes -because it assumes that the economic structure is still good and therefore runs the risk of propping up the inefficient and problem sectors. The economy could have collapsed, as of now, because of a change in the structure of the economy.
The collapse of the Japan economy in the 1980s was due to rise of IT in the US, likewise, the collapse of the US economy is the result of the rise of China.
The problem of the Malaysia economy today is the result of the temporary rise of FDIs (as a result of the collapse of the Japan economy in the 1980s) which led the government to embark on infrastructure expansion (which is now in a glut) and accentuated by the rise of China (investment outflows). To continue to build mega projects would be to prop up construction firms at the expense of the knowledge-building industries. Industrial investment should drive infrastructure development.
The focus on stabilisation policy may have been done in the past at the expense of the need for a long term strategy for national economic supremacy. Has Keynes done more harm than good in Malaysia?
National economic supremacy should be based on education and knowledge, the application of skills and the practice of diligence - founded on a national economic system with a strong social safety net especially for old age.
I think the problem is bigger than managing aggregate demand and the money supply. We may have all been taught wrongly by our economic professors - who after all are like "nasi lemak" sellers in a row, selling homogeneous products except for the power of the sambal.
Keynes was a liberal in as much as Churchill was, and his great concern was that the prevailing model of democracy of the Western World may be lost to the new Russian order. Can the free economy be discarded for the command economy? As the free world fell into a slump, he was concerned that it would lead to a political change and he responded with the General Theory which argued that the government must add demand to the economy to keep it up, at a time when the UK Treasury was quite happy to let the economy adjust itself properly despite the huge unemployment.
The Classical economist, Keynes argued, has got the economic story wrong. While it is true that the market is an integral component of a modern economy, the market does not operate according to theory initially envisaged - where if the price goes up, demand is reduced, when the price falls, demand increases; and all is well. All has not been well, as we can see today by the effect of the fuel price in recent months and the catastrophic effect that it has caused the economy, despite the current decline in the oil price. I think the point about the market being not symmetrical has been well understood, though not necessarily by policymakers. It would therefore appear that counter-cyclical policy is the way to go - and with the revivial of Bretton Woods (another Keyensian creature) - if Keynes is still relevant. But Keynes is not relevant anymore.
The rise of China economy has shown the world that the market mechanism is not the monopoly of democracy. This puts Adam Smith more at risk than Keynes.
Aggregate demand cannot be the issue today, as the very loose monetary policy of Greenspan has shown. The collapse of the world economy today is not that there is not sufficient money stock in the system or that there is not enough aggregate demand but the contrary - there is too much money printed and incredible amount of aggregate demand as evidenced by the huge budgetary deficit of governments around the world. The ordinary person is simply exhausted from too much consumption and investment. This Keynesian proposition is therefore wrong.
If we observe where the economic failure is, in 1930s or even today, it is the collapse of asset prices - of stocks and real estate.
So the real problem could be that the sustained asset inflation due to prolonged printing of money has created a false sense of security for many people who thought they have been set up for a comfortable retirement. The bursting of the asset bubble has made naught their dream and now they do not know what to do with having practicised a proper profession for some time - apart from punting in the stock and property markets.
The reason for stock market earnings not being taxed is that it is considered by economists not to represent earnings in the proper sense - merely the transfer of payment from the loser in the punt to the winner in the punt. Now, I think that, since the government is invariably caught with having to rescue the stock market with it collapse, we should tax stock market earnings and put that tax in a sinking fund (in cash, please, not stocks). Governments should not use taxpayers' money to prop up share prices.
The tendency for the monetary economy to keep collapsing comes from the tendency of the banking system to lend to create collateral assets such as shares and real estate. This gives rise to a virtuous cycle (which gives huge payouts to bank CEOs) which then collapses into a vicious cycle once banks exhausted their avenues for lending. The pay of bank CEOs should not be tied to bank share prices - because it rewards the building of the foundation for future economic disaster.
I disagree that Keynesian countercyclical policy should be for stabilisation purposes -because it assumes that the economic structure is still good and therefore runs the risk of propping up the inefficient and problem sectors. The economy could have collapsed, as of now, because of a change in the structure of the economy.
The collapse of the Japan economy in the 1980s was due to rise of IT in the US, likewise, the collapse of the US economy is the result of the rise of China.
The problem of the Malaysia economy today is the result of the temporary rise of FDIs (as a result of the collapse of the Japan economy in the 1980s) which led the government to embark on infrastructure expansion (which is now in a glut) and accentuated by the rise of China (investment outflows). To continue to build mega projects would be to prop up construction firms at the expense of the knowledge-building industries. Industrial investment should drive infrastructure development.
The focus on stabilisation policy may have been done in the past at the expense of the need for a long term strategy for national economic supremacy. Has Keynes done more harm than good in Malaysia?
National economic supremacy should be based on education and knowledge, the application of skills and the practice of diligence - founded on a national economic system with a strong social safety net especially for old age.
Thursday, November 27, 2008
Illusion of Being Wealthy
Most, if not all, of us must be quite sick and tired of life that we really want to be very wealthy - so wealthy that we would rather not be doing anything.
Nowadays, in the present era where the stock market is the only casino in town open to all and sundry to punt, I see well-dressed men and women - or rather well-dressed couples - idling around shopping malls with the downtrodden - one having bought everything and has nothing to buy and the other not buying because no money.
What do we get in a world where everybody is wealthy?
Nothing, because nobody is working.
The streets would be strewn with cash and nobody wants it because each would have more than the other - so much that there is no point keeping physical cash - easier just to register it as a computer number.
The point about the idea of being wealthy is it quite an evil thought - that there is value in being wealthy only because others are poor. Then the poor buggers will have to slog just to keep alive - in order to toil.
The ancient Greeks and Romans were at least honest. Aristotle argued the need for slaves so that noblemen could lead noble lives. The blacks in the US fought for the right to be free. They are no different from the many immigrant workers we get in countries like Malaysia where they worked their full ten hours a day for the lowest pay in the region.
I celebrate work. But to imagine that we could amass durable items of value so that we would entice the poor to labour according to our fancy is to place the weight of our rightful labour on the shoulders of the unfortunate.
In the extreme, when everybody does not work, then those who have money will want to buy the services of the poor. If the poor are uneducated and unable to fend for themselves, then the only thing they will do is to prostitute themselves - in the truest sense of the world. It is not a wonder that it is the oldest profession - born out of the inert desire of people - to propagate the genes. Surprisingly, both parties are happy - although it may not be sustaining given diminishing returns.
The most sustaining model of life, in my mind, is man or woman roaming free in nature - surviving on whatever little can be found. There is nothing wrong with this model - it must have been around for many hundred thousands of years. In the last two or three hundred years, our incomplete understanding of technology has produced "goods" without offsetting them with the "bads." The wealthy of current generations are creating poverty in future generations.
It may be time for the educated and intelligent to be cultivated and wise and share the fruits of their knowledge with the more unfortunate. This can be done by stopping dreaming about being wealthy (because it is an absurd concept) and start taking care of oneself, one's family and one's neighbours.
It is pitiful to see how the powerful holds out to the desolute with promises of wealth which the powerful cannot keep. (Not surprising that lies and broken promises are a by-product of democracy.)
There is wisdom in the people not listening to politicians. There is also wisdom in politicians not listening to industrialists. There is also wisdom in industrialists not listening to scientists and technologists.
But there is wisdom in children listening to their mothers or, if not, their fathers. Then the world could be a richer place.
Nowadays, in the present era where the stock market is the only casino in town open to all and sundry to punt, I see well-dressed men and women - or rather well-dressed couples - idling around shopping malls with the downtrodden - one having bought everything and has nothing to buy and the other not buying because no money.
What do we get in a world where everybody is wealthy?
Nothing, because nobody is working.
The streets would be strewn with cash and nobody wants it because each would have more than the other - so much that there is no point keeping physical cash - easier just to register it as a computer number.
The point about the idea of being wealthy is it quite an evil thought - that there is value in being wealthy only because others are poor. Then the poor buggers will have to slog just to keep alive - in order to toil.
The ancient Greeks and Romans were at least honest. Aristotle argued the need for slaves so that noblemen could lead noble lives. The blacks in the US fought for the right to be free. They are no different from the many immigrant workers we get in countries like Malaysia where they worked their full ten hours a day for the lowest pay in the region.
I celebrate work. But to imagine that we could amass durable items of value so that we would entice the poor to labour according to our fancy is to place the weight of our rightful labour on the shoulders of the unfortunate.
In the extreme, when everybody does not work, then those who have money will want to buy the services of the poor. If the poor are uneducated and unable to fend for themselves, then the only thing they will do is to prostitute themselves - in the truest sense of the world. It is not a wonder that it is the oldest profession - born out of the inert desire of people - to propagate the genes. Surprisingly, both parties are happy - although it may not be sustaining given diminishing returns.
The most sustaining model of life, in my mind, is man or woman roaming free in nature - surviving on whatever little can be found. There is nothing wrong with this model - it must have been around for many hundred thousands of years. In the last two or three hundred years, our incomplete understanding of technology has produced "goods" without offsetting them with the "bads." The wealthy of current generations are creating poverty in future generations.
It may be time for the educated and intelligent to be cultivated and wise and share the fruits of their knowledge with the more unfortunate. This can be done by stopping dreaming about being wealthy (because it is an absurd concept) and start taking care of oneself, one's family and one's neighbours.
It is pitiful to see how the powerful holds out to the desolute with promises of wealth which the powerful cannot keep. (Not surprising that lies and broken promises are a by-product of democracy.)
There is wisdom in the people not listening to politicians. There is also wisdom in politicians not listening to industrialists. There is also wisdom in industrialists not listening to scientists and technologists.
But there is wisdom in children listening to their mothers or, if not, their fathers. Then the world could be a richer place.
Tuesday, November 25, 2008
Choice of Habits
There are two ways of living your life: (a) sequential life-long, or (b) balanced daily.
You can plan your life on a sequential basis over the expected full life-span. For example, as a student, study; working, make money; retired, go travelling. There are merits to this approach of living because it can be very efficient. You may be the brightest student in class; you may be the best employee or the best businessman or the best investor cum speculator; you may be the best traveller around the world or you have explored every bits of China or India. Many have lived successful lives as such.
But there is an assumption - that you will live through the entire life span of a normal person, say, 80 years. This is a strong assumption - some would say heroic. You may not live that long, for one thing. For another, your plans are sequential - the current phase may depend on the last phase. If one phase fails, the others falter.
The other approach to living is to design a balanced daily life. You may be able to get the balance you want on a weeky basis, or monthly or yearly life. But at least planned a more balanced routine on a shorter time scale.
You may be amazed how enjoyable a balanced daily life can be. You get to do all the things you really want to do everyday. You get to sleep well. You get to work and solve problems. You get to meet friends. You get to indulge in your hobbies. You get to eat nutritiously.
To do all the things you want to do everyday, you must form good habits. You get to earn your money, make your contributions to society, spend your money, have time for yourself.
I think it is a harder life to live if you are over-emphasised on different things at different times of your life such that you are constantly verging on the extreme. One moment you are an extreme smart alecky student, next moment you are the blue-eye of the boss, next you are the most successful speculator in the market, next you are the most travelled with lots of time and money to spend. You are constantly the best. But, you are also extreme.
A more balanced daily life makes for a much nicer person, a person who takes time off to smell the stink in the corridor along the way - and knows that there is a stink there, and the hue of that stink. You become intimately wholesome in yourself and with your immediate environment, being part of it; instead of being an extortionist who gets what you want from a place and then bolted when satisfied.
With a balanced daily life, you are satisfied everyday and are quite happy to go anything. You are at peace. You are happy. You are confident. You start investing in the place your stay. You start enriching your surroundings. You start creating a viable society in your vicinity. I think a lot of rural life has these things.
Even in an urban setting, it is quite possible to design a balanced daily life. Communting to work can be a great time for planning what you want to do for the day - provided you do not get mad at the traffic. The trick is to keep the core of your life simple; the rest can be treated as extraneous - fun or interesting but not defining moments.
Life is nothing more than just a series of habits, and the challenge is to cultivate good habits. It is these habits of individuals collectively that create a culture and if the subsequent generations like it so much, it becomes tradition.
Adjustment to change is merely a change of habits. It is therefore quite hard to engineer change. It is sometimes necessary for a destruction of the old in order for the new to arise. Dynamism therefore means a fluidity of habits and ideas - the ability to undertake variations around a central theme. Manufacturers call this fuzzy logic. Parents call this adaptability. We call it creativity. Philosophers call this paradigm shift.
For the nation to be dynamic, we have to have fuzzy borders around our ethnicity, culture and sense of identity. We all tend to identify with the winning race - and that race should be of a national character - this is sometimes called adaptability - although for individuals we would use the world maverick or, if unkind, chameleon.
It is the formation of good habits for the nation that the nation will grow and mature and have a sense of itself. Else, the nation will be caught in the rut of selected facets of our past, unable to extricate ourselves without loss of limb or mind. But we may be an adolescent nation still controlled by our hormonal rushes.
Good habits comes from a good heart.
You can plan your life on a sequential basis over the expected full life-span. For example, as a student, study; working, make money; retired, go travelling. There are merits to this approach of living because it can be very efficient. You may be the brightest student in class; you may be the best employee or the best businessman or the best investor cum speculator; you may be the best traveller around the world or you have explored every bits of China or India. Many have lived successful lives as such.
But there is an assumption - that you will live through the entire life span of a normal person, say, 80 years. This is a strong assumption - some would say heroic. You may not live that long, for one thing. For another, your plans are sequential - the current phase may depend on the last phase. If one phase fails, the others falter.
The other approach to living is to design a balanced daily life. You may be able to get the balance you want on a weeky basis, or monthly or yearly life. But at least planned a more balanced routine on a shorter time scale.
You may be amazed how enjoyable a balanced daily life can be. You get to do all the things you really want to do everyday. You get to sleep well. You get to work and solve problems. You get to meet friends. You get to indulge in your hobbies. You get to eat nutritiously.
To do all the things you want to do everyday, you must form good habits. You get to earn your money, make your contributions to society, spend your money, have time for yourself.
I think it is a harder life to live if you are over-emphasised on different things at different times of your life such that you are constantly verging on the extreme. One moment you are an extreme smart alecky student, next moment you are the blue-eye of the boss, next you are the most successful speculator in the market, next you are the most travelled with lots of time and money to spend. You are constantly the best. But, you are also extreme.
A more balanced daily life makes for a much nicer person, a person who takes time off to smell the stink in the corridor along the way - and knows that there is a stink there, and the hue of that stink. You become intimately wholesome in yourself and with your immediate environment, being part of it; instead of being an extortionist who gets what you want from a place and then bolted when satisfied.
With a balanced daily life, you are satisfied everyday and are quite happy to go anything. You are at peace. You are happy. You are confident. You start investing in the place your stay. You start enriching your surroundings. You start creating a viable society in your vicinity. I think a lot of rural life has these things.
Even in an urban setting, it is quite possible to design a balanced daily life. Communting to work can be a great time for planning what you want to do for the day - provided you do not get mad at the traffic. The trick is to keep the core of your life simple; the rest can be treated as extraneous - fun or interesting but not defining moments.
Life is nothing more than just a series of habits, and the challenge is to cultivate good habits. It is these habits of individuals collectively that create a culture and if the subsequent generations like it so much, it becomes tradition.
Adjustment to change is merely a change of habits. It is therefore quite hard to engineer change. It is sometimes necessary for a destruction of the old in order for the new to arise. Dynamism therefore means a fluidity of habits and ideas - the ability to undertake variations around a central theme. Manufacturers call this fuzzy logic. Parents call this adaptability. We call it creativity. Philosophers call this paradigm shift.
For the nation to be dynamic, we have to have fuzzy borders around our ethnicity, culture and sense of identity. We all tend to identify with the winning race - and that race should be of a national character - this is sometimes called adaptability - although for individuals we would use the world maverick or, if unkind, chameleon.
It is the formation of good habits for the nation that the nation will grow and mature and have a sense of itself. Else, the nation will be caught in the rut of selected facets of our past, unable to extricate ourselves without loss of limb or mind. But we may be an adolescent nation still controlled by our hormonal rushes.
Good habits comes from a good heart.
Monday, November 24, 2008
The Way of Life
Once you have understood the purpose of education, you want to be able to live a meaningful life.
Meaning comes from the things you do and the way you do things. You choose your way of life. You choose your habits.
Meaning comes from the relationship you have established between you and another person or an object. Things in life exist by themselves - not because of you - and therefore they are inherently meaningless. But you want meaning, so you try to establish a relationship with those things (money, music, books) or people (parents, siblings, countrymen, enemies).
Relationships are not inborn but are established out of historical accidents or preferences. To be ourselves, we have to be aware of historical influences on us and the forces of desire on our preferences. Only then can we make rational decisions as to what we want to do.
If you dichotomise your life, you are setting yourself up for unhappiness. You cannot divide your life up into (a) the working life and (b) the leisure hours.
Leisure is created because working life is dreary. You go to a job you do not like, but you like the money. With the money, you indulge yourself to get rid of the stress you suffered earning the money. When you have earned enough money, you say good riddance to the work. Then you fall straight into a hell.
That hell is called the mid-life crisis. After you have worked hard all your life for the sole purpose of earning money, where you have established a great meaningful relationship with money, once you have achieved your goal with money and you have enough of the job, you find your life meaningless. You start asking the question of what is life and usually at a very late stage in life.
Those who pass their midlife crisis successfully will have a happy life. Those who do not will become miserable. Some may end their lives abruptly when all the major parameters of their lives disappear - such as parents, friends.
In life, the most meaningful things have nothing to do with money (although without money, life can be meaningless).
It is therefore important to establish early the way of life that you want. You must first integrate your life so that work is life and life is leisure. When you have a job, you work for the money; when you retire, you work not for the money. It is a sad employee who thinks that leisure is not having to do anything; he or she is in a job he or she doesn't like and prefers idling to activity.
It is good to be successful at work in the conventional sense, for it gives you the opportunity to do good. If you do not like to work under a lousy boss, then you should strive to be a good boss - which implies you have to work hard to be a boss first before you can be a good one.
All work relationships are ostensibly for the purpose of making money - which is the economic game, and the measure of the success of the economic game. If you have an entire economic system that is losing money, you know the whole society is falling into disarray.
There is nothing wrong with money or making money per se. But if the activities that make money leads to human misery, then it is time to abandon those activities and look for other activities that can make money and promote human welfare. The fault lies in the technology - in the type of "know-how" - which means not all knowledge is good.
In a rat race, we are all trying to run after the fastest rat. We should just take things at our own profitable pace, and let the fastest rat die of a heart attack.
In our modern globalised world, the fastest rat has died - Japan - who has caused the world untold misery by the way they work. Their children are now protesting and finding a new way of life. The other fastest rat that cheated is now dying - the US - which is now drowning in its own excessive liquidity.
While slow and steady may win the race, it would be good to work ourselves up to some decent momentum so that we may begin to arrive at a destination apart from the starting point. We have to move a bit, if at all just to check there is no moss under our backsides.
We need to move so that we can see whether we can work as a closely-knit social structure, rather than disconnected pieces rooted to the ground by our old traditions and cultures.
Education can be a revoluntionary force and this could why politicians have an inherent tendency to ruin it for our children (and not their children) so that the whole society can remain docile. The revolution comes from the ability to think and create new ideas and reinvent ourselves.
Our "know-how" has changed. Instead of saving labour, new technology is now used for entertainment - for the un-boring of our monotonous lives.
Virtual excitement shows us very clearly that our existence is the mere conjoining of our senses which gives the appearance of an entity - as sensed by the entity. We give a whole sense of meaning to the figments of our own imagination.
Choose a way of life that you feel is the best form of self-expression for yourself. You have something inside you that is dying to be expressed - be it in the form of art, or music, or writing, or making objects, or collecting paper money - it is fine, so long as you recognise it as such.
Don't do it for others; for you are at risk of losing the whole purpose of life. Nobody knows what is right or wrong; so suffer your own errors - but leave death to the last, for then the game is over.
Meaning comes from the things you do and the way you do things. You choose your way of life. You choose your habits.
Meaning comes from the relationship you have established between you and another person or an object. Things in life exist by themselves - not because of you - and therefore they are inherently meaningless. But you want meaning, so you try to establish a relationship with those things (money, music, books) or people (parents, siblings, countrymen, enemies).
Relationships are not inborn but are established out of historical accidents or preferences. To be ourselves, we have to be aware of historical influences on us and the forces of desire on our preferences. Only then can we make rational decisions as to what we want to do.
If you dichotomise your life, you are setting yourself up for unhappiness. You cannot divide your life up into (a) the working life and (b) the leisure hours.
Leisure is created because working life is dreary. You go to a job you do not like, but you like the money. With the money, you indulge yourself to get rid of the stress you suffered earning the money. When you have earned enough money, you say good riddance to the work. Then you fall straight into a hell.
That hell is called the mid-life crisis. After you have worked hard all your life for the sole purpose of earning money, where you have established a great meaningful relationship with money, once you have achieved your goal with money and you have enough of the job, you find your life meaningless. You start asking the question of what is life and usually at a very late stage in life.
Those who pass their midlife crisis successfully will have a happy life. Those who do not will become miserable. Some may end their lives abruptly when all the major parameters of their lives disappear - such as parents, friends.
In life, the most meaningful things have nothing to do with money (although without money, life can be meaningless).
It is therefore important to establish early the way of life that you want. You must first integrate your life so that work is life and life is leisure. When you have a job, you work for the money; when you retire, you work not for the money. It is a sad employee who thinks that leisure is not having to do anything; he or she is in a job he or she doesn't like and prefers idling to activity.
It is good to be successful at work in the conventional sense, for it gives you the opportunity to do good. If you do not like to work under a lousy boss, then you should strive to be a good boss - which implies you have to work hard to be a boss first before you can be a good one.
All work relationships are ostensibly for the purpose of making money - which is the economic game, and the measure of the success of the economic game. If you have an entire economic system that is losing money, you know the whole society is falling into disarray.
There is nothing wrong with money or making money per se. But if the activities that make money leads to human misery, then it is time to abandon those activities and look for other activities that can make money and promote human welfare. The fault lies in the technology - in the type of "know-how" - which means not all knowledge is good.
In a rat race, we are all trying to run after the fastest rat. We should just take things at our own profitable pace, and let the fastest rat die of a heart attack.
In our modern globalised world, the fastest rat has died - Japan - who has caused the world untold misery by the way they work. Their children are now protesting and finding a new way of life. The other fastest rat that cheated is now dying - the US - which is now drowning in its own excessive liquidity.
While slow and steady may win the race, it would be good to work ourselves up to some decent momentum so that we may begin to arrive at a destination apart from the starting point. We have to move a bit, if at all just to check there is no moss under our backsides.
We need to move so that we can see whether we can work as a closely-knit social structure, rather than disconnected pieces rooted to the ground by our old traditions and cultures.
Education can be a revoluntionary force and this could why politicians have an inherent tendency to ruin it for our children (and not their children) so that the whole society can remain docile. The revolution comes from the ability to think and create new ideas and reinvent ourselves.
Our "know-how" has changed. Instead of saving labour, new technology is now used for entertainment - for the un-boring of our monotonous lives.
Virtual excitement shows us very clearly that our existence is the mere conjoining of our senses which gives the appearance of an entity - as sensed by the entity. We give a whole sense of meaning to the figments of our own imagination.
Choose a way of life that you feel is the best form of self-expression for yourself. You have something inside you that is dying to be expressed - be it in the form of art, or music, or writing, or making objects, or collecting paper money - it is fine, so long as you recognise it as such.
Don't do it for others; for you are at risk of losing the whole purpose of life. Nobody knows what is right or wrong; so suffer your own errors - but leave death to the last, for then the game is over.
Monday, November 17, 2008
The Purpose of Education
We hear in Malaysia that many of our millionaires and billionaires are illiterate. So, what is the purpose of education?
The purpose of education cannot be to make money. If your purpose in life is to be rich, then this can be easily done by following some of the age-old methods (without education), such as taking from others the fruits of their labour and their wealth and assets, by hook or by crook. To do this, you just have to have power, the strength to abuse, and to bend things to your own liking. You tell stories to your soldiers and get them to attack at the slightest displeasure on your part. You cannot be mean and unreasonable when you are educated. You really have to act foolishly and do all the things that your mother would have told you not to do when you were young.
This is why to some young people, and even to some of their older counsellors, education may not be a good investment, in terms of dollars and cents.
What education does to a person is to learn to think rationally. To be reasonable - to think and do based on reason. Reason comes from the mind and thinking, which is different from emotion that comes from the heart. Most of all, wisdom comes from reflection and an understanding of what this life is all about.
So, in so far as I am concerned, it does not really matter what you study so long as you study in a proper educational establishment in the formal system. The subject matter is a personal choice, a choice which may turn out to be right or not. It doesn't really matter. What is important, to my mind, is that you must study the chosen subject thoroughly, so that you understand the reasoning from the fundamental elements to the ultimate conclusion. This is called thorough knowledge.
Once you have activated your thinking by focusing on a specific subject matter, you would then be able to think for yourselves on a whole range of other subjects which you have not have studied in school but which you become increasing interested as you grow older.
So far, so good. You are now an educated person, and can think for yourself. You are able to understand what other people are saying about something which you may not have studied. You are able to appreciate the reasoning of other people for the stance in life they have taken, whether you agree with them or not. You become a more understanding and sensitive person, to the other elements of life surrounding you which impact you and others. You begin to see life in a constant state of flux, alive and well.
With a deep appreciation of the nature of life, you learn to live as simply as you can, with very few needs or with extravagant needs which you know are dispensible and which you do not have to hold on dearly to. With simple or dispensible needs, you do not have to be greedy in your pursuit of money because you do not need that much. You make do with whatever little you have. You rejoice in your own simplicity. You are happy just to breathe.
Having therefore reduced yourself to nothing, or near nothing, that is, a negligible footprint, your mind is then extended to the larger world around you. You can now feel the world and the cosmos, having, like the Hubble Telescope, gone beyond the clouds of your own ego, and see things as they are, as they actually are, rather than a figment of your own imagination.
You realise that you have been fortunate. You are living a good life, even if simple. You eat what is needed because you are hungry. You sleep when you are tired, which is not often because you do not have worries. In short, you become healthy and energetic and positive. You are quite happy to live and then go away. You have no baggage.
You realise that there are other people who are less fortunate. They have problems, and they are unable to overcome their problems.
You resolve to find solutions to their problems. They could be individual problems, i.e., problems relating to individuals, or they could be collective problems, i.e., problems relating to the group. But you set your mind to think and try to come up with solutions.
You will see that the problems are related to attachment to old habits, probably because it gives people a sense of identity and belonging. I call this problem "The Fear of Flying" - the reluctance to let go and soar to new heights. People forget that a dynamic thing is forever changing, and fossiling elements is like trying to create dinosaurs.
You come up with solutions. Solutions are often new ideas. You do not have to twist your brains to think differently from others. You only have to come out of the clouds of your own ego. You also have to come out of the trap of the logic of the mind - which is quite different from reason; logic is a slave the premise of the argument. You have to get out of the matrix of the system. What you take to be tradition and culture is nothing but a system for survival. If the environment has changed, it's time to change the tradition. In this way, people may begin to say that you are creatiev and innovative. But it is all really very hard work alone.
What becomes of your livelihood? How do you survive if you do not focus on earning a living?
I prefer not to focus on earning a living. I prefer to focus on living my life. If I can find out who I am, where my talents lie, and cultivate those talents to the fullest, and using those talents to help others, I find meaning in my life by being useful to others. When others benefit from your actions, they will reward you with words as well as some material things to sustain you. You live your life and get paid for it.
If what you are doing is good for individuals, you may discover that other people may need your service. You may wish to invest in some equipment to produce the service for others. You will have to take care of your finance, otherwise your operation will grind to a halt and cannot be a service to others.
It is good to make a profit. Since you do not need much, you can either plough the profit into the operations by paying your staff better or expand the operations to reach out to more people.
This is what I mean when I say that to nurture home-grown investments, you need to focus on the education system - not on the certificate-awarding machinery.
The purpose of education cannot be to make money. If your purpose in life is to be rich, then this can be easily done by following some of the age-old methods (without education), such as taking from others the fruits of their labour and their wealth and assets, by hook or by crook. To do this, you just have to have power, the strength to abuse, and to bend things to your own liking. You tell stories to your soldiers and get them to attack at the slightest displeasure on your part. You cannot be mean and unreasonable when you are educated. You really have to act foolishly and do all the things that your mother would have told you not to do when you were young.
This is why to some young people, and even to some of their older counsellors, education may not be a good investment, in terms of dollars and cents.
What education does to a person is to learn to think rationally. To be reasonable - to think and do based on reason. Reason comes from the mind and thinking, which is different from emotion that comes from the heart. Most of all, wisdom comes from reflection and an understanding of what this life is all about.
So, in so far as I am concerned, it does not really matter what you study so long as you study in a proper educational establishment in the formal system. The subject matter is a personal choice, a choice which may turn out to be right or not. It doesn't really matter. What is important, to my mind, is that you must study the chosen subject thoroughly, so that you understand the reasoning from the fundamental elements to the ultimate conclusion. This is called thorough knowledge.
Once you have activated your thinking by focusing on a specific subject matter, you would then be able to think for yourselves on a whole range of other subjects which you have not have studied in school but which you become increasing interested as you grow older.
So far, so good. You are now an educated person, and can think for yourself. You are able to understand what other people are saying about something which you may not have studied. You are able to appreciate the reasoning of other people for the stance in life they have taken, whether you agree with them or not. You become a more understanding and sensitive person, to the other elements of life surrounding you which impact you and others. You begin to see life in a constant state of flux, alive and well.
With a deep appreciation of the nature of life, you learn to live as simply as you can, with very few needs or with extravagant needs which you know are dispensible and which you do not have to hold on dearly to. With simple or dispensible needs, you do not have to be greedy in your pursuit of money because you do not need that much. You make do with whatever little you have. You rejoice in your own simplicity. You are happy just to breathe.
Having therefore reduced yourself to nothing, or near nothing, that is, a negligible footprint, your mind is then extended to the larger world around you. You can now feel the world and the cosmos, having, like the Hubble Telescope, gone beyond the clouds of your own ego, and see things as they are, as they actually are, rather than a figment of your own imagination.
You realise that you have been fortunate. You are living a good life, even if simple. You eat what is needed because you are hungry. You sleep when you are tired, which is not often because you do not have worries. In short, you become healthy and energetic and positive. You are quite happy to live and then go away. You have no baggage.
You realise that there are other people who are less fortunate. They have problems, and they are unable to overcome their problems.
You resolve to find solutions to their problems. They could be individual problems, i.e., problems relating to individuals, or they could be collective problems, i.e., problems relating to the group. But you set your mind to think and try to come up with solutions.
You will see that the problems are related to attachment to old habits, probably because it gives people a sense of identity and belonging. I call this problem "The Fear of Flying" - the reluctance to let go and soar to new heights. People forget that a dynamic thing is forever changing, and fossiling elements is like trying to create dinosaurs.
You come up with solutions. Solutions are often new ideas. You do not have to twist your brains to think differently from others. You only have to come out of the clouds of your own ego. You also have to come out of the trap of the logic of the mind - which is quite different from reason; logic is a slave the premise of the argument. You have to get out of the matrix of the system. What you take to be tradition and culture is nothing but a system for survival. If the environment has changed, it's time to change the tradition. In this way, people may begin to say that you are creatiev and innovative. But it is all really very hard work alone.
What becomes of your livelihood? How do you survive if you do not focus on earning a living?
I prefer not to focus on earning a living. I prefer to focus on living my life. If I can find out who I am, where my talents lie, and cultivate those talents to the fullest, and using those talents to help others, I find meaning in my life by being useful to others. When others benefit from your actions, they will reward you with words as well as some material things to sustain you. You live your life and get paid for it.
If what you are doing is good for individuals, you may discover that other people may need your service. You may wish to invest in some equipment to produce the service for others. You will have to take care of your finance, otherwise your operation will grind to a halt and cannot be a service to others.
It is good to make a profit. Since you do not need much, you can either plough the profit into the operations by paying your staff better or expand the operations to reach out to more people.
This is what I mean when I say that to nurture home-grown investments, you need to focus on the education system - not on the certificate-awarding machinery.
Thursday, November 13, 2008
How to Boot-Strap the Economy
When you switch on the computer to start it, you are only sending the computer some electrical power and the computer must start by itself. This self-starting function of the computer is called "boot-strapping."
How to boot-strap the economy?
Bank lending is only giving the private sector some cash to buy something to start a business. Lower interest rates merely mean that you can repay the bank even if the profit is not that much - provided you make a profit; if you make a loss, you are first a problem debtor and if you persist not to pay, you become a doubtful debtor.
Government projects mean that you do the project - well or not doesn't quite matter - but the government will pay you. If you do not know what you are doing and suffer cost-overrun, you do not have enough working capital to finish the project and you could simply run away and not finish the job. Some clever people sub-contract the job to another person, pocket the difference and let the other person worry about the problem of finishing the job.
Government projects are the easiest thing to do for everyone - something called a "no-brainer." It doesn't really matter whether the job is well done or not - the sufferer is not you but the general public, that is, the people who dutifully pay their taxes and the people who have to deal with faulty public facilities every day.
Now, if you want to be an entrepreneur worth your own salt, remember that the salt is sweat.
Most people imagine that you have to make something or provide a service for exports. This misunderstanding leads many people to think that they have to sell the country to foreigners. You don't have to.
To start a business, you need to have an idea of your target market segment and your product. You can start with either.
(a) Target market segment. You may think that there is money to be made from the yuppies who have cash to think according to their fancy or among the poorer people because they are used to spending all their money no matter how much.
(b) Product. The point I want to make with (a) is that your target market segment will determine your product. The other method is to dream up a product and then try to look for a market.
My point is that, in either case, you can sell to your immediate surroundings - the market that you know best. You do not have to go on a foreign trade mission to figure out what to do, unless you are going as a pretext for a holiday.
You will need input materials for your products. You can source for them locally. The challenge with using local products is that they may be very common and competitors can easily copy and the only way out of such a situation is to be very clever and come up with a way of doing things which nobody can copy easily. This is why kungfu masters are the most secretive.
If you know you are not so clever in coming up with your own way of doing things, then you may want to use imported raw materials where the secrecy is in the source of the imports.
It is therefore also a "no-brainer" when businesses import foreign goods to sell to the local people - because of the uniqueness factor - not because the product is all that great. With no competitors, importers can charge any price they like.
Unless, of course, you are also caught up by the mass media and obtain extreme enjoyment from consuming imported products.
Remember that foreigners are only human beings like you and me, and whatever they can do, we can do also. But there may also be something that we can do and they refuse to do. If it is corruption, or any excuse for taking cash from someone without putting back to society, then I think in this competition, we lose. We have to be clever in producing goods and services - or, rather, cleverer, if we want to compete.
Putting aside all the problems associated economic inefficiency, I think the challenge for you is to have the "know-how." As you can see, the "know-who" mentality has got us all into a deep rut, which only a "know-how" can get us out.
It is time for the "know-how" to get rid of the "know-who."
Knowledge and education - which teach us to be honest and hardworking through discipline - is the path to the future. If you do not know how, then you may have to go back to school or learn from a master. You may need to become an apprentice before you dream of becoming a millionaire.
Only with know-how can an easy lending policy from the bank be of any help to you. Otherwise, the bank is simply being irresponsible in lending out the money of depositors, if you are a sub-prime borrower.
Without "know-how," excessive liquidity may drown all the "know-whos."
You should therefore not fly blind. Open your eyes and learn and hopefully contribute and then be rewarded for your services to your neighbours. Only then may you be able to pull yourself up by your own boot straps.
If everybody pull themselves by the boot straps, there may be hope for beneficial economic exchanges among the people in a society rather than co-exist and interact only with foreigners. Interaction without a two-way exchange is called an unilateral transfer - and this cannot go on forever.
It is a very useful exercise for you and me to examine ourselves each day and see in what way we are exerting our efforts that lead to the increase of the welfare and happiness of other people. Happiness should be the end result of the products that we are creating so that customers will be happy to pay us for our efforts. This is the end-all and be-all of all economic activities - the ultimate purpose of an economy. It is no wonder that those who are quite fed-up with urban society dream of living a solitary life in the jungle in order to gain enlightment which produces happiness.
How to boot-strap the economy?
Bank lending is only giving the private sector some cash to buy something to start a business. Lower interest rates merely mean that you can repay the bank even if the profit is not that much - provided you make a profit; if you make a loss, you are first a problem debtor and if you persist not to pay, you become a doubtful debtor.
Government projects mean that you do the project - well or not doesn't quite matter - but the government will pay you. If you do not know what you are doing and suffer cost-overrun, you do not have enough working capital to finish the project and you could simply run away and not finish the job. Some clever people sub-contract the job to another person, pocket the difference and let the other person worry about the problem of finishing the job.
Government projects are the easiest thing to do for everyone - something called a "no-brainer." It doesn't really matter whether the job is well done or not - the sufferer is not you but the general public, that is, the people who dutifully pay their taxes and the people who have to deal with faulty public facilities every day.
Now, if you want to be an entrepreneur worth your own salt, remember that the salt is sweat.
Most people imagine that you have to make something or provide a service for exports. This misunderstanding leads many people to think that they have to sell the country to foreigners. You don't have to.
To start a business, you need to have an idea of your target market segment and your product. You can start with either.
(a) Target market segment. You may think that there is money to be made from the yuppies who have cash to think according to their fancy or among the poorer people because they are used to spending all their money no matter how much.
(b) Product. The point I want to make with (a) is that your target market segment will determine your product. The other method is to dream up a product and then try to look for a market.
My point is that, in either case, you can sell to your immediate surroundings - the market that you know best. You do not have to go on a foreign trade mission to figure out what to do, unless you are going as a pretext for a holiday.
You will need input materials for your products. You can source for them locally. The challenge with using local products is that they may be very common and competitors can easily copy and the only way out of such a situation is to be very clever and come up with a way of doing things which nobody can copy easily. This is why kungfu masters are the most secretive.
If you know you are not so clever in coming up with your own way of doing things, then you may want to use imported raw materials where the secrecy is in the source of the imports.
It is therefore also a "no-brainer" when businesses import foreign goods to sell to the local people - because of the uniqueness factor - not because the product is all that great. With no competitors, importers can charge any price they like.
Unless, of course, you are also caught up by the mass media and obtain extreme enjoyment from consuming imported products.
Remember that foreigners are only human beings like you and me, and whatever they can do, we can do also. But there may also be something that we can do and they refuse to do. If it is corruption, or any excuse for taking cash from someone without putting back to society, then I think in this competition, we lose. We have to be clever in producing goods and services - or, rather, cleverer, if we want to compete.
Putting aside all the problems associated economic inefficiency, I think the challenge for you is to have the "know-how." As you can see, the "know-who" mentality has got us all into a deep rut, which only a "know-how" can get us out.
It is time for the "know-how" to get rid of the "know-who."
Knowledge and education - which teach us to be honest and hardworking through discipline - is the path to the future. If you do not know how, then you may have to go back to school or learn from a master. You may need to become an apprentice before you dream of becoming a millionaire.
Only with know-how can an easy lending policy from the bank be of any help to you. Otherwise, the bank is simply being irresponsible in lending out the money of depositors, if you are a sub-prime borrower.
Without "know-how," excessive liquidity may drown all the "know-whos."
You should therefore not fly blind. Open your eyes and learn and hopefully contribute and then be rewarded for your services to your neighbours. Only then may you be able to pull yourself up by your own boot straps.
If everybody pull themselves by the boot straps, there may be hope for beneficial economic exchanges among the people in a society rather than co-exist and interact only with foreigners. Interaction without a two-way exchange is called an unilateral transfer - and this cannot go on forever.
It is a very useful exercise for you and me to examine ourselves each day and see in what way we are exerting our efforts that lead to the increase of the welfare and happiness of other people. Happiness should be the end result of the products that we are creating so that customers will be happy to pay us for our efforts. This is the end-all and be-all of all economic activities - the ultimate purpose of an economy. It is no wonder that those who are quite fed-up with urban society dream of living a solitary life in the jungle in order to gain enlightment which produces happiness.
Monday, November 10, 2008
Forget About the Financial Markets
The sooner we forget about the financial markets, the better it is for the real economy - and everyone (well, almost)!
The financial markets are a distraction to the real economy. They generate inflationary pressures on the whole economy by distorting the relative prices of goods vs services; specifically, the price of real goods deteriorates with respect to the price of services. All the best resources and the best brains got into the financial markets, and hollowed out the foundations of the real economy.
The unwarranted attention given to the financial markets is the result of an excessive supply of money caused by (a) easy money policy, (b) government deficit spending and (c) capital inflows (short term).
With the current credit crunch worldwide, the financial markets should deflate. Politicians should not touch the stock market even with a six foot pole. Bank shares should deflate because of excessive lending to the real estate and stock market.
The government should increase deficit spending and spend it on building the human capital and technological infrastructure.
The government should support local investors and build a local industrial base with local talents.
The financial markets are a distraction to the real economy. They generate inflationary pressures on the whole economy by distorting the relative prices of goods vs services; specifically, the price of real goods deteriorates with respect to the price of services. All the best resources and the best brains got into the financial markets, and hollowed out the foundations of the real economy.
The unwarranted attention given to the financial markets is the result of an excessive supply of money caused by (a) easy money policy, (b) government deficit spending and (c) capital inflows (short term).
With the current credit crunch worldwide, the financial markets should deflate. Politicians should not touch the stock market even with a six foot pole. Bank shares should deflate because of excessive lending to the real estate and stock market.
The government should increase deficit spending and spend it on building the human capital and technological infrastructure.
The government should support local investors and build a local industrial base with local talents.
Friday, November 7, 2008
Penans in Penang
Why do you have to roam so much, to go as far as Korea?
To look for food.
Can't you grow your own food?
It is not our tradition to grow our own food. We only forage.
Why do you forage?
We have this knowledge. Nature provides for us an abundance of food which is just lying around waiting to be picked. But we must know where to pick and when.
Won't you like to learn how to cultivate your own food, do some husbandry?
We will change our way of life only when we are forced to.
Isn't this the time?
We'll see.
To look for food.
Can't you grow your own food?
It is not our tradition to grow our own food. We only forage.
Why do you forage?
We have this knowledge. Nature provides for us an abundance of food which is just lying around waiting to be picked. But we must know where to pick and when.
Won't you like to learn how to cultivate your own food, do some husbandry?
We will change our way of life only when we are forced to.
Isn't this the time?
We'll see.
Wednesday, November 5, 2008
Central Banks & Their Duties
Central banks are set up for many different reasons. The Bank of England was set up to fund the war efforts of the King. The Federal Reserve was set up after the 1929 Wall Street crash to manage the financial system.
In Malaysia, Bank Negara is set up to be a custodian of foreign reserves and to protect the value of the currency, apart from being a banker to the government.
The central bank technically wants all citizens to surrender their foreign currencies to them in exchange for the ringgit that they print. As a result, the central bank ends up holding (m0st of) the foreign currencies of the people, ie the nation.
Foreign currencies are the currencies of foreign countries, and they cannot be used locally (by definition - although people are now allowed to keep foreign-currency deposits.
With the foreign currencies, the central bank tries to invest it. Most are inclined to keep cash with the respective central banks - for safety.
Sometimes, central banks do get greedy and try to earn extra interest income on their foreign currencies - and they usually get burnt. The adventurous ones invest in bonds or shares or real estate.
But the foreign currencies do not belong to the central bank - the central bank is merely holding the foreign currencies as custodian for the nation.
Technically, whoever needs foreign currencies can always buy from the central bank - who usually delegates the authority to the banks to help in providing the service.
If few people want foreign currencies, the exchange rate will be low.
If many people want foreign currencies and if there are not enough foreign currencies, the price of the foreign currency goes up and the local currency depreciates.
Depreciation is just a way for the central bank to conserve its limited foreign currencies.
If the central bank is persuing a policy of fighting imported inflation and does not want to the currency to depreciate, it will have to buy up lots of its own local currency in exchange for the foreign currencies.
This problem usually arise when the central bank prints too much money or that there is a loss of confidence in the local currency and people want to hold more foreign currencies.
When the central bank prints too much local currency, the value of the local currency falls.
When the central bank does not know what to do when there is massive exodus because of excessive printing of money or loss of confidence, the unschooled policy is to impose foreign exchange controls. There is no heroism here.
Foreign currency holdings are not national savings. National savings are reflected in the national investment. A lot of cash in the system with little investment is a sign of trouble in the economy. No future.
In Malaysia, Bank Negara is set up to be a custodian of foreign reserves and to protect the value of the currency, apart from being a banker to the government.
The central bank technically wants all citizens to surrender their foreign currencies to them in exchange for the ringgit that they print. As a result, the central bank ends up holding (m0st of) the foreign currencies of the people, ie the nation.
Foreign currencies are the currencies of foreign countries, and they cannot be used locally (by definition - although people are now allowed to keep foreign-currency deposits.
With the foreign currencies, the central bank tries to invest it. Most are inclined to keep cash with the respective central banks - for safety.
Sometimes, central banks do get greedy and try to earn extra interest income on their foreign currencies - and they usually get burnt. The adventurous ones invest in bonds or shares or real estate.
But the foreign currencies do not belong to the central bank - the central bank is merely holding the foreign currencies as custodian for the nation.
Technically, whoever needs foreign currencies can always buy from the central bank - who usually delegates the authority to the banks to help in providing the service.
If few people want foreign currencies, the exchange rate will be low.
If many people want foreign currencies and if there are not enough foreign currencies, the price of the foreign currency goes up and the local currency depreciates.
Depreciation is just a way for the central bank to conserve its limited foreign currencies.
If the central bank is persuing a policy of fighting imported inflation and does not want to the currency to depreciate, it will have to buy up lots of its own local currency in exchange for the foreign currencies.
This problem usually arise when the central bank prints too much money or that there is a loss of confidence in the local currency and people want to hold more foreign currencies.
When the central bank prints too much local currency, the value of the local currency falls.
When the central bank does not know what to do when there is massive exodus because of excessive printing of money or loss of confidence, the unschooled policy is to impose foreign exchange controls. There is no heroism here.
Foreign currency holdings are not national savings. National savings are reflected in the national investment. A lot of cash in the system with little investment is a sign of trouble in the economy. No future.
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