Inflation Woe

This is a very short respond to oyster cove, whom asked about the problem of inflation in Malaysia two posts ago. As with other general concerns on inflation in Malaysia, it is often masked implicitly, and sometimes explicitly, with an accusatory tone towards the government. Understandable I guess, but it is useful to know the limit of what the State could and could not do when it comes to the current scenario.

Inflation - Supply Shocks

The problem of inflation currently is global, not local. It is not due to the doings of the State, say like in Zimbabwe. If anything, Malaysians have been shielded too long from these pressures, particularly on fuel prices due to populist measures. The inflationary pressures are external, and in some sense, transient (I am referring to inflation, not the prices - i.e., the increase in prices, and not the levels of price), and does not come from within.

Conventional monetary tools to handle supply-shocks are mostly ineffective, and the appropriateness of using monetary means to overcome supply-origin inflationary pressures is often questioned. Interest rate is a very blunt tool. We currently have a delicate problem, careless wielding of the tool might result in more damage than actually solving the problem.

So what can the State do? I can think of two things:

1) Do not make the matter worse - by succumbing to populist policies such as fiscally unsustainable subsidies, price and wage controls and other measures which are popular but economically disastrous.

2) Prevent secondary inflationary pressure - there is little the central bank can do for supply shock inflation, but there is a potential problem of spiralling prices due to the first round impact of the supply shock. Firms might increase prices irresponsibly beyond the first round increase in cost, leading to further increase in prices and wages and so on. The classic price-wage spiral situation, plus the embedding of inflation expectation which would be much worse than the current problem now. I talked about this from a different angle not too long ago. Interest rate can help to stop this demand-induced pressure, if executed appropriately.

Exchange Rate - Appreciation?

There is of course, the issue of why don't we just allow the exchange rate to appreciate to control the inflation problem? Well, the problem is a little more subtle. I can think of two issues:

1) Allowing exchange rate to appreciate implies that the ringgit is undervalued to begin with. Which could be or could not be true - which is difficult to assess. For example, undervalued relative to? Vis-a-vis major currencies? Major trading partners? Major trading competitors? Propensity of more short-term inflows than outflows?

Anyway, the thing is, the ringgit has been appreciating over the past few years - not in a straight line manner, but appreciating nonetheless. Very recently however, as in since the beginning of this year, the ringgit is not appreciating as fast as other relevant currencies. And I do not think it is due to constant interventions from the central bank - the evidence doesn't corroborate this view. I believe the current relative weakness of the ringgit has got to do with the relatively bad economic prospects of the country compared to other economies (on top of the already bad overall global situations). And I am talking about political uncertainties. Definitely not inviting money into the country, and investments being driven on hold. This naturally limits the upward tendency of the ringgit.

So, if the ringgit is not held down artificially, then you can't really 'allow' it to appreciate. And to artifically appreciate the ringgit is not entirely sustainable or cheap too.

2) Exchange rate movements have many repercussions, many conflicting in nature. For one, it affects trade and external sector-oriented investments. Malaysia's exports and imports are about 250% of GDP, and exchange rate is the 'price' of our trade. Overvalued exchange rate can be bad for our exports, as well as investments in the sector. This adverse impact is significantly more damaging than the relatively transient inflation problem, as the impact is long-term in nature. When the country's dominant sector is affected, it will drag the economy down. There is a whole lot more to say on this, but I will stop here - the point is, manipulating the exchange rate can be wrought with many unintended consequences.

So there goes - my short say on the issue. I guess the main point is that it is not something policy-makers can handle easily, and I can't see how they are intentionally making the situation worse than it is.

The politicians, on the other hand, are making things worse, with power struggle and petty controversies. I wish some of them would just grow up and govern. Really do not want to tell my kids that we are the generation that messed up the country.

Elanor

China's Political Future?

Interesting article from Tsinghua's Daniel Bell on Project Syndicate.

Excerpt:

What’s Left of Confucianism?

... Thus, left Confucians favor institutional reform, arguing that the long-term stability and legitimacy of political institutions requires that they be founded on Chinese traditions. Jiang Qing advocates a tri-cameral legislature – a democratically elected People’s House representing the common people’s interests, a House of Exemplary Persons to secure the good of all those affected by government policies, including foreigners and minority groups, and a House of Cultural Continuity that would maintain China’s various religions and traditions ...

A B C D Cookie Monster!

The ending made my day :')

Dystopia

What the frakking hell is happening to the country?!

p.s.: Being stuck in a library over the weekend does wonder to my eloquence.

Petrol Price and the Soulful Science

Wrote this comment on Nat's blog. Thought that it might be relevant to the previous post, so I am reproducing it here:

But Nat, economics IS humane. As humane as any discipline could get. Some argue it is a soulful science. One even wrote a book with that title. What it could do is to have better public intellectuals to do some good PR job for some of the explanations and reasonings.

In the context of your post, I think a true economist (ie, not the talking heads on Bloomberg, or your local financial analysts) would be deeply misguided if 'efficiency' is regarded as an ultimate goal. In all reasonable considerations, efficiency is at most a proximate goal, with the ultimate goal being the wellbeing everyone. No one should really argue for efficiency just for efficiency sake. For eg, if you truly embrace and understand the purpose of central banks, the ultimate goal of all central bankers is to maintain and improve a sustainable level of living standard - inflation stability and economic growth are proximate objectives.

So when a clear headed economist argue that the fuel price increase is good, it is not because she is making a case of efficiency is more important than the rakyat. On the contrary, it is because the fuel increase is good for the rakyat ultimately. The problem is that the reason why this is good is so against intuition and conventional wisdom, that most economists making a non-apologetic case for it sound like bitches.

And now moving on to be even more specific, I disagree with phased increase in fuel price. If we agree that removal of fuel subsidy is inevitable, and that the main problem with removal of subsidy is hardship for the people due to inflation, then phased increase in price will ultimately hurt the people more, not less. And no, it is not hoarding and the sorts, but through the main determinant of inflation - inflation expectation. A one time increase limits the expectation of future inflation, but a staggered increase embeds the expectation. A phased increase in fuel price will most probably lead to much higher overall inflation than a one time increase. And when that happens, the hardship of the rakyat will be greater, not less. One can take a corollary of this argument in central banks raising interest rates, either one time or in a staggered manner. If the central bank is worried about inflation expectation (as compared to being worried about a financial market meltdown), you would expect it to raise rates over a period of time, multiple times in a staggered manner. This embeds expectation. In the reverse, if you do not want to embed expectation as in the case of raising fuel price, you should want to do it in one go. I am doing a bad job in explaning this, but Paul Krugman wrote briefly on this matter not so long ago - google "Krugman + embedded inflation".

This doesn't mean we should ignore those who are badly hit by this one time increase. It is just that there would be more badly hit people if it is phased. One way to alleviate the hardship of the poor is to have direct transfer to them, and the road-tax rebate does this. It is imperfect yes; no tool is perfect, but it is important that it reaches the intended target most of the time (for eg, a blanket fuel subsidy for everyone is NOT a good tool to help the poor). Yes, you can argue that it is unfair that some Beemer and Merc owners get the rebate too, but how many of these cases are there anyway, compared to the rest of the population? 5% to 95%?

But of course, more could be done. Income-based, mean tested transfer perhaps. If the Government is wise, this should be in the planning process for the next Budget.

Man, I post the longest comments on your blog, haha.

Noticed the alliterating title?

Teehee.

A Good Day, with Caveat

While I might need to consider getting a lower capacity car now, I welcome the move by the Government wholeheartedly. Fuel subsidy is something that needs to go - so I praise the present government for doing so despite the immense unpopularity of it. On a positive-side, it might represent, finally, a strong political willpower to do what is right instead of what is popular. To be negative, it could simply mean that the Government has run out of choice but to pull the subsidy. Judiciously, I think it is a balance of both.

Malaysians need to accept the reality of this and regard this as a positive change, for the nation and for all of us - we have been dulled by protectionism for far too long. And I hope Malaysians will accept this change graciously, as responsible citizens.

But make no mistake; now that the citizens are expected to be responsible, there will be very little tolerance for irresponsibilities from the Government. Tit for tat. More display of public wastage, and you can expect Malaysians to be more brutal than 8 March.

2 Cents.

Bad Policies Galore

Martin Wolf's latest piece on the FT reviews the newly launched Spence's Growth Report. A very good read overall, but the best part in relation to Malaysia has to be the list of policies to be avoided:

" Particularly welcome is the short list of policies to be avoided. Among them are: subsidising energy (particularly relevant today); using the civil service as employer of last resort; reducing fiscal deficits by cutting spending on infrastructure; providing open-ended protection to specific sectors; using price controls as a way to curb inflation; banning exports, to keep domestic prices low; underinvesting in urban infrastructure; underpaying public servants, such as teachers; and allowing the exchange rate to appreciate too far, too quickly. "

Anti-Pigouvian Nation

While almost the whole world are talking about carbon-emission tax, Malaysians are harping on petrol subsidy. Talk about being behind the curve.

But then again, what do we expect from our politicians, from both sides, who are getting more and more populist and are more concerned about trivialities and power-grabbing?

Hate hate exams.

Malaysian Economics Commentators

I was lamenting the other day about the lack of public intellectuals in economics in Malaysia. You know, those who write good op-eds, weekly columns, blogs and so on, on Malaysian economic issues.

We do have some interesting non-economics public intellectuals, especially lawyers, but I still can't find our versions of Martin Wolf, Willem Buiter, John Kay and Tim Harford of the FT, or top econobloggers like Mark Thoma, Tyler Cowen, and Kling and Caplan, or famous blogging academics, like Dani Rodrik, Brad deLong, Greg Mankiw, Becker and Posner, and Paul Krugman. And of course, the occasional articles from Project Syndicate or the fantastic VoxEu.

We do have some op-eds in the Edge I guess, which is good. But they are mostly financial market-oriented which are rather CNBC or Bloomberg-ish.

Why is this so? It could be due to the lack of demand for them - who wants to read about economics in Malaysia right? But I think Say's Law might be relevant in this situation.

Or maybe there are some economics commentators in Malaysia, and it is just that I do not know of them. In this case, can anyone point me to them?

Thank you thank you.

Elanor

P.S.: Hate exams.

The Crimson Pig

From Tyler Cowen - My Favourite Things Japan, Cinema Edition:

…

8. Anime: Grave of the Fireflies is a knockout, an anime movie for people who hate anime (and war). Make sure you use the subtitles, not the dub. I love all Miyazaki, maybe my favorite is Princess Mononoke, just don't expect a coherent Pigouvian vision from it. Other times I think Totoro is his supreme masterpiece. Pom Poko, from Studio Ghibli, is essential viewing as well. (emphasis added)

…

This is exactly how I feel about Miyazaki, although I have to say I have three modes instead of two – Princess Mononoke when I am all epic-feely, Totoro when I am reminiscing innocence and Porco Rosso when I am feeling romantic. Can’t seem to rank them; the order changes depending on my mood.

Elanor

P.S.: Grave and Ponpoko are not Miyazaki’s, but great nonetheless. The latter has the most catchy theme song... itsudemo darekaga... :D

Bias and Orthodoxy

In shower today, I was wondering how prior beliefs of researchers could shape the development of a particular branch of economics literature. Potential bias not just of the empirical data-mining sort, but also in selective paper publications by major journals and the reluctance of younger academics in pursuing heterodox perspectives.

Then I found this good econoblog-post, on minimum wage:

Economic fundamentalism and the minimum wage
By Kathy G.

... Indeed, Krueger and Card have written a paper that provides strong evidence that “specification searching and publication bias” have led to an overrepresentation of studies that find that the minimum wage has a statistically significant disemployment effect. The ideological character of much of the economics profession in the United States suggests that there are rewards for producing scholarship that confirms the idea that the minimum wage causes unemployment, and punishment for scholarship that finds otherwise.

David Card, a highly regarded economist at Berkeley (among other honors, he won the John Bates Clark Prize, a prestigious award given every two years to the most outstanding economist under 40), has produced many of the best studies taking issue with the old conventional wisdom about the minimum wage. But he stopped studying this subject, to a large degree because the reception his research got was so hostile in some quarters of the economics profession. He said:

I’ve subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole.

“Traitors to the cause of economics as a whole”! Those are strong words, especially coming from someone who seems, on the basis of interviews at least, to be a fairly mild-mannered, non-drama-queen kind of guy. And if someone who’s a tenured full professor and one of the leading lights in his field took so much heat that he abandoned this line of research, what do you think the chances are that aspiring Ph.D.s and ambitious young assistant professors are going to touch this issue with a ten-foot pole? ...

Now now, why did I choose a counter-orthodox dissertation topic again?

Elanor

P.S.:- No, my dissertation is not on minimum wage. And no, this is not a post in support of minimum wage in Malaysia. In fact, I am against it, at least in the guises proposed by some (e.g. RM1200 for a country with a per capita income of RM1800 is really not ‘minimum’). Especially since I believe the imposition of such policy would hurt rather than help the lower income group more.

Light Bulbs

From The New Yorker, Gladwell's latest:

In the Air: Who says big ideas are rare?

by Malcolm Gladwell, 12 May 2008

… The statistician Stephen Stigler once wrote an elegant essay about the futility of the practice of eponymy in science—that is, the practice of naming a scientific discovery after its inventor. That’s another idea inappropriately borrowed from the cultural realm. As Stigler pointed out, “It can be found that Laplace employed Fourier Transforms in print before Fourier published on the topic, that Lagrange presented Laplace Transforms before Laplace began his scientific career, that Poisson published the Cauchy distribution in 1824, twenty-nine years before Cauchy touched on it in an incidental manner, and that Bienaymé stated and proved the Chebychev Inequality a decade before and in greater generality than Chebychev’s first work on the topic.” For that matter, the Pythagorean theorem was known before Pythagoras; Gaussian distributions were not discovered by Gauss. The examples were so legion that Stigler declared the existence of Stigler’s Law: “No scientific discovery is named after its original discoverer.” There are just too many people with an equal shot at those ideas floating out there in the ether. We think we’re pinning medals on heroes. In fact, we’re pinning tails on donkeys ….

Election 2008 – What Role did the Alternative Media Play? (My Take)

Yesterday’s news yes, but I am desperately trying to avoid work so I will indulge myself. Here goes:

Early morning 9 March, I joked that the election bookies’ books just went subprime, hit by a black swan. No one quite honestly expected the results. Ex-post, many pundits put weights on many reasons as to why it happened. One of them is the role of the alternative media (AM); bloggers, Malaysiakini, etc. The usual explanation is that it provided unbiased information to the people and empowered them with knowledge to cast their votes decisively. To some extent, it is true I guess. But here, I offer a different explanation – AM acted as a new channel that helped to coordinate people’s beliefs, eventually leading to a leap in equilibrium.

Setup

Will throw in a simplifying model to help the exposition. Firstly, there are i potential voters, with their “willingness to vote” denoted by V_i. Here is the important bit, V_i is taken to be:

V_i = f( q_{i ,} E[Q_-j | I] )

where,

• q_i is voter i’s individual drive to vote,
• Q_-j is sum of q_j, j not i
  
• I is information available to i

Basically, this means that any single voter’s “willingness to vote” is dependent on two factors: his innate drive, q_i, to vote and his belief of others' drive to vote conditional to the information that he has, E[Q_-j | I]. It is taken that the innate drive is fixed for an individual but varies across individuals – that is you have some people with high q_i , like say, Nat Tan, and many people with low’ish level of q_i , perhaps like your apathetic cubicle-mate. Then, there is E[Q_-j | I] which basically says that a voter’s willingness to vote depends on others’ willingness as well.

A rough example would clarify things further. Consider the KL Freeze that happened not too long ago. Your decision to freeze in the middle of Pavilion would be dependent on your wackiness level, and if you believe others will be freezing too. For example, if you belief no one will freeze, unless you are superbly wacky, you won’t really be too keen to freeze alone in public. If you believe 5 people will be freezing too, then you might be tempted to join in if you are sufficiently wacky, or not if you are not. If you believe 100 people will be freezing, chances are you will be freezing too even if you are wacky at a normal level.

Here is the cool part – now consider the collective level. If you believe that 100 other people will be freezing, you will freeze too. At the same time, every individual from the 100 people believe that the other 99 plus you will be freezing, then in total, 101 will be freezing. Self-fulfilling prophecy at work. Then consider that there is another individual who is wacky at a slightly less than normal level, say, she will only freeze if she believes 101 people will freeze. Now, she will freeze too, since you decided to freeze. Then consider another person who is even less wacky who will only freeze if 102 people do the same. Given the person before will be doing it, and he believes she will do so, then he would freeze as well. And so on, so forth as the cascading effect continues.

This explains how a group of very different individuals could end up all freezing as long as there are sufficient people who are wacky enough. Call a tipping point, leap in equilibrium or critical mass cascade if you want. Note however this might not always apply. If the group of people has 1 extremely wacky guy who will always freeze and the rest being much less wackier who will only freeze if more than 20 people are going to freeze. In this case, the wacky could freeze all he wants, and he won’t be able to compel next guy to freeze too, so no cascading effect will happen. Unless, of course, everyone in the group could coordinate before hand, and make sure everyone freezes.

How does this Relate to the Election? (Coordination)

Well, I guess the KL Freeze example is sufficiently clear to suggest how this relates to the election. Assume that there are many potential voters whose q_i is such that they are leaning towards voting the opposition (you can think of all the reasons why). However, in the initial condition, E[Q_-j | I] is such that most believe that the other guy won’t be voting for the opposition, or won’t be voting period. Most expected BN to win even if they put in baked potatoes as candidates (and they did in some cases…) in the initial state. This is due to the I bit of the equation – everyone has a prior belief that nothing will change even if they vote because everyone else won’t be doing the same anyway, so their overall willingness to vote is low, even if their innate willingness is there.

Now this is where AM comes in – they updated people’s E[Q_-j | I] by updating I. At first, some vocal bloggers started to blog about his intention and willingness to vote, providing a signal to the rest of people that Q_-j could be higher than expected. And using the same analogy as the KL Freeze above, this led to the next slightly less vocal person to voice out too and signal to others, and the chain reaction began, creating a ripple effect that eventually turned I, hence E[Q_-j | I] upside down. Starting from mushrooming of individual blogs revealing people’s dissatisfaction and willingness to vote, to Youtube videos of tens of thousands of Bersih/Hindraf protestors on the street getting shot by water cannons, to massive ceramahs by the Pakatan Rakyat such as the Penang ones, the silent majority of the voters were embolden and found themselves not in such lonely company, i.e., E[Q_-j | I] tipped from extremely low to sufficiently high[1]. This led to V_i being tipped as well from a low equilibrium to a high one. And thus the black swan was born.

Note how this put the importance into the quantity of people signaling, i.e., lonely under-read blogs matter too. The big hubs of information, like Malaysiakini and MalaysiaToday and so on are important in conveying quality of information perhaps, but the main coordinating effect emphasised in this model is in the commentators, letters to editor and ‘vox populi’ and the such – the Web 2.0 bits of the hubs, as well as the pictures of thousands of people supporting the cause. It is like, oh my gosh, everyone is thinking the same way as I do! And then of course, this updating of I could spill to non-AM realms too through the usual work, family, mamak interactions and so on.

Note that critical in this explanation is how the majority of the voters were leaning towards being dissatisfied with the status quo and wanted change, but just lacked the coordinating incentive to do so in the beginning. Without this, nothing would have happened. Yes, duh.

I mused about Vaclav Havel’s “power of the powerless” late last year, in which a system with the authority hanging on to power without the support of the people is intrinsically fragile:

“…[H]avel urges his fellow citizens to down-play strictly political activity in favor of a strategy he feels will be more successful: cultivating the sphere of truth within individuals in the hope that as this hidden sphere grows, it will becomes an irresistible force that will change society”

Perhaps AM helped the cultivation of this hidden sphere more than we thought.

Elanor

---

[1] But not sufficiently high in provoking a jump into another low equilibrium due to complacency.

my toaster touched the water

Someone once told me swans mate for life.
Why can't human too?

Malaysian Economy: Gloom and Doom?

I realised that it is getting really fashionable in the blogosphere to criticise everything that is coming from the Government, up to a point that seems rather irrational. These include criticisms on the official outlook for the Malaysian economy. I have chanced upon many highly misinformed blog posts and letters to editor that argued how the government is misleading the public with fake and manipulated statistics and that the Malaysian economy is actually in deep-dung now; GDP growth should be recessionary, inflation should be closer to 20-30% and so on.

Everytime I read something like this, I feel a strong urge to do something and explain. Actually, I did write a reply to a letter published in Malaysiakini by some Dr Wong or rather on inflation statistics which was highly highly misleading. My reply was not published, but I can't fault them. My stance is unpopular. Not to mention boring. Who wants to read technicalities on statistics right?

Meh.

Just a minor point on manipulation of standard statistics and forecasts. The observers and users of these figures are usually professionals, investors, economists and technocrats, both locally and internationally. It is really not easy to manipulate them and not get found out. And the cost of such folly is great. If the government is really cheating us with manipulative statistics, trust me, we do not need a medical doctor to tell us so in a letter to Malaysiakini.

Anyway, I am attaching a table outlining the latest GDP forecasts (April) for Malaysia in the coming two years by a medley of private entities, from local-based research houses to international banks to IMF and ADB. Pretty close to the official forecast I would say.


The point is, the economy will be going through a rough patch going forward, with risks coming mainly from slowing global demand, ballooning commodity prices and political uncertainties. But it is really not all gloom and doom.

And yes, it is crucial to be critical, but let it be motivated by reason and not fashion.

Hmmm.

JPA Scholarship - Abolishing it is Not the Answer

Another short post. Kian Ming posted this Education in Malaysia:

Abolish JPA scholarships for undergraduates

RM500,000. That's approximately the amount of money which JPA spends to send one scholar overseas to study in the US or the UK. It probably costs a bit less to send a scholar to Australia but not by much. But the sad fact is that the % of JPA scholars who come back to Malaysia and work for the government in some capacity or another is close to 0%. Given that this is the case, JPA has two choices: (1) drastically reduce the number of JPA scholarships given out (2) implement a comprehensive system of making sure that JPA scholars come back and serve out their bonds in one capacity or another. I would go for option (1) given that (2) is very difficult to implement and carry out, at least in the short term. In other words, why waste RM500,000 on a scholar who is not likely to serve the government or even to come back to Malaysia? ...

I agree with the problem, but definitely not the solution proposed. I have always thought that despite all the shortcomings of the government, the broad priority of allocating high proportion of public expenditure on education is a right thing to do. The disbursement and how the fund is used is far from good, but I never thought once that the solution should lie in not spending on education at all.

Anyway, I wrote a short comment in response to the post:

You are artificially constraining the options available. Not to mention that your proposal is politically infeasible.

I think there are many options open that could better serve the system; we just have to think beyond the conventional I guess.

For example, there is always an option to change the manner of some of the undergraduate JPA bonds. One is to consider a bond that instead of making you work for the public sector, merely 'bond' you to the country for a number of years. There is freedom on what you want to do, but you need to be in Malaysia for an X number of years.

Since the 'bond' involves only legal and administrative work on the part of the Immigration and perhaps the National Registration departments, I would deem that it will be much easier to enforce too.

This change is good in both that it could potentially lessen the brain drain problem and at the same time, provide scholars with much greater career freedom.

This is just a random example that I could think of now. I believe many more could be devised if we put more thoughts into it. I just do not think that the solution to the problem in the system lies in obliterating it.

Much of my deeper thoughts are implicit in the comment, but I just can't get myself to elaborate on them. Hope that the essence of the message is not lost though.

El -need to work harder- anor

Between Determination and Denial

Short post. Found this post in the World Bank blog rather relevant:

When a country is ranked badly on some indicator, the first instinct of government officials is to blame the indicator's methodology, source, bias, or all of the above...

...How refreshing then that at a recent cabinet meeting in Baku, the president Aliyev told his ministers: "If Azerbaijan is ranked badly on an indicator, it's either because you haven't reformed enough or because you have failed to provide sufficient information on reforms. Either way, the burden is on you."

Can't help but to see a good lesson for Malaysia.

And on an entirely unrelated tangent, I am supportive of Pak Lah to remain in power, for many reasons. I am also of the view that plan for the future is immeasurably more important than nitpicking on mistakes of the past.

Me.

Sex and Money

From CNN, quoted by Tyler Cowen:

When young men were shown erotic pictures, they were more likely to make a larger financial gamble than if they were shown a picture of something scary, such as a snake, or something neutral, such as a stapler, university researchers reported.

The arousing pictures lit up the same part of the brain that lights up when financial risks are taken.

...The study conforms with recent research that indicates men shown a pornographic movie were more likely to make riskier sexual decisions. Another suggests straight men think less about their financial future after being shown pictures of pretty women.

Hence a justification for women Central bankers?

Uh Oh...

Simon Johnson: Whatever you want to call it, as we see things, we have a global situation on our hands.

(Read more...)

Rationality is not Selfishness

A response to a recent cicak's piece, perhaps.

______________________________

Voting as a rational decision

Andrew Gelman Noah Kaplan

5 April 2008

Voting behaviour seemingly confounds rational choice theory. But this column shows that voting can be perfectly rational, if voters are concerned with social benefits and not merely personal gains. Rationality and selfishness are not the same.

(Read more...)

______________________________

The last sentence is the key insight. Similarly freer market does not mean greater competition. But that is another story for another day.

Elanor

Gom Jabbar

Frank Herbert's Dune is one my favourite books. There is this famous scene in the beginning of the book where the young Paul Atreides was tested for his humanity; a test between mental willpower and physical instinct. He was faced with illusion of extreme pain, but if he withdraw from the pain he would face death. To prevent death, he had to overcome his instinct with his willpower. This scene is also where the famous 'Litany against Fear' is first quoted in the book.

When I first read this, I was immediately drawn to it. After subsequent readings when I was a bit older, I realised that I was drawn to it largely because of the metaphoric appeal of the whole mental willpower over physical instinct concept; objectivity over bias (illusion), rationality over superstition and so on.

Can't find the whole passage of the book online, but there is a video of it from the mini-series adaptation (which of course doesn't really capture the essense of the book):

And today, I watched this TED. Oh boy, didn't know that it can be taken literally:

Now they just have to make a real Gom Jabbar...

Why Don't They Use Blackberries?

Just a curious observation: many news pieces I read lately mentioned in passing that our ministers and leaders use SMS to communicate with each other quite a lot. Latest one being Rafidah and Muhyiddin.

Don't they have Blackberries? Surely that is more useful?

Hmmm...

A Toast for Political Competition

There is so much to say about the election results, but I will reserve this for another time (and on more issue-specific angles), especially with already so many commentaries on this matter from, well, everywhere. But in general, I believe the election result is both a very good thing and a generation-defining step for the nation. Sure we might be in uncharted waters now, almost as though we have just woken up from decades of slumber. A bit unnerving I guess. But to paraphrase a popular pop-culture quote; it is not uncertainties that we are facing now, but opportunities.

Just want to opine briefly on two matters. Firstly, all this talk on asking the Prime Minister and party leaders to step down is, in my earnest opinion, unwarranted and is motivated by political expediency rather than to make a case for accountability. In all honesty, I think the Prime Minister handled the election outcome with respectable civility. But the most immediate issue is not whether he should be made politically accountable pronto, but to ensure a stable transition to new socio-economic and institutional structures that are made necessary from this positive political shockwave. As far as I could observe, everything is mostly moving in the right direction, with some hiccups. I am not saying that Pak Lah should remain as the Prime Minister; it is just my opinion that this is the wrong priority immediately after the election.

Secondly, the new Cabinet line-up; too little, too late is the general feeling I get from most commentators. Some are glad of having Zaid Ibrahim and other respectable names; others are dismayed by the rest of the same old and the infamous. But the thing is, we should not be too beholden by the personalities in the Cabinet. This is the beauty of a stronger opposition, the political competition, that we so badly needed. If the opposition gets it done fast and form a shadow Cabinet (15 April?), every minister will have pressure to perform. If a minister is not performing, it is the onus of the shadow minister to point it out and provide a case, and for us, the public to judge. This is like the case of firm competition I pointed out some time ago. With a monopoly, consumers suffer the most. But with competition (in this case, Bertrand?), exploitation of firms are in check and consumers are sovereign.

For me, this is the most important outcome of the 8 March 2008: we no longer have to solely rely on the beneficence of our leaders; we can now depend on the institution of political competition. And the onus is on us to ensure the competition is here to stay.

Elanor

Home

"We will surely get to our destination if we join hands."

- Aung San Suu Kyi

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Dear readers,


I am very grateful to all of you who, despite the obvious deterioration of the quality of my posts since late last year, continued to read my Arrested Development. Thank you.


Tomorrow is polling day. Gandhi once said, "the spirit of democracy cannot be imposed from without. It has to come from within". Malaysia is far from perfect but it is our home; tanah tumpahnya darah kita. Many of us are disillusioned but it is my earnest conviction that deep inside, everyone harbours a hope for a better future of a nation united. Do our part. Put our apathy and cynicism aside, even if it is for a day.


Vote. Malaysia needs us.


Anak Bangsa Malaysia,
Elanor

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Malaysian Economy: Slow and Dangerous Descent

The latest Morgan Stanley Global Economic Forum entry has a piece on the Malaysian economy by their in-house analysts, Deyi Tan and Chetan Ahya. Its concluding paragraphs nicely summarise the deep concern of most of us who understand the macroeconomic situations of Malaysia:

Long-term Risks − Economy Outside of Commodity and Construction Pump-priming Losing Shine

Beyond the cyclical short term, we are also less sanguine about Malaysia’s structural prospects. Its natural resource endowment and the leverage of that to finance investment and subsidizing growth have allowed the economy to grow with reasonable momentum. This has likely lessened the urgency to improve the competitiveness of the economy outside of commodity and construction pump-priming. Indeed, we note that Malaysia’s export sector likely suffered, not only from cyclical pressures but also structural pressures. Export growth has been dragged down by weak electronics performance and, at 2.7%Y, export momentum is one of the lowest in the region for 2007. Malaysia has been losing market shares in key export segments. Integrated circuits and telecommunications equipment have seen their global market share decline from 8.0% and 4.5%, respectively, in early 2000 to 6.5% and 2.6%, respectively, in 2006 − at a time when Singapore has improved its global share in higher value-added production such as integrated circuits from 11.2% to 17.3%.

Additionally, the government’s efforts to move further up the value-added chain have been hampered by its lopsided focus on infrastructure hardware – which contributes relatively little to long-run competitiveness – rather than human-capital software. Its standards of the education system have fallen behind the government’s policy aspiration of economy upgrading. Policies such as the National Economic Policy (NEP), which give privileges to the bumiputras, have also led to a brain drain, compounding the problem of talent-pool shortage.

Malaysia has 13 years before its oil runs dry in 2021. Concerted government efforts to improve overall competitiveness would be essential to grow the economy beyond the medium term, in our view.

Just want to add on to the bit on oil: in a longer perspective, I believe that the oil that we have is a curse. It has muted much of the urgency that the economy needs in reforming itself structurally. Ironically, it is somewhat analogous to the subsidy curse that the Malaysian society is suffering from, perpetuated by misguided policy emphasis motivated by short-sighted political expediency. When these 'protections' are lifted, Malaysia will be very ill-equipped to face the challenges of the world.

If you want to protect your children from the uncertainties of the world, you do not lock them up and make them weak. You should educate and make them stronger, so that they could rise to the challenge the world has to offer and turn adversities into opportunities.

Elanor

PS: "Concerted government efforts to improve overall competitiveness would be essential...". It is difficult to imagine how, the current government, being the source of much of the problem, can also be the solution to the same problem. Especially given the state of complacency, institutional corruption and lack of political competition that it is currently afflicting the country.

Wealth of Knowledge and Talents

A close friend recently had his co-authored paper published. Written on China and published in Hong Kong, the paper is a product of two Malaysians. Titled: The External Wealth of China: An Investigation from the International Balance Sheet Perspective (Sheng and Ng, 2008, Hong Kong Institute of Monetary Research, WP 01/08), the paper is very short and readable (i.e., highly non-technical), but insightful nonetheless as it emphasised on a new perspective of looking at economies.


The Paper

This short paper is actually based on a longer piece of work done on Malaysia two years ago by the authors. The unpublished draft of the original research is still available here: The External Wealth of Malaysia (Sheng and Ng, 2006). In my opinion, the original work is more in-depth, detailed and insightful, especially given that it was written two years ago.

Unfortunately, existing channels for publishing properly peer-reviewed papers are so limited and inadequate in Malaysia, the paper never had a chance to be published. It was eventually rewritten to emphasise on China instead of Malaysia and was submitted to the Hong Kong Institute of Monetary Research for publication as a working paper.

This makes me think of all the silly rhetorics on turning Malaysia into a Knowledge Economy and producing Nobel Laureates by 2057, and ponders the tragic irony that is the reality.


The Main Author

The irony alluded to above fits perfectly well into the life of the main author of the paper, Andrew Sheng. He is perhaps the most impressive self-made global technocrat from Malaysia alive today, and at the same time, the most locally under-appreciated one. Ask any Malaysians if they know who Andrew Sheng is, and chances are, you will get a blank stare.

Andrew Sheng is a Sabah boy who begun his career in Radio Malaysia. He then worked for close to two decades in Bank Negara Malaysia, and became a legend in the Central Bank for his brilliance and leadership quality. His highest position was as the Assistant Governor and Chief Economist of the Central Bank.

Unfortunately, his development was clearly arrested in Bank Negara and Malaysia overall. The position he held was as high as he could go in his own country. He was soon seconded to World Bank in Washington as a Senior Manager, and eventually given the position of the second in command of the Hong Kong Monetary Authority, the "Bank Negara" of Hong Kong. He was in the crisis rescue team for Hong Kong when the financial crisis unravelled in 1997, and was awarded the Silver Bauhinia Star for his service. Soon after, he was then promoted to be the Chairman of the Hong Kong Futures and Securities Commission, essentially becoming the chief regulator of the biggest financial market in the Asia.

Retired, he is now an adjunct professor in Tsinghua University, Beijing and Chief Advisor of the China Banking Regulatory Commission, contributing regular articles and short pieces in publications such as International Herald Tribune, IMF Finance and Development and Caijing Magazine.

One can't help but to wonder what he could have achieved, and the opportunities Malaysia could have given him if he had chosen to remain in the country. It is sad that the greatest Malaysians are often those whom are not in Malaysia.

Come to think of it, the title of the original paper is ironically apt: The External Wealth of Malaysia.

Indeed.

Elanor

Postal Voting

I went to London yesterday, to the Malaysian High Commission to register myself as a postal voter. Apparently, it was the last day to do so.

When I reached there, I was directed to the consular office to fill in the necessary form. I was rather heartened that I was not the only one there to register for postal voting. Yes, most people were there to register their marriage, renew their passport and other usual administrative matters, but quite a number were there to register to vote too.

At least more than I thought there would be. In the hour or so that I was in consular office, I met at least 10 other people who were there to exercise their civic duty. Some, like me, were not from London and most, including me, were rather clueless on the whole process. But the whole thing was surprisingly quick and easy, and the nice lady who attended us was very helpful.

While waiting and filling in the form, some of us joked if we should write down "Malaysia" under the "Bangsa" column instead of "Cina" or "dan Lain2". Teehee.

But I did noticed a rather curious pattern: everyone whom I met to register was Chinese and female. Hmmm. I can think of many interesting implications.

Oh well, looking forward to going to London again on the 8th.

Here's to greater political competition :)

Elanor

The Picture of Corruption

From the Royal Government of Bhutan.

Our Choice

“Freedom is a rare and delicate plant. Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom. Even though the men who wield this power initially be of-good will and even though they be not corrupted by the power they exercise, the power will both attract and form men of a different stamp.”

- Milton Friedman, 1962

You do not have to be a liberal to appreciate this passage; any Malaysian who cares enough to be marginally aware of the current situation of the country would find it difficult to disagree. It is not about philosophy or ideology. It is about reality. It is agreeable not because we are captivated by the convincing reasoning of Milton Friedman, but because we are informed by very own experience on what is happening now.

And this is what I am trying earnestly to convey about the state of our country. Most were enthralled by the apparent conviction of the current Prime Minister to fight corruption in 2004, and for the right reasons. Ironically, we reacted by giving him near absolute power. If corruption is what we fear, giving the ruling party absolute power is about the last thing that we should do.

And herein lies my sorrow too; that Malaysians will make the same mistake again of allowing such concentration of power to persist due to apathy, fear and indolence; and due to the tyranny of status quo and fallacy of reasoning.

Most of us would be lying if we say that we do not want a change for the better, but change would not happen if we insist on granting the current government absolute power. Political competition is absolutely vital, for the country and for the future.

Elanor

The Sinking Ship

The parliament was dissolved yesterday.

When I woke up today and found out, I was … excited. Did not know why I should be, but I was. Just so. Perhaps it was the sense that change is abound. That something different will happen this time. The outcome of the election would be such that Malaysia would be rid of a corrupt and disgustingly inefficient and self-serving political hegemony.

I was pondering in my shower, that I should do something. Not knowing what to do, I thought perhaps I would start by blogging. The usual economics unspining. I thought that it will be good to somehow vent out my dissatisfactions of being treated like a complete idiot by the leaders of our country. That our GDP per capita has increased by 5000% since 2002 if calculated in Zimbabwean currency or that Malaysia is the world leader in competitiveness for a country that is near the equator with a population of exactly 27.5021 million. So we should all be driving our beamers to buy our nasi lemak for breakfast. Or something of such.

Or perhaps something more formal, using reasons and rationales to argue why Malaysia needs political competition specifically and change in general. Why the situation now is not a matter of lesser of two evils, but of lessening the power of a blatant corrupt political monster, on why competition provides balance of power and overall improvement of things, on why no votes are truly marginal. But I have done so before. And it was satisfying; intellectual masturbation they say. But like how Def Leppard would sing, it leaves you high and dry.

Moooo: Malaysian Politics

Then it occurred to me: what for? It is not that most people are too stupid to believe the lies. Or that Malaysians support the current government because it is doing great. Oh no. Malaysians are too smart for that.

But I have come to believe that Malaysians love statue quos; whatever they might be. Even if the status quo means a slow but sure decline of the entire nation. Aversion to change perhaps. Change is too risky. Why bother with a crisis that takes like decades to surface (although by then it would be irreversible) when you could ensure your stable life and income for the next two years or so. The future is not for me to worry about. Or is that apathy? Apathetic and risk-averse. Passive cynics, chronic defeatists, or just god damn bloody do not care. I don’t know anymore.

Funny thing is, for me, it is like, you are in this sinking ship, but all you care is to not ruin the fancy dinner you are having. If you worry, it is because the rising water is wetting your nice dinner dress.

And how apt, I am thinking of Titanic.

As the day came to an end, my excitement dissipated. This election will be the same as the previous ones. Malaysians will choose a choice that is akin to not choosing. The ship will continue to sink. I could hope that this time will be different and it is almost certain to be a false hope.

Maybe Obama is right; there is no such thing as a false hope.

But I am a Clinton fan.

Happy Valentine’s Day.

Mental note: No more Artois before sleep. A diatribe like this is so unbecoming...