Macbeth

This being the 400th death anniversary of William Shakespeare, I thought I will write a bit of my relationship with his work which has nothing to do with economics.

For those of us who are now are old enough, there was a time when we had to do Shakespeare for examinations in English Literature. The exam piece changed from year to year, and for us it was Macbeth. It started in Form 4 and the task was to get ready for exams in Form 5.

While we were struggling with the play bit by bit in the first year, we were getting a bit confident by the second year. But exam was still a drag and there were many extra-curricular activities for us to participate and enjoy. One fine day, a few of us decided that the only way to force us to study really intensely on the play was to play it! We decided to tell the Principal of the school that we wanted to put up the play for the school concert that year.

We immediately tried to figure the enormity of the task we had got ourselves into. We had to decide how many people we needed to play the characters. We needed the three witches to do the opening. We needed Macbeth and Macduff to do the main fight. Lady Macbeth had to do her soliloquy. There you all, we needed only six people to get the show going.

Of course, the play being only an item in the school concert, we had a time allocation of half an hour max. We started doing what was (and still is) unthinkable and probably sacrilegious - editing Shakespeare! Well, we made a photocopy of the whole play and started crossing out all the portions that we couldn't do. That was quite a lot. There would be no forest of Birnam moving to Dunsinane Hill. There would be no bedroom scene between Macbeth and Lady Macbeth.

Costuming and the props were no problems. We dressed up in t-shirts draped over with some shawls, and short sarongs. We used tobacco and glue for beard which stunk like hell. We got the woodwork club to make swords for us. We used dustbin cans wrapped around with cloth as shields. The three witches dressed in black enhanced with lighting; the cauldron could be imagined as nobody could see in the darkness.

We used the play to sell the school concert tickets to other schools in town as a short cut way to learn the play for the exams. I think we didn't do that badly. We thought we did quite well because of the excitement of doing it and couldn't think of any other things. We did what we set out to do and did it.

On the following weekend, the local newspaper did a small write-up saying that that it was the first time that Shakespeare was staged with local costumes. We weren't bothered for we were then busily thinking about how to pass the exams and worrying about what we should do next with our lives.

I am happy to report that all the players in the play eventually all flew the nest and left the small town in search of greener pastures. We are planning a class reunion and maybe the small group of us who are still alive and well could reenact the play for old time's sake.

"When shall we three meet again? In thunder, lighting or in rain. When the hurly burly is done. When the battle's lost and won. That will be ere the set of sun. Where the place? Upon the heath. There to meet with Macbeth...Fair is foul and foul is fair. Hover through the fog and filthy air.

Is this a dagger which I see before me? The handle towards my hand. Come, let me clutch thee.

We fail? But screw your courage to the sticking place, and we shall not fail.

Unsex me here, and fill me from the crown to the toe top-full of direst cruelty."

So, it is all about power and power. There is no economics. Whoever takes the throne wins. Ha! Same old story.

National Car Project

The idea of the national car project came from the jealousy that foreign car makers could come to this country and assemble their cars and sell them cheap here. Why should we let these foreigners make money here when we could easily monopolise the market. In addition, we could learn and know how to make cars and we could become a super duper nation of science and technology.

This idea came from a bunch of other ideas connected with the desire to industrialise the nation, as per the national plan of raising productivity growth and value add in order to bring about higher incomes. Someone came out with the idea that we should also be manufacturing steel and building a six lane highway for people to drive up and down and therefore creating a demand for cars. All these ideas were implemented and failed.

The reason why car makers go to each market and assemble their cars there is that they are running on grand economies of scale and are trying to reduce the cost of production and making their cars cheaper so that more people can buy. There is a certain fixed cost in creating new platforms which can be repaid by selling many many cars. This basic economics is good enough to kill off any new competitor and makes the car industry the exclusive playground of a determined few in the world. Any body else coming into this game must be a subset or a derivative.

So the national car project basically learns to assembly a car that is also designed and manufactured elsewhere. Whatever we had tried to do to make the car project a national project is to try to increase its local contents which can at best be marginal because the basic cost is the fixed cost. If localisation means deterioration in quality as a result of inexperienced in controlling quality. If the purpose of the national car project is a social project of creating jobs for locals, then there could be the reluctance to invest in automation especially if the machinery is made overseas. In other words, we have basically set ourselves up to lose right from the very start. We are going to clone an existing product from a competitor and reduce its quality and try to sell it at a lower price. Obviously, the market we are trying to target is the lower income groups.

However, it was discovered that the localisation did not reduce the cost of producing the car and in fact increased its cost. The key reason is the loss of any advantage of economies of scale because there wasn't any. There are then the issues of quality of parts and assembly which all added to a major PR negative. In any case, the solution to this was to impose import duties on imported cars and this has to be done by a colossal amount in order to be able to price the national car more competitively.

With now a higher priced car than an imported one without duties, the only way to sell the car is to literally give it away through easy car financing schemes. One could (and still can) drive a brand new car away with a small downpayment and abandon the car when one cannot repay. This is our car version of the infamous sub-prime lending. Nonetheless, what this means is that we have been pouring the national cars on our road system everyday at the rate at which they can push off the assembly line in a day.

We now have a recipe for national road traffic congestion disaster. Before long, all roads are clogged up and new roads have to be built for these cars to drive on. In the past, we could limit credit for hire purchase as part of monetary policy; today, we have no hire purchase policy except schemes that relentlessly push more and more cars on the roads. With the national car project, we have abandoned any planning for the public transport system with public housing and sustaining townships. We just have cars and cars on the roads. (The current afterthought on the MRT is an attempt to solve some problems of the past, not planning for the future.)

With poorly made cars being put on urban roads and country roads, when these cars go on the expressway, they become potential flying coffins. I am not entirely surprised that we are now number one in the world for fatal car accidents.

I am convinced that the national car project must be scrapped so that no more good and scarce money should be thrown to support it. The national car project of course is supporting a community of vendors and car sales people and even lucrative car mechanics, but it is not as if we are closing down the car industry which we apparently nearly have by our bad policy. It is time we correct the car industry policy, by killing the national car project and reviving the national car industry. Those from the national car project can still be redeployed within the local car industry, when the national car project is sold to the private sector. It is an economic efficiency issue.

Let us reduce the adverse impact of cars on our environment by reducing the number of poorly made cars on our scarce roads. Let us put good public transport systems in our major urban centres. Let us do proper town planning. Not just the Klang Valley. We can even remove the import duties on cars and control the number of cars on the roads by other means. It is time that we all learn to think about the policies on these issues.

Banking - Hidden and Regional

I read with great interest the changing of hands of stakes in the banking sector. Could this be the final re-emergence of the quiet one when old age, the Panama Papers or the end of an era is finally making the day of reckoning coming close at hand? Even President Raul Castro has to declare that the old guards must now really call in a day and let the young ones chart their own future. There is no greater curse in the world than a few arrogant fools think that they are the only ones who should rule the world and make the world go the way they want it to go. In the end, God is great and all men and women must die.

This post should be short and is at best conjectural. I cannot help myself in trying to put down my feelings on this issue.

Back in the old days when the world collapsed on us as a result of our own economic mismanagement when politicians controlled the finance of the nation and influenced banking decisions, the political decision was to consolidate the entire banking system into ten large banking groups ostensibly to better ensure the ability of banks to withstand major defaults and errors in lending (the banks would call them systemic failure which I think is a silly idea). At one stroke, all the small regional banks were wiped out and growth of the nation consequently was concentrated in Kuala Lumpur and Putrajaya which thereafter raised the need to solve city congestion problem, the need to build the MRT and the need to impose GST to fund it and other mega projects of the government.

We are now stuck with this PM/FM composite post of national inflation and currency depreciation where the central bank has lost control of the monetary policy and has nothing left but its own sense of authority and dignity. The counterplay between the treasury and the central bank has been lost and the central bank gives up on its independence on the conventional wisdom that the real central bank is the US Fed.

As men and women grow old and they will die even if they do not want to, there is a need for closure and the unraveling of the great matrix of cross-holdings just in case one suddenly dies and the great fortunes lie in the hands of non-family members and the great scam becomes an exercise in futility and foolishness. It is a good time to wrap up for one's progeny.

I was glad to read the suggestion by HRH The Sultan of Johor that Johor must have its own bank to be called the Bank of Johor to fund the development of the state and the funding requirements of its people. I agree. There is a need to revive the presence of regional banks which cater to the financial needs of their respective regions. The CEOs of the big banking groups in Malaysia which are headquartered in KL and Singapore and other major cities would not appreciate the needs of regional centres and their need to grow as the world grows bigger. After the centralisation of banks, I think it is right that the banking policy should be to diversify the ownership of banks and give rise to new regional banks to be established.

One tiny step for the PM/FM to move the nation forward in the right direction.

Macroeconomic Adjustments: Capital vs Labour

It is clear that the world is undergoing a major deflation, after years of priming the pump to inflate the global economy beyond its ability to absorb, given the current level of technology that we have.

We now have a monstrosity in our hands, the trillions of dollars that are now sloshing around the global financial markets looking for a safe home to hide. These short-term capital flights looking for high returns are the product of money printing by irresponsible central banks around the world led by the US Fed which now has a moral dilemma of how to stop printing the cash and not be blamed for the ensuing deflation. The implosion of the global economy is a natural consequences of years of excessive liquidity which has left stock prices high (and refusing to crash), real estate prices way beyond the reach of ordinary working people (and still refusing to crash), banks with loans heavily loaded on stock and shares and real estate lendings (and still refusing to crash).

The ensuing deflation and depression are the natural outcomes of decades of money printing which central bankers should have seen in the first place, but instead had argued with breathtaking profundity of how they are saving the world economy and triggering off the ICT revolution when no one is asked to do real work.

So the policy wisdom is now how to prevent deflation and depression so that we do not trigger off a third world war (which probably is already happening with madmen with cash getting hold of weapons of mass destruction now for real). It is still this thinking of a loose monetary policy that is taking hold of the minds of so-called wise central bankers who did nothing but to subject the real economy to the vagaries of global tidal waves.

For sure the argument is not a credit squeeze which would basically lock everybody out of the banking system, but for a series of bold steps to raise interest rates especially deposit rates to encourage savers, curb consumption and challenge the capitalists to come up with ideas and schemes with a decent rate of return.

The capitalists probably now have so much real estate that is going to last them many lifetimes. But of course there is excess capacity in real estate with building left unoccupied because those who need housing do not have access to shelter.

It is an unthinking capitalist who imagines that the only way the world is going to grow and prosper is to have an evergrowing population that is going to do all the hardwork to obtain decent returns for the capital of capitalists. We know this to be the mere extraction of surplus value of labour. There is no reason why just having money or property is going to make not having to labour in their lives.

There were two world wars where significant portions of the world population were killed. But the aftermath were economic boom because everybody who were left alive were galvanised as a society to work to survive and live.

It is disheartening to read in modern day Japan that young people are being taken advantage of by companies which forced people to work inhumanly long hours with wages that no human beings can live on and when workers are forced to take their own lives as the only way out of their predicament.

Japan has failed as a national economy because the government and the corporate sector collude to steal resources from the people by printing money, currency depreciation, inducing inflation, underpaying wages and with the government and the people going into debt which eventually must be paid by the younger generations. In the meantime, the Japan companies go global to seek better returns overseas and leave the kids at home to fend for themselves by working their butts off for some food in their stomachs and nowhere to go.

It is quite alarming that youth unemployment has grown to 25% and 50% for most economies, advanced or not. There seems to be a real disconnect in the globalised economy where a handful of people can earn more than several nations can in a year and that so-called wealth is not sufficiently spread around by bankers. Bankers are doing an appalling job allocating financial resources, preferring to build cities of ever-growing densities ostensibly to create better economies of scale and "fuel efficiency" centred around casino-type activities.

Governments who measure the libido of their economies by the index of their respective stock market are probably the most corrupt, for these politicians are probably managing their personal fortunes in the markets with projects they are pushing. Everybody are in it to suck the life juices of the ordinary people through all kinds of asset play.

There really is a need for bankers and the financial market to sit down quietly and analyse the economy and decide on the directions of their loans and nuture the current generation of young people who are dying for a toe-hold into the unreal world of the economic matrix.

Negative Interest Rate and All That

In line with Abe's goal of creating inflation that the Bank of Japan is now resorting to introducing the negative interest rate for its customers - namely commercial banks - for keeping their deposits. As of January 29, the central bank will charge 0.1% p.a. on the new deposits of commercial banks kept with the central bank. Luckily, the negative interest rate does not apply to ordinary customers at financial institutions.

The idea is to discourage commercial banks from being prudent and to encourage them to lend to ordinary people so that they will spend more money and increased the demand for goods and hence raise prices in general. But this is a foolhardy task.

Japan has been suffering from deflation for a quarter of a century since the burst of the asset bubble in 1991 after the introduction of the newfangled technique of quantitative easing in 1986. The QE was introduced to reverse the sharp appreciation of the yen forced on Japan by the US in the Plaza Accord. The US economy was weak and it accused Japan of undervaluing its yen.During the asset bubble, the stock market and the real estate market rose to unprecedented heights with banks giving out housing loans that required three generations to pay. The bubble burst when the central bank feels that speculation in the markets had gone mad and there was a need to stop that. The markets collapsed when credit tightened and interest rates rose.

The fact that the Japanese economy has slowed and deflation has continued for so long point to the problems at the banks. With such huge non-performing loans affecting millions of people, the government just cannot push for foreclosures to solve the problem. It would put the entire banking system and the population into bankruptcy. At the same time, the high yen had forced Japanese multinationals to go abroad to places such as Malaysia and thus leaving a vacuum in the SME sector consisting mainly of family-owed companies. Japan hasn't so far recovered from this structural shift.

It is natural that nominal wages have not risen in the midst of weak labour demand, and therefore there is no scope for real estate prices to recover. Instead, real estate prices are looking for the correct level of nominal wages, and if this could not be found at home, then they will have to wait for stronger foreign buyers. Japan has no opened its doors to foreign tourists and it won't be long before these tourists fall in love with the lovely Japanese manicured townships and buy them up, especially those from China.

Lessons for Us

For us here at home, we must recognise a structural problem when we see one, instead of thinking that we are still dealing with a temporary marginal demand adjustment problem.

The impending rise of global interest rate, although the idea is somewhat challenged by Japan's interest rate, and the shift of global money flows in light to that expectation is a structural shift which we have not see before. This is coupled with the adjustment of the oil price back down to normal which should put an end to the grandiose schemes by the government in using demand management to support an income that is not sustainable.

The government here should really cut down on its expenditure so that it does not have to support the huge foreign worker population. The increase in the foreign worker levy is a right move. But the government must cut down on the operations of the government. Senior government servants are paid exorbitant salaries (perks included) for prestige but not talent. They should be given titles that befit their subservient status, rather than as honoured guests in all kind of functions.

I really won't really worry about public transport. With the recession, there will be less cars on the roads. The public transportation in any case does not serve those who drive fancy cars. I think real estate developers should be asked to contribute to the building of the public transport to or near their properties.

Encouraging enterpreneurs is always a good idea. But how it is being done will determine its success. Entreprenuership should not be seen as a special activity that is carried out by a select group. It should be encouraged as a way of life. This calls for a change in mindset starting with policy that is open to all citizens and there are no privileges to selected groups. The system encourages the society as a whole so that everybody has equal opportunities. Those who are clearly handicapped should be helped but should in no way be allowed to obstruct the general progress of the whole society. This policy is also translated down to the banking system which should be liberated to allow for smaller boutique banks that cater to special groups rather than lumping every banking and financial functions under big lumberous megastructures.

To compete in the world ahead, the government should assume itself ignorant and therefore playin the supporting role to the private sector which must take the entire risk of their endeavours. In no way should the government guarantee the financial profitability of projects that bear great benefits to a few at the expense of many. The government should not guarantee private profit. The market rewards those who succeed and punishes those who fail. The government must not penalise those who succeed and rewards those who fail.

We at home should gear us for a few years of deflation and a slow growth. The 3% cut in the employee's EPF contribution is the clearest demonstration of the poverty of policy thinking at this critical juncture of our national economic life. Begone your naive Keynesianism. We are now in post-Keynesianism. Our budget deficit has ballooned to enormous size. The government is now trying to take more money from the people to patch up the budgetary holes. Our people are over-geared and facing unemployment. We are now in post-monetarism. Easy monetary policy has gone kaput. We are drowning in liquidity. Let us try the see things a bit clearly.

The People Protest Again (TPPA)

I am writing here as per request.

I initially had no interest in these things because (a) the economy is already in deep trouble and what difference would this TPPA make even if it is for the worse; and (b) would anybody in government bother to rethink carefully if they know how to protect the national interest instead of the interest of the party. (But seriously, the party is over and now we have to clean up the mess.)

I think I may have something to add.

TPPA stands for the "Trans-Pacific Partnership Agreement."

Trans-pacific is a very USA terminology for when they look over the Pacific Ocean, they are looking at the whole of Area. (When they look over the Alantic Ocean, they are looking at Europe.) So the TPPA is a very American intiative. The US wants it, not us in Asia.

It is obvious that China is not included in the TPPA negotiations. For one, China wouldn't be so stupid to be tied by the US. Two, the US is obviously tying up with its "allies" in Asia in order to counter China which has surged to scary heights economically. The US is in decline economically and is in sore need of a strategic move to at least play defensive against China.

1. If I were the US, what I want from the TPPA is for all partner-nations to operate subservient to US companies with the US government setting the rules of the game. In other words, the US government will play judge and jury in any business disputes which US companies would surely raise if they were to lose their investments because of country risks.

In the TPPA, there would be no country risk for US companies and if there is, the country must pay. Country in the end means the people in terms of inflation, currency depreciation, high interest rates and high unemployment, as the errant country must pay a huge sum in US dollars and its government must run a budget deficit to do so.

2. US companies are holding many copyrights and they wish to ensure that they can extract rent out of these copyrights. Areas to attack are music, films, medicine as well as technology. Since modern technology is being used not only to save labour but also for entertainment, it is therefore likely that entertainment for the masses will an expensive hobby.

3. It is obvious that US service companies want to capture a chunk of the professional services industry in Asia. They have already done so under WTO, and it is likely that under TPPA, they will deepen it with legal implications.

4. I agree that worker conditions must improve so that every working person earns a living wage. There should be provisions for housing, medicare and schooling for their children if we want to host workers in this country. This is how a country grows, by taking care of the people who work. Only when we have this baseline drawn properly can this country move up the value chain and be a high-income economy.

My final point is that, if Malaysia really wants to sign the TPPA with the USA, then the government should also pursue such a liberal and liberating policy in our own domestic economic policy where there are no quotas and restrictions for the selected few in our own society. If we are glad to appease ourselves with foreigners, then we must also be prepared to treat all our citizens as equal.

Malaysia Economy 2016

I am surprised that the prime minister has to spend time to revise his budget as the price of oil plunges further.

If the economics department of the government were to have been staffed professionally in the first place - rather than employing part-time MBAs and jack-of-all-trade consultants to disguise the emptiness - somebody would have (a) done a risk analysis on the oil scenario that would swing either way around the USD 50 a barrel at the time of the budget, and (b) foreseen the rise of US interest rates two or three years ago and the impact on the stock market, the real estate market and the ringgit and local interest rates.

The paucity of strategic policy thinking and the lack of understanding of how the real economy of the country works is shown up clearly by the mishandling of the GST, a topic which this blog has covered at length and with great passion arguing against it.

The GST cannot be the saviour of the national budget. The use of the GST, without the abolishment of the personal income tax, is an abuse of the theoretical argument for indirect consumption taxes. That the GST can be saviour of the national budget must mean that the income and welfare of the general public must deteriorate by the same amount of the revenue raised by the GST.

The current call by the government for all enforcement agencies to raise their tax revenues from customs, inland revenue, fines and other miscellaneous sources including increased dividends from listed companies, must be seen as a desperate act to "make the numbers look good for the rating agencies" and the ordinary people must suffer. But for what?

That the government can continue spending recklessly? The civil service has been drained of professionalism but that lack of professionalism is costly, not only in terms of lack of work done and the end to employ consultants to do their jobs, but also the need to spend most to send them for courses in reward of their incompetence (pay, and no need to work), the tendency to organise PR activities to sell the image of the government rather doing the actual delivery, and the tendency to triviality (re dress codes to be eligible for government services).

The biggest white elephant will be the public transport system now being built in KL with money collected from all states. By the time it is done, the economy will be in the deepest recession. It is not stimulating the economy, nor will it solve the urban traffic problem. With the recession, there will be much diminished traffic on the road.

What needs to be done for the economy is a complete overhaul of the current system. There is too much concentration of economic power in the hands of a few organisations who therefore act as monopolies. They extract fees but do not improve their delivery. TM's Unifi is a sham. All the utilities can raise their rates and nobody can complain. The call for improved dividend payouts by listed monopolies can only mean increased fees across the board and a general deterioration in the purchasing power of the ordinary people.

The closure of the formal economy to half the population to a third of the citizenry does not only mean a multiplier effect on the contraction of the potential of the local economy but a general mental blockage about trading with the rest of the world. Unless, of course, the objective is to exclude the local non-inclusive while sharing the largesse with the politically-inconsequential non-locals.

It is this paranoid and distorted thinking on nationhood and the deliberate repression of a selected section of the society that is destablishing the social fabric and the economic engine. The lack of incentive to invest in one's own country and the need to squirrel away ill-gotten gains in some foreign hideouts merely means that the local currency can only be weak.

It can be observed that after every boom in the economy, the currency will appreciate during the boom but deteriorate after the boom. This happened in every decades since 1982. It cannot be attributed to one regime but the entire economic system that has been set up to provide economic gains to a particular racial and political group.

The nation has come to logical end of the economic system that was hoisted in 1970. The 1970s saw the transformation from a professional civil service to a race-based system and the reclamation of so-called national assets from foreigners. The 1980s saw the failures of the autarky and the beginnings of dealing with foreigners who were erstwhile enemies. The 1990s saw the transformation of the economy from agriculture to manufacturing and the wholesale building of infrastructure for industries, funded by short-term foreign capital in collaboration with local political powers and the eventual collapse of the currency. The 2000s was spent covering up the damages with oil money. The current decade attempts to use the money that is not there to bolster the economy with big public projects. There is simply no encouragement of local citizens to invest in value-added businesses by a revamped banking system that is not focused entirely on the stock market and the real estate market.

Are the local government system and the local banking system geared towards promoting private investments not only in the old industries (plantations, real estate) but new industries and services which the modern world wants? The way the local immigration policy is conducted, we are painfully exchanging high-calibre citizens for disease-born illiterate workers from the bottom of other countries.

Politicians and senior civil servants should cut down drastically on their overseas travelling and should instead spend more time thinking through on the nature of local issues and how they may be resolved in our own way, rather than plugging standard solutions from consultants. It is only when we learn to solve our own problems that we can begin as a nation to be able to stand on our feet and bring happiness to our own people.