I think I must have written about this many times already in this blog, but everyday I see this phenomenon being sustained and justified as if we have found the policy panacea that would prevent the economy from ever having to fail anymore. Have we really found sustained prosperity for the world without ever there be any more adjustments in the economy and that somehow we can just simply go on like there is no tomorrow - not like there is no more future? It is really true that we do not have to fear economic adjustments anymore?
Classical economics was the economics of poverty. Human societies in general were deprived and there was more demand than the world could produce. The focus of the study of economics was the economics of production, where we subject the production frontier to the market in order to produce the most at the least cost. It coincided with the Industrial Revolution. Adam Smith saw this and promoted the economies of scale and the liberation of markets in order to bring more goods and services to more people so that more people could enjoy the newfound prosperity of the scientific method. Say's Law applied: Supply will find its own demand. There was the silver/gold standard so that the quantity of money (well, the monetary base) was more or less stable and adjustments to the monetary circulation was by way of the reserves as well as bank credit, supplemented by trade credit. The element of trust was important in order to bypass the limitation of the monetary supply and the rate of interest was at a decent 7% or 8% per annum which encouraged savings and generally a sense of frugality among the wealthy while there was a constant search for new products and production method in order to bring about a decent rate of return to pay interests and wages and still earn a decent profit. This was already a fairly sophisticated economic system compared with rural production. In a rural economy, all output would be consumed either by workers (as wages) or by the farmer (as earnings) while a certain portion of the output would be put aside for the production period. This was a fairly self-sustaining system unless there was a shock to the system like bad weather or flooding. In the commerce-oriented (and money-using economy, gold standard), there was a constant need for investment which would be needed to absorb the extra output equivalent to the expected rate in order for the economy system to sustain itself. This system worked fairly well only because there was empire provided natural resources which would be processed by the industrial machinery as well as the market to provide that required profit.
The economic system took a dramatic turn with the rise of the US and the swinging twenties and the jazz age introduced liberalism to the economy and particularly the financial markets which made Al Capone and everybody else very happy. (Al Capone made his first million by working as a telephone operator eavesdropping on stock speculators.) The expansion of the monetary supply with the increasing number of small banks and credit expansion gave rise to speculation on the stock market which eventually crashed when the small banks went bankrupt. This led to the depression, when banks started foreclosing businesses and farmers as the banks faced the backlash of the credit crunch. But this was nothing more than a tornado trying to unwind itself, rather than die down, as banks tried to restore their balance sheets. The banking system was trying to destroy the quantity of money in order to restore the value of money.
The classical economists advised for time for the markets to adjust but did not realise that the markets were themselves being destroyed. Expectations were destroyed and the trust was gone. It was when Keynes came in and argue for the restoration of the markets with the government running a major deficit in order to cover the deficit in the balance sheet of the banking system. Keynes' advice worked and this policy recommendation has been employed since WWII, and probably created it, as it led to the production of a product that destroys other things and hence could logically go on indefinitely unless something came in to give way. In some respect, the decline of the US economy started in WWII as it went on a global-destruction mode which probably wasn't all that great for economic efficiency.
While the beginnings of the expansionism of Keynes' idea was tempered by monetary restraint, with the treasury acting as a countervailing force against the spend-thrift populist government, that need for monetary restraint was romanced away by the saxophone-blowing jazz central banker called Alan Greenspan, away arguing that sustained monetary expansion was needed for an innovative US economy that never really was. The way to encourage the US economic efficiency was the Washington Protocol which dismantled all checks and controls on the US financial sector as well as the US economy itself. That openness allowed terror to enter the economy in reality to its war shenanigans outside its borders. That terror attack sent the US economy into a reversal through tight controls and hence killing off an opportunity for growth which it did not really have a chance to exploit. The policy of sustained monetary expansion was passed on to Bernanke who used it as the only tool it knows how to solve a crisis. As the last series of crises were bank-related and as banks and financial institutions were now bankrupted, with big holes in their balance sheets, it was no more possible to issue US government bonds to US banks, while private investors were (and are) looking in the face of a weak US currency. The only way out was to issue US bonds to the central bank which is now happily printing paper money in the name of Quantitative Easing. Beneath all the economic rhetoric espoused by the clever Americans, the reason why they could so far get away with their economic inefficiency (and be a champion of the world) is because as the international currency where countries are happy to hold the paper money, they are happy to print it until such time as when the world has no more confidential in the US dollar as it abuses the seigniorage of the US dollar. That time is about now.
To some extent, the so-called rampant inflation around the world is partly a reflection of the long-term decline of the US dollar as well as the rise in the fight for global resources as China and India choose not to let its people go hungry again. Countries suffering from persistent inflation problems are those who currencies are linked to the US dollar. These countries too may be suffering from economic inefficiency as they failed to respond to the rising economies of China and India.
The only way that the adverse impact of the US dollar on the world economy can be solved is by refuse to use the US dollar as the international reserve currency. Which means that the Chinese renminbi must step it, probably in conjunction with the yen - in order to ensure that there is sufficient of world reserve money to serve a growing international trade. The need for the renminbi as international reserve may be reduced if, as we all believe, that the future of the growth of the Chinese economy depends on its own international consumption and therefore there is no need for an expanded international trade. The Chinese are reluctant expectedly because they could want to source their raw materials from the rest of the world, and they really have to balance their economic and political balance in the world especially in Africa especially when the US probably is beginning to develop a reversal of their superiority complex. It is, I think, this changing of the guard at the international monetary system which will be the major adjustment in the world economy in order that balance and growth can be reestablished for the marglinalised economies in the world. After all, the sustainable prosperity of China requires a world that is at peace with the China. Zheng He's descendents, if any, may need to be pressed back in services, hopefully not in the form of junk bonds.
My little thoughts to while away a boring afternoon, as Alice would say.
Tuesday, January 29, 2013
Monday, January 28, 2013
The Economics Of Education II
Those who are unhappy about the current education system are unhappy because they cannot get fresh graduates who are able to hit the ground running. Those who are unhappy are unhappy because they cannot get a well-paid job without having to "pay their dues to the union" by having to work for a few years with little or no pay in order just to "learn the trade" or to "get into the trade."
I think industrialists have become very greedy and they will extract as much as they can out of a situation and "go off" (to use a mild version of the phrase). There is no need for investment in human capital. Human capital is treated like a "piece of flesh" - to be used and discarded. I must say I was very disappointed when one of our supposed "wise" men who re-engineered our economy to be what it is today said, without apology, "while we did not achieve our policy objective, we have created a few billionaires." I have been discouraged with such callousness ever since I read that statement. Unashamed callousness.
My main point in this little cynical piece I am writing is that I have lost all hopes in what our current economic system can do for our unfortunate young graduates who not only have to deal with with an industrial structure that requires only low-technology, but also a dismal future clearly the way the current property market is running, it is an inflationary situation which is surely robbing the young of the future value of our currency.
I am putting the fault of our unemployment situation (now politicised as "unemployable graduates") squarely at the feet of those who are responsible for bringing our economic system to its current situation. This is probably one of the most centralised economies in the world, as almost all significant expenditures are at the dictate of the minister in charge of finance. We now do not have an economic policy, we have a policy of running the economy like a commercial enterprise who has absolutely no R&D department.
Having said that, there is really no point for the young graduates to look at the traditional sources of employment because those traditional sources have become corrupt - in the sense that it has failed to perform its required duty. There is really no point in trying to reinvent the education system so that our graduates can become "employable." (To be picky, to be "employable" does not mean they will be employed.) The unemployed graduates have no choice but to create jobs for themselves. I think a new system of funding should created for new sources of growth. (The South Korean entertainment breakthrough comes from private equity.)
I do not agree with the media to run down our young generation by dismissing them. (If I can remember, we weren't all that great in expressing ourselves when we were young either. I don't know whether we now are good at it, although we certainly do hold strong views.) I do accept that communication skills are important, but we really do not have to be snobbish about it. We should humble ourselves and try to listen and understand what the young are trying to say, even in their modern stuttering manner.
If I know, the way an indigenous culture evolves is by first going down to the grassroots and dig for ideas that are at ground zero presently in our society. I am surrounding myself with books and music and I can safely that I am old school, meaning colonial. I do not hope to be seminal in creating an aspect of Malaysian culture because I am deficient in my traditional training. I do hope that my children with their wilder exposure to the local environment as well as the world will be better ambassadors of the nascent culture that we can be proud of in Malaysia. I do not think that my children should be like me - they are already better than me, by being themselves in their newfangled technology-infested way of life.
I think industrialists have become very greedy and they will extract as much as they can out of a situation and "go off" (to use a mild version of the phrase). There is no need for investment in human capital. Human capital is treated like a "piece of flesh" - to be used and discarded. I must say I was very disappointed when one of our supposed "wise" men who re-engineered our economy to be what it is today said, without apology, "while we did not achieve our policy objective, we have created a few billionaires." I have been discouraged with such callousness ever since I read that statement. Unashamed callousness.
My main point in this little cynical piece I am writing is that I have lost all hopes in what our current economic system can do for our unfortunate young graduates who not only have to deal with with an industrial structure that requires only low-technology, but also a dismal future clearly the way the current property market is running, it is an inflationary situation which is surely robbing the young of the future value of our currency.
I am putting the fault of our unemployment situation (now politicised as "unemployable graduates") squarely at the feet of those who are responsible for bringing our economic system to its current situation. This is probably one of the most centralised economies in the world, as almost all significant expenditures are at the dictate of the minister in charge of finance. We now do not have an economic policy, we have a policy of running the economy like a commercial enterprise who has absolutely no R&D department.
Having said that, there is really no point for the young graduates to look at the traditional sources of employment because those traditional sources have become corrupt - in the sense that it has failed to perform its required duty. There is really no point in trying to reinvent the education system so that our graduates can become "employable." (To be picky, to be "employable" does not mean they will be employed.) The unemployed graduates have no choice but to create jobs for themselves. I think a new system of funding should created for new sources of growth. (The South Korean entertainment breakthrough comes from private equity.)
I do not agree with the media to run down our young generation by dismissing them. (If I can remember, we weren't all that great in expressing ourselves when we were young either. I don't know whether we now are good at it, although we certainly do hold strong views.) I do accept that communication skills are important, but we really do not have to be snobbish about it. We should humble ourselves and try to listen and understand what the young are trying to say, even in their modern stuttering manner.
If I know, the way an indigenous culture evolves is by first going down to the grassroots and dig for ideas that are at ground zero presently in our society. I am surrounding myself with books and music and I can safely that I am old school, meaning colonial. I do not hope to be seminal in creating an aspect of Malaysian culture because I am deficient in my traditional training. I do hope that my children with their wilder exposure to the local environment as well as the world will be better ambassadors of the nascent culture that we can be proud of in Malaysia. I do not think that my children should be like me - they are already better than me, by being themselves in their newfangled technology-infested way of life.
Wednesday, January 23, 2013
The Economics Of Education I
Education seems to be a favourite topic of public discussion. This is good because it shows that we are concerned about the quality of education and the great expectations that we have placed on education to show the many problems of society as well as the individual well-being - by which I mean in both cases the issue of national and personal survival.
That concern is often expressed as a criticism - that the present education is not as good as the education in the "good old days" - and how that deterioration in the education standard has led to the deterioration of the economy and society that we are now stuck in. While I read with great amusement the seriousness by which the arguments are being made, this is the same line of judgement that has been put out by all successive older generations on their respective younger generations. I am sure that there must be a certain element of generational ego coming into play here somewhere.
This probably unintentional generational condescension could the result of the general dislike that every generation of democratic societies must have, in their hearts, on their own governments.The loathsomeness may have been generated by the troubles that we see everywhere in our societies - the crimes of private citizens, the daylight robberies by public servants not excluding politicians, the general sloth that we see everywhere (felt after having witnessed how hard even buffaloes in China, Hong Kong (if any), South Korea and Japan have to work), the untouchability of private housing by fresh entrants into the labour market (now matter how clever they may be), the growing cares and worries of modern life especially when we see on the media how Mother Nature can do more harm than any industrialist on the environment, the anger we feel of how repressive regimes are in other parts of the world and how the ordinary hapless people suffer, and all those "goodies" that the mass media churn out in order to keep themselves in business by making us all stare blankly at the TV screen.
We have to vent all that frustration at someone and something. The old favourite is the government and the system. The unintended victims are the students of today.
I am sure parents in all ages feel an intense amount of anxiety for the future of their children. This is why we have greedy businessmen and corrupt politicians who work so well together as a team to squeeze every ounce of profitability (or rather, unearned and undeserved income) from the societies in which they are so intent on dominating. In this brave old world of Adam Smith, everybody must compete. The businessmen and polticians are doing just that, not necessarily among themselves (although it does seem that way) but against the ordinary citizens who must now pay and pay in order to live, and pay more and pay because inflation is a market-determined means of exhortation from everyone, including the old and infirmed, if they are to live at all - this is why the many who cannot afford the cash to live simply jump down sufficiently tall buildings or hang themselves with a sufficiently strong piece of string.
Because parents see the great achievement and success of the businessmen and the politicians, parents push their children to work hard and be like these examples of the worst that modern civilisation can produce. After all, no parents want their children to be failures, for then, they will be extra burden in an already high cost living environment. For hapless parents, they allow their sons to be gangsters and daughters to be prostitutes - which are just ugly names for things that rich parents who want to condition their children to do but in better disguised forms or in better dressings.
But, really, I do not think that current education is as bad as many of us who imagine it to be. For one thing, kids really do know a lot more, can do a lot more, and can talk back a lot more. Don't imagine that a repressive education system produces repressed kids - it produces rebellious kids. The kids may not want to communicate that to you (the repressive regime) but they will do their revenge on the social media in the best way that they know how and you may not approve their language - but that does not meant their language is not good - they can perfectly understand well among themselves but you can be merely grasping.
Whatever the education they are receiving, they will reinvent their own world. They will have their own culture (or you want to demote that to sub-culture), and they will live longer than we the older ones will. They will inherit our properties and tear them down and may even build ugly ones in their place (like we do to old architecture). Their culture and society will evolve into one where the cleverness that we now cherish so much may be redundant and their lives will go on and on so long as there is sufficient battery life to power their computers (computers? not entertainment centres?). They will live contented lives entertained by flashes of tiny electric currents while we the older one see our beautiful but dirty industrial complexes being shut down one by one.
Our old world was a world built on stringent logical human thought, as our enlightened leaders where leading us to get out of the dark ages of mysticism and theology into the brave new world of bright sparks. We eschew hearsay and rely on our own senses to observe and conclude for ourselves using our own heads. So our heads must be conditioned to think in a certain way so that we have a precisely communicable framework to transfer a piece of thought from one person to another. Because even logical thoughts are prone to errors of logical because of the instability of the human thought process, we have strict rules of logic. In the process, we have amassed huge library of scientific research some of which have proven to be useful and is now modifying our world, while most of that scientific research is now just a load of rubbish of errors and blind alleys. Nobody needs to read them anymore.
Instead, the whole body of logical thought by humans, in the last couple centuries, can be transferred and encoded in the electronic processors that we now call computers. After having done that, we really do not need logical thinking anymore - the computers can handle that logical processing. In other words, human are now redundant insofar as logical processing is concerned. Human beings must find a new role for themselves in the new world of computers that we have created.
Of course, the cleverest answer is that we have to be creative. Which is not the same as being innovative. Innovation is just like renovation of a house - you do not knock down the structure. Creation is like building something different not done before - a new house with a different shape from others.
For modern kids to be creative, they must be off their minds. For them to be completely creative, they must be totally off their minds. They do not need logic. The more complete they are without logic, the more complete they are creative. Ideas fall logically into place when they are being processed by the computers which will check for logic.
Just imagine the kids being constantly bombarded by all kinds of images and ideas at a certain numbers of images per second and they have to absorb all these in their little heads and make sense of them. It will be a wonder when they do make any sense of that. At most times, I imagine that these images will float in their minds like a primordial soup waiting for an interaction to occur. I am surprised that so few modern kids go mad.
I pity the teachers who should be totally unprepared to cope with the new environment or society. What is the role of the teacher? The teacher cannot merely dispense facts - the kids can google that. The teacher cannot just talk logic - that can be checked with the computer. The only thing that the teacher can do is to present ideas in pictorial form so that the kids can have fun piecing the pieces together. The new role of the teacher is to present new ideas - or more specifically, old ideas in new forms or old ideas with a bit of innovation. At least, the teacher can then have a chance to play that role properly. The other role for the teacher to do to motivate the kids to be interested in the subjects that they are teaching - because their are many extra-curricular subjects on the computer that the kids can explore. To do that, the teacher must be in good health and not be depressed. I propose that teachers should be given allowances to join gyms.
The last thing I probably which to recommend is that the kids should be made to feel a bit hungry. We should not overfeed them so that they will not be so lethargic. A little hungry will make the fast and processed food taste better, and a little more hunger will probably help to direct their minds (I am so sure about their energy) to things in which they have an interest and in which other people may also have an interest. A little hunger in the modern world may not bad thing at all. It may not be easy to do. We have to go from obesity, to normal, trim, lean and then maybe a little hungry. With this little hungry, I think the economics of education may also improve.
That concern is often expressed as a criticism - that the present education is not as good as the education in the "good old days" - and how that deterioration in the education standard has led to the deterioration of the economy and society that we are now stuck in. While I read with great amusement the seriousness by which the arguments are being made, this is the same line of judgement that has been put out by all successive older generations on their respective younger generations. I am sure that there must be a certain element of generational ego coming into play here somewhere.
This probably unintentional generational condescension could the result of the general dislike that every generation of democratic societies must have, in their hearts, on their own governments.The loathsomeness may have been generated by the troubles that we see everywhere in our societies - the crimes of private citizens, the daylight robberies by public servants not excluding politicians, the general sloth that we see everywhere (felt after having witnessed how hard even buffaloes in China, Hong Kong (if any), South Korea and Japan have to work), the untouchability of private housing by fresh entrants into the labour market (now matter how clever they may be), the growing cares and worries of modern life especially when we see on the media how Mother Nature can do more harm than any industrialist on the environment, the anger we feel of how repressive regimes are in other parts of the world and how the ordinary hapless people suffer, and all those "goodies" that the mass media churn out in order to keep themselves in business by making us all stare blankly at the TV screen.
We have to vent all that frustration at someone and something. The old favourite is the government and the system. The unintended victims are the students of today.
I am sure parents in all ages feel an intense amount of anxiety for the future of their children. This is why we have greedy businessmen and corrupt politicians who work so well together as a team to squeeze every ounce of profitability (or rather, unearned and undeserved income) from the societies in which they are so intent on dominating. In this brave old world of Adam Smith, everybody must compete. The businessmen and polticians are doing just that, not necessarily among themselves (although it does seem that way) but against the ordinary citizens who must now pay and pay in order to live, and pay more and pay because inflation is a market-determined means of exhortation from everyone, including the old and infirmed, if they are to live at all - this is why the many who cannot afford the cash to live simply jump down sufficiently tall buildings or hang themselves with a sufficiently strong piece of string.
Because parents see the great achievement and success of the businessmen and the politicians, parents push their children to work hard and be like these examples of the worst that modern civilisation can produce. After all, no parents want their children to be failures, for then, they will be extra burden in an already high cost living environment. For hapless parents, they allow their sons to be gangsters and daughters to be prostitutes - which are just ugly names for things that rich parents who want to condition their children to do but in better disguised forms or in better dressings.
But, really, I do not think that current education is as bad as many of us who imagine it to be. For one thing, kids really do know a lot more, can do a lot more, and can talk back a lot more. Don't imagine that a repressive education system produces repressed kids - it produces rebellious kids. The kids may not want to communicate that to you (the repressive regime) but they will do their revenge on the social media in the best way that they know how and you may not approve their language - but that does not meant their language is not good - they can perfectly understand well among themselves but you can be merely grasping.
Whatever the education they are receiving, they will reinvent their own world. They will have their own culture (or you want to demote that to sub-culture), and they will live longer than we the older ones will. They will inherit our properties and tear them down and may even build ugly ones in their place (like we do to old architecture). Their culture and society will evolve into one where the cleverness that we now cherish so much may be redundant and their lives will go on and on so long as there is sufficient battery life to power their computers (computers? not entertainment centres?). They will live contented lives entertained by flashes of tiny electric currents while we the older one see our beautiful but dirty industrial complexes being shut down one by one.
Our old world was a world built on stringent logical human thought, as our enlightened leaders where leading us to get out of the dark ages of mysticism and theology into the brave new world of bright sparks. We eschew hearsay and rely on our own senses to observe and conclude for ourselves using our own heads. So our heads must be conditioned to think in a certain way so that we have a precisely communicable framework to transfer a piece of thought from one person to another. Because even logical thoughts are prone to errors of logical because of the instability of the human thought process, we have strict rules of logic. In the process, we have amassed huge library of scientific research some of which have proven to be useful and is now modifying our world, while most of that scientific research is now just a load of rubbish of errors and blind alleys. Nobody needs to read them anymore.
Instead, the whole body of logical thought by humans, in the last couple centuries, can be transferred and encoded in the electronic processors that we now call computers. After having done that, we really do not need logical thinking anymore - the computers can handle that logical processing. In other words, human are now redundant insofar as logical processing is concerned. Human beings must find a new role for themselves in the new world of computers that we have created.
Of course, the cleverest answer is that we have to be creative. Which is not the same as being innovative. Innovation is just like renovation of a house - you do not knock down the structure. Creation is like building something different not done before - a new house with a different shape from others.
For modern kids to be creative, they must be off their minds. For them to be completely creative, they must be totally off their minds. They do not need logic. The more complete they are without logic, the more complete they are creative. Ideas fall logically into place when they are being processed by the computers which will check for logic.
Just imagine the kids being constantly bombarded by all kinds of images and ideas at a certain numbers of images per second and they have to absorb all these in their little heads and make sense of them. It will be a wonder when they do make any sense of that. At most times, I imagine that these images will float in their minds like a primordial soup waiting for an interaction to occur. I am surprised that so few modern kids go mad.
I pity the teachers who should be totally unprepared to cope with the new environment or society. What is the role of the teacher? The teacher cannot merely dispense facts - the kids can google that. The teacher cannot just talk logic - that can be checked with the computer. The only thing that the teacher can do is to present ideas in pictorial form so that the kids can have fun piecing the pieces together. The new role of the teacher is to present new ideas - or more specifically, old ideas in new forms or old ideas with a bit of innovation. At least, the teacher can then have a chance to play that role properly. The other role for the teacher to do to motivate the kids to be interested in the subjects that they are teaching - because their are many extra-curricular subjects on the computer that the kids can explore. To do that, the teacher must be in good health and not be depressed. I propose that teachers should be given allowances to join gyms.
The last thing I probably which to recommend is that the kids should be made to feel a bit hungry. We should not overfeed them so that they will not be so lethargic. A little hungry will make the fast and processed food taste better, and a little more hunger will probably help to direct their minds (I am so sure about their energy) to things in which they have an interest and in which other people may also have an interest. A little hunger in the modern world may not bad thing at all. It may not be easy to do. We have to go from obesity, to normal, trim, lean and then maybe a little hungry. With this little hungry, I think the economics of education may also improve.
Monday, January 14, 2013
2013
Will 2013 be a better, or even good, year?
The world economy has first to undo several twists in its markets:
1. Those who have been trying to argue that, despite the sustained pumping of money, there is no inflation, or even inflationary pressures in any economy of the world whatsoever, must be thinking that they have somehow discovered a black hole where all money flow into and maintain a balance in the respective economies. I don't think there is any magic in economics. When you pump money into the economic system, you hope to get output growth (which is hard in an overproduced environment), but you are likely to get money following into markets (commodities, equities and real estate) at home or simply foreign exchange outflows (which weaken the currency) and drives up (or make prices higher) in commodities, equities and real estate in other countries. The currency flows are obviously the black hole and that excessive liquidity is sloshing around global markets looking a punt - now honourably called investment.
2. Let it be learned from Japan that blowing the asset bubble is not something to be taken off lightly - for more than twenty years, it is still undergoing deflation in the property market - because prices have gone many times beyond the means of the ordinary Japanese, and many are unemployed. Abe now tries to stop the deflation by reflating the economy by printing money and he is looking for a tough central banker to do that. One good way is to rebuild the economy after the tsunami. While Japan may be going through its most difficult time yet, this could be the start of its long-term recovery which may need another 5 to 10 years at least. Laying the foundation could be biofuel and a whole spectrum of lifestyle change and new services particularly in entertainment (notwithstanding the Koreans).
3. China may be getting it right to change its political leadership - which will undo some business arrangements so that some adjustments can take place in the property and business sectors. The interlocking of politics and industries is not something that is uncommon in Asia and this is unhealthy as it leads to an acutely skewed distribution of wealth. The dichotomy of the society produces political instability. Would the super rich pay their workers well so that the workers can live comfortably in new urban centres? Would the Chinese be productive enough across the board to bring about balanced economic development and growth? It will be interesting to see.
4. The US is just at the beginning of the bursting of the asset bubble. The US conventional economic wisdom is that money pumping will save the economy from depression and massive unemployment - which is correct in being able to avert the problems for a wild. The long-term solution is output and productivity growth - which the US may be hard pressed to say that they have the edge. The Koreans seem to have snatched that edge and the production centre is still China. We have hoped that the end of detente would have a peace dividend which would have bring about growth and prosperity to the world. The US seems to be adamant at keeping the world in conflict and encourage human beings to kill their fellow beings. If the monetary expansion in the US is to expand harmed conflicts around the world, in the midst of recession and unemployment, then the US policy direction is dangerous for the world.
5. Especially in Europe where output has slumped and many young people are unemployed. Will there arise yet again a unifying leader in Europe who will blame immigrants and foreigners for their depression? Are their indeed too many human beings and not enough jobs - or is it that European cities are already passed their prime as economic entities and are now mere relics worth just a glance for the passerby? Has the excess liquidity of the super-rich from elsewhere flows in to maintain an ancient regime of style and fashion - and culture?
6. Have Malaysians bailed out of this country, taking their cash to their chosen paradise outside their homeland while the only thing that is worth while to do at home is to speculate on asset prices. When will Malaysians roll up their sleeves and get down to do some real work? The monetary authorities do not seem to be able to get the relative price mix right. Ours seem to be a high-inflation low-productivity growth infested economy. While the opposition takes the current economy as an opportunity, it does not have a clue either of how to get this economy out of the quandary.
With this, I hope to make amends for my long absence and provide some provocations as thoughts. May you have better insights. Have a good year.
The world economy has first to undo several twists in its markets:
1. Those who have been trying to argue that, despite the sustained pumping of money, there is no inflation, or even inflationary pressures in any economy of the world whatsoever, must be thinking that they have somehow discovered a black hole where all money flow into and maintain a balance in the respective economies. I don't think there is any magic in economics. When you pump money into the economic system, you hope to get output growth (which is hard in an overproduced environment), but you are likely to get money following into markets (commodities, equities and real estate) at home or simply foreign exchange outflows (which weaken the currency) and drives up (or make prices higher) in commodities, equities and real estate in other countries. The currency flows are obviously the black hole and that excessive liquidity is sloshing around global markets looking a punt - now honourably called investment.
2. Let it be learned from Japan that blowing the asset bubble is not something to be taken off lightly - for more than twenty years, it is still undergoing deflation in the property market - because prices have gone many times beyond the means of the ordinary Japanese, and many are unemployed. Abe now tries to stop the deflation by reflating the economy by printing money and he is looking for a tough central banker to do that. One good way is to rebuild the economy after the tsunami. While Japan may be going through its most difficult time yet, this could be the start of its long-term recovery which may need another 5 to 10 years at least. Laying the foundation could be biofuel and a whole spectrum of lifestyle change and new services particularly in entertainment (notwithstanding the Koreans).
3. China may be getting it right to change its political leadership - which will undo some business arrangements so that some adjustments can take place in the property and business sectors. The interlocking of politics and industries is not something that is uncommon in Asia and this is unhealthy as it leads to an acutely skewed distribution of wealth. The dichotomy of the society produces political instability. Would the super rich pay their workers well so that the workers can live comfortably in new urban centres? Would the Chinese be productive enough across the board to bring about balanced economic development and growth? It will be interesting to see.
4. The US is just at the beginning of the bursting of the asset bubble. The US conventional economic wisdom is that money pumping will save the economy from depression and massive unemployment - which is correct in being able to avert the problems for a wild. The long-term solution is output and productivity growth - which the US may be hard pressed to say that they have the edge. The Koreans seem to have snatched that edge and the production centre is still China. We have hoped that the end of detente would have a peace dividend which would have bring about growth and prosperity to the world. The US seems to be adamant at keeping the world in conflict and encourage human beings to kill their fellow beings. If the monetary expansion in the US is to expand harmed conflicts around the world, in the midst of recession and unemployment, then the US policy direction is dangerous for the world.
5. Especially in Europe where output has slumped and many young people are unemployed. Will there arise yet again a unifying leader in Europe who will blame immigrants and foreigners for their depression? Are their indeed too many human beings and not enough jobs - or is it that European cities are already passed their prime as economic entities and are now mere relics worth just a glance for the passerby? Has the excess liquidity of the super-rich from elsewhere flows in to maintain an ancient regime of style and fashion - and culture?
6. Have Malaysians bailed out of this country, taking their cash to their chosen paradise outside their homeland while the only thing that is worth while to do at home is to speculate on asset prices. When will Malaysians roll up their sleeves and get down to do some real work? The monetary authorities do not seem to be able to get the relative price mix right. Ours seem to be a high-inflation low-productivity growth infested economy. While the opposition takes the current economy as an opportunity, it does not have a clue either of how to get this economy out of the quandary.
With this, I hope to make amends for my long absence and provide some provocations as thoughts. May you have better insights. Have a good year.
Thursday, November 8, 2012
First & Third Rate Minds
I have been piqued for months by this little question: How do you tell the difference between a first-rate mind and a third-rate mind.
Here we are, racking our brains day-in and day-out to figure out things, to understand things, and to try find simple and practical solutions to the many problems that we have to deal with in our attempt to live a satisfactory life.
We try to see things from all angles, at various levels of details, or various levels of abstraction. We apply logic, lateral thinking or even inspiration. We try to think out of the box or get into the groove. At the end of it, we may have some semblance of a perspective, a definition of the problem, or a way to think about the problem.
Now, when you want to communicate your ideas, you will talk to people and you will get responses.
When you talk to a first-rate mind, you will get further discussion on your ideas, an elaboration, or even a new perspective. You get enlightenment. You see clearer. You think clearer. You get a clarity for which you are grateful.
But, how do you know when you talk to a third-rate mind? What are the indications? After all, everybody imagines that he or she is brilliant. He or she may even be your boss or a person of authority. This may not be an uncommon situation. Society can be filled with people who do not really care for how they think. Let's say, they are not rigorous. So long as they can get by with a flippant excuse, they are happy. So how would you know. My experience is this: I don't understand what you say, but I disagree.
Here we are, racking our brains day-in and day-out to figure out things, to understand things, and to try find simple and practical solutions to the many problems that we have to deal with in our attempt to live a satisfactory life.
We try to see things from all angles, at various levels of details, or various levels of abstraction. We apply logic, lateral thinking or even inspiration. We try to think out of the box or get into the groove. At the end of it, we may have some semblance of a perspective, a definition of the problem, or a way to think about the problem.
Now, when you want to communicate your ideas, you will talk to people and you will get responses.
When you talk to a first-rate mind, you will get further discussion on your ideas, an elaboration, or even a new perspective. You get enlightenment. You see clearer. You think clearer. You get a clarity for which you are grateful.
But, how do you know when you talk to a third-rate mind? What are the indications? After all, everybody imagines that he or she is brilliant. He or she may even be your boss or a person of authority. This may not be an uncommon situation. Society can be filled with people who do not really care for how they think. Let's say, they are not rigorous. So long as they can get by with a flippant excuse, they are happy. So how would you know. My experience is this: I don't understand what you say, but I disagree.
Wednesday, September 26, 2012
Budgeting For Inflation
When rampant inflation sets in, everybody is under siege - it is as if smog has descended and blanket the whole scenery and we all cannot see clearly.
The government, just like everybody else, now has problems trying to balance its budget. Higher prices and costs mean that the same money now buy fewer things - or that if the government wants to do the same number of things with the same number of people as before, then it needs more money. Worse, there is further escalation in costs as the workers working for the government and elsewhere in the economy also want to have more money to maintain the same standard of living as before - failing which they will have to live with less, and those on the margin will have to suffer physically.
It is no surprise that the first tenet in economics is to control inflation. It is a cardinal sin of the policy makers today, especially monetary authorities to have abrogated their duties and go with the flow for the sake of political expediency. This sin has created a new problem - of whether to continue with the circus or to bring down the tent. There appears to be no halfway house - and keeping up with the act may be yet again the most expedient way to go forward; the show must go on.
The government cannot use this budget to raise revenue to make up for its shortfall - the deficit cannot be closed in the foreseeable future. The internal problem of the government's finance department must be how the government can continue to maintain its market rating so that its borrowing does not before unduly more expensive. But the real problem of the government is that it cannot make sure that its deficit-funded projects will be productive and multiplier-expansive - there has been a far greater emphasis on creating big immediate impact rather than consistent and permanent impacts over the immediate and longer run. The disciples have not understood the words of the master well enough.
If the government's aim is to spend so that the people can benefit but that it does not now know to do it properly, it is then better that the government reduces its imposition on the poor people who have to pay tax even though the people are struggling to make ends meet. The government should introduce tax measures that will unburden. One way of unburdening itself from the people is for the government to reduce its tax on the ordinary individual taxpayers by an increase in their tax allowances as well as adjusting its tax brackets for inflation.
Since prices have at least doubled for many things that ordinary households use, the most simplest thing that the government can do in the budget for the people is to double its tax allowances: tax allowance for self and dependent from RM9,000 to RM18,000, books etc from RM1,000 to RM2,000, children from RM1,000 and RM4,000 to RM3,000 and RM8,000, medical for parents from RM5,000 to RM10,000, for example.
The new tax schedule is proposed as follows:
Taxable income (RM)
First 50,000 - 0%
Next 50,000 - 5%
100,000
Next 50,000 - 7%
150,000
Next 50,000 - 9%
200,000
Next 50,000 - 11%
250,000
Next 50,000 - 13%
300,000
Exceeding 300,000 - 15%.
An important impact of unburdening the ordinary professional worker is that you do not want the worker who has supposedly a decent job with a decent training and a decent family to be scrounging around for deals and outside projects just because of rampant inflation which has hit his or her family's daily household expenses and pushed his or her income into the higher bracket.
It is fair to say that 5,000 a month in KL is insufficient and 10,000 a month may just allow one to live without undue financial worries and without undue luxury as well. For now, I think this is where everything starts. If the government wants to think about GST after the elections, it is not to early in this budget to prepare the background for a fair taxation system for the individual taxpayers. The government has squandered its tax resources on foreign companies which have used our precious scarce natural resources for their global profits. It is time that our government makes the local environment conducive for home-grown players of the economic game in a serious and significant fashion.
The government, just like everybody else, now has problems trying to balance its budget. Higher prices and costs mean that the same money now buy fewer things - or that if the government wants to do the same number of things with the same number of people as before, then it needs more money. Worse, there is further escalation in costs as the workers working for the government and elsewhere in the economy also want to have more money to maintain the same standard of living as before - failing which they will have to live with less, and those on the margin will have to suffer physically.
It is no surprise that the first tenet in economics is to control inflation. It is a cardinal sin of the policy makers today, especially monetary authorities to have abrogated their duties and go with the flow for the sake of political expediency. This sin has created a new problem - of whether to continue with the circus or to bring down the tent. There appears to be no halfway house - and keeping up with the act may be yet again the most expedient way to go forward; the show must go on.
The government cannot use this budget to raise revenue to make up for its shortfall - the deficit cannot be closed in the foreseeable future. The internal problem of the government's finance department must be how the government can continue to maintain its market rating so that its borrowing does not before unduly more expensive. But the real problem of the government is that it cannot make sure that its deficit-funded projects will be productive and multiplier-expansive - there has been a far greater emphasis on creating big immediate impact rather than consistent and permanent impacts over the immediate and longer run. The disciples have not understood the words of the master well enough.
If the government's aim is to spend so that the people can benefit but that it does not now know to do it properly, it is then better that the government reduces its imposition on the poor people who have to pay tax even though the people are struggling to make ends meet. The government should introduce tax measures that will unburden. One way of unburdening itself from the people is for the government to reduce its tax on the ordinary individual taxpayers by an increase in their tax allowances as well as adjusting its tax brackets for inflation.
Since prices have at least doubled for many things that ordinary households use, the most simplest thing that the government can do in the budget for the people is to double its tax allowances: tax allowance for self and dependent from RM9,000 to RM18,000, books etc from RM1,000 to RM2,000, children from RM1,000 and RM4,000 to RM3,000 and RM8,000, medical for parents from RM5,000 to RM10,000, for example.
The new tax schedule is proposed as follows:
Taxable income (RM)
First 50,000 - 0%
Next 50,000 - 5%
100,000
Next 50,000 - 7%
150,000
Next 50,000 - 9%
200,000
Next 50,000 - 11%
250,000
Next 50,000 - 13%
300,000
Exceeding 300,000 - 15%.
An important impact of unburdening the ordinary professional worker is that you do not want the worker who has supposedly a decent job with a decent training and a decent family to be scrounging around for deals and outside projects just because of rampant inflation which has hit his or her family's daily household expenses and pushed his or her income into the higher bracket.
It is fair to say that 5,000 a month in KL is insufficient and 10,000 a month may just allow one to live without undue financial worries and without undue luxury as well. For now, I think this is where everything starts. If the government wants to think about GST after the elections, it is not to early in this budget to prepare the background for a fair taxation system for the individual taxpayers. The government has squandered its tax resources on foreign companies which have used our precious scarce natural resources for their global profits. It is time that our government makes the local environment conducive for home-grown players of the economic game in a serious and significant fashion.
Tuesday, September 25, 2012
The Problem of Wealth For The Nation
The problem of wealth for the nation is when the wealth is just a pile of clay which, a thousand years from now, will be just rubble.
It is understandable when an individual craves for physical wealth because that wealth brings about luxury and freedom from unwanted labour. Physical wealth creates a sense of security, a confidence that one does not have to worry about having sufficient comfort for the rest of one's life and that of one's next two generations (as it will be lost in the third).
When everybody is this wealthy in physical assets, who will provide that that uninterrupted and steady future income stream which is so very much yearned by all of us? It is not a mystery when landlords control land in town and demand high rental that poor tenants and workers have to slog for long hours every day of their lives just to pay rent. By the sweat of their brows, they provide that steady stream of income for the property owners.
In a nation of property owners, the poor workers are our unfortunates relatives and foreigners alike who have no access to private property - because their chances to ownership have been taken away from them by that asset inflation very much prized by the rich landlords. With no assets to their names, they can only earn wages by their labour or salaries by whatever little training and qualifications which they may happen to acquire through the formal education system. Do not be alarmed to see workers in small shops whiling away their lives in quiet desperation - for they are victims of the landlords.
Ours used to be a good nation when the greatest aspiration was to own one's own little house, and then devote the whole of one's little savings on a good education for one's children - the point of the education then was that each child can then chart his or her destiny and contribution to society. Now is just private property ownership, asset speculation, sloth and a complete wastage of talents - thanks to that easy money printing press.
We are now stuck in that difficult situation when the real answer to all these problems is how to find an accelerated depreciation of money. The purposeful and systematic disruption of the value of money is a remedial which much be alien to an untrained mind. It is like blood letting - a relief of pressure. Unfortunately, different parts of the system will feel different impacts - and it is always the poorly endowed ones who will have to suffer. At the end of the day, the only way that the system can lift itself up by the bootstrap is to use its own ingenuity to discover the real and present needs of human beings who are then willing to pay for those things by an exchange of their fruits of their own labour.
In a high income society, where everyone have such a high respect for one another that one is compelled to pay the other person as much for services as one would pay for oneself - which therefore means that one will end up having to do everything for oneself - which means that everyone will be equally well trained and competent - which means that one line cuts across the whole of society and everyone is equal and there are no masters and slaves.
Now, about these artificial titles that privileged people bestowed upon each other....
It is understandable when an individual craves for physical wealth because that wealth brings about luxury and freedom from unwanted labour. Physical wealth creates a sense of security, a confidence that one does not have to worry about having sufficient comfort for the rest of one's life and that of one's next two generations (as it will be lost in the third).
When everybody is this wealthy in physical assets, who will provide that that uninterrupted and steady future income stream which is so very much yearned by all of us? It is not a mystery when landlords control land in town and demand high rental that poor tenants and workers have to slog for long hours every day of their lives just to pay rent. By the sweat of their brows, they provide that steady stream of income for the property owners.
In a nation of property owners, the poor workers are our unfortunates relatives and foreigners alike who have no access to private property - because their chances to ownership have been taken away from them by that asset inflation very much prized by the rich landlords. With no assets to their names, they can only earn wages by their labour or salaries by whatever little training and qualifications which they may happen to acquire through the formal education system. Do not be alarmed to see workers in small shops whiling away their lives in quiet desperation - for they are victims of the landlords.
Ours used to be a good nation when the greatest aspiration was to own one's own little house, and then devote the whole of one's little savings on a good education for one's children - the point of the education then was that each child can then chart his or her destiny and contribution to society. Now is just private property ownership, asset speculation, sloth and a complete wastage of talents - thanks to that easy money printing press.
We are now stuck in that difficult situation when the real answer to all these problems is how to find an accelerated depreciation of money. The purposeful and systematic disruption of the value of money is a remedial which much be alien to an untrained mind. It is like blood letting - a relief of pressure. Unfortunately, different parts of the system will feel different impacts - and it is always the poorly endowed ones who will have to suffer. At the end of the day, the only way that the system can lift itself up by the bootstrap is to use its own ingenuity to discover the real and present needs of human beings who are then willing to pay for those things by an exchange of their fruits of their own labour.
In a high income society, where everyone have such a high respect for one another that one is compelled to pay the other person as much for services as one would pay for oneself - which therefore means that one will end up having to do everything for oneself - which means that everyone will be equally well trained and competent - which means that one line cuts across the whole of society and everyone is equal and there are no masters and slaves.
Now, about these artificial titles that privileged people bestowed upon each other....
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