Optimism in the economy.

http://dilbert.com/blog/entry/the_economy_and_common_sense/

A comment from Real Live Girl was interesting. She noted that the economy is fueled by optimism, and Obama brings more of that. Those are two true statements. But is all optimism the same? Wall Street veterans believe the market would go up if McCain gets elected. Lower taxes make the titans of business the most optimistic. Raising their taxes and transferring the money to worthy social services might make lots of people feel optimistic, but that isn't the optimism that fuels economies. An unemployed guy can't get too optimistic until a rich guy gets optimistic first and builds a factory he can work in. McCain makes rich guys optimistic. Obama makes students optimistic. Which approach stimulates the economy more? Beats me. You don't know either.

3 days after Hillary Clinton stepped out from the Democratic nomination race, Obama said he was a free-market guy. So what is it actually? Will he be laissez-faire or be more progressive, raising taxes and renegotiating for less free free-trade agreements?

Either way, I still hope that Obama will win the presidency really because that itself will make history, and it'll make a (hopefully positive) impact on America's image from the perspective of the rest of the world.

Oil prices, costs of shipping, oil prices

I found this in the internet, it is unsubstantiated with evidence however:

In Europe, the costs for transport is low when compared to the price of goods, regardless of the fact that gas is so much more expensive in Europe than the US. This means that higher gas prices have little impact on goods transport; they keep increasing.

also, too lazy to check the truth in this one, but someone pointed:

The U.S. Energy Information Administration on Wednesday reported gasoline inventories rose 2.9 million barrels last week while gasoline demand over the past four weeks slumped 1.4 percent versus last year.

So did oil prices rise sharply this year due mainly because of rising demand or speculation? Seems like a mix of both.

Experts and textbooks

What most people fail to understand; it is not how experts are infallible or speak God-given truth, but how when they make opinions, they bring to bear more knowledge on the subject than the ordinary lay person ever cared to consider, or are ignorant to.

The textbook and other academic literature arguably is not infallible, however, let's not forget that they are written based on an analysis of history and research.

Given that, the expert is more equipped to make an opinion than the lay person who believes that textbook-given (or interchangeably: research) knowledge is of no use to the real world. The reason being that the expert brings to bear more knowledge to make that opinion, all the time possessing the little knowledge available to the lay person.

The fault of the expert is perhaps he is better paid and living more comfortably compared to the average worker.

Why the stronger Ringgit isn't resulting in cheaper imports

Dr Mahathir Mohamad: Oil Price

In the first place the Government should not have floated the Ringgit. A floating rate creates uncertainties and we cannot gain anything from the strengthened Ringgit. Certainly the people have not experienced any increase in their purchasing power because of the appreciation in the exchange rate between the US Dollar and the Ringgit.

Actually the Ringgit has increased by about 80 sen (from RM3.80 to RM3.08 to 1 US Dollar) per US Dollar, i.e. by more than 20 per cent. Had the Government retained the fixed rate system and increased the value of the Ringgit, say 10 per cent at a time, the cost of imports, in Ringgit terms can be monitored and reduced by 10 per cent. At 20 per cent appreciation the cost of imports should decrease by 20 per cent. But we know the prices of imported goods or services have not decreased at all. This means we are paying 20 per cent higher for our imports including the raw material and components for our industries.

Since oil prices are fixed in US Dollar, the increase in US Dollar prices of oil should also be mitigated by 20 per cent in Malaysian Ringgit.

But the Government wants to please the International Monetary Fund and the World Bank and decided to float the Ringgit. As a result the strengthening of the Ringgit merely increased our cost of exports without giving our people the benefit of lower cost of imports.

My theory: Inflation is happening everywhere, and imports are becoming more expensive. The strengthening Ringgit may account for a slower pace of inflation on imports. If the Ringgit does not strenghten, imports will become more expensive at a higher rate.

I don't have the data but this seems likely.

Some arguments why petrol subsidy should be reduced

Some may be repeats from my previous postings:

Petrol subsidy reductions are bad because it is going to cause a severe and sudden jump in inflation that most people are not ready for. As Malaysia has no social safety net to speak of, many lower income groups in the city will be caught without mercy. This will give rise to more social problems in the near future.

This is basically moot. Any social security net must be funded by taxpayers, which in the end reduce spending power of those paying taxes. Read more about Europe and their social security, don't forget to briefly study their tax rates as well.

People think that when the government is paying for it, no one is losing anything. Those very poor who are supported by social security have their meals paid by the tax-paying workforce.

The deal is everyone is complaining, not only the poor. Everyone doesn't want their cost of living increasing, irregardless if they're well off. They don't care about the poor. The poor are but only a means to advance their cause.

In fact, with respect to the lower income groups, such a policy would actually benefit them. The biggest benefactors of the fuel subsidies are middle to high income earners who drive a lot. Many will argue that low income groups benefit from cheaper goods, but so do the higher income groups which benefits even more because they consume more goods and services. With the subsidy, the marginal benefit definitely goes to those that consume fuel a lot, and I doubt those who consume fuel a lot are poor. Take this with a pinch of salt, if you own a car, you're already top 80% richest in the world.

Of course ideally, all savings from the subsidy cut should be returned to the people, my preference being through tax-cuts. We not being able to get that doesn't mean we should not do something to reduce the nation's losses due to subsidy-driven elevated demand.

Also, people are never ready for inflation. Never did never will.

Petrol subsidy reductions are bad because Malaysian businesses in general were built in an insulated economic environment. Sudden removal of subsidies will suddenly expose many businesses to the prospect of failure. It will be an economic tsunami!

If an industry is alive because of subsidies, and that industry is exporting, what happens is we are subsidizing consumption of other nations, incurring a net lost on our part.

The reasoning isn't too hard to digest. If a Malaysian firm makes a good for a cost of RM 10 and needs subsidy in order to sell competitively at RM 5, the margin is paid by taxpayers. The benefactors are the workers who would otherwise lose their jobs, the owners who draws dividends, and the foreign consumers whose consumption is being subsidized. Many, Mahathir's school-of-thought especially, would argue that "hey! at least we are creating jobs!". True, we are creating jobs. But these jobs are not increasing national income, they are drawing their incomes from everyone else's incomes.

Just imagine subsidizing Petronas' oil so we can sell it to Singapore or Thailand at cheaper prices. Thais and Singaporeans who drive the extra mile to get our cheaper fuel is good business for pump station owners. Their business is financed by the Malaysian public. That's exactly what's happening to many of our businesses. We don't want this. I assure you, we would do much better if we had just given out these subsidies to the poor without any obligation to work, freeing their labor for more profiting industries.

40% fuel-oil price hike in Malaysia

Prices of vehicle fuel are going up from RM1.92 to RM2.70 per litter.

I've wrote so much on the subject of oil subsidies

Cost of producing oil is cheaper than price of subsidized oil
Subsidizing oil just because we're net exporter
Oil dry in 2012
(latest estimates put us as a net importer of oil by 2012, not that our oil is gonna be completely dry out, a technical impossibility)


They are all for petrol subsidies to be cut. The main reasoning here is that subsidies actually cost us more than if there were no subsidies. Subsidies artificially inflate demand, low prices promotes people to drive more, increasing further the size of the subsidy. This excess consumption/demand is wastage. More elaboration can be found on the above posts.y

I am for cutting subsidies. I am very happy with this subsidy cut. However, I believe that the sudden huge decrease in subsidies is a mistake. I have reservations about how the money should be used, in which I believe that all of the money saved should be returned to the people in the form of tax-cuts, since taxes cause economic inefficiency in the first place. There is also the reasonable worry that the savings would be used to fund projects that are prone to corruption.

The Abdullah Ahmad Badawi Administration have done a lot of totally dumb stuff. This however, isn't so. It has been advocated by the experts for a very very long time (thus the fuel taxes in the west). There's a lot about it written in the academia. Definitely a big plus for the idea we call sustainable growth. It is probably the single best policy the nation has ever had since the start of the Mahathir administration.

The weird thing is, why is the government doing this when it is already so unpopular? Everyone knows that such policies, though may be good for the nation, will never go well with the lay person that is more for populist policies. Why aren't they doing things, like giving out goodies by going into a budget deficit (which Mahathir did and no one cared) to improve its approval ratings?

These kinds of unpopular stuff are usually done when one is going to leave the political scene. Mahathir waited to the time when he was leaving to change the medium of instruction of science and mathematics to English. He knew well that it won't be too popular, especially in UMNO, even though the idea was, many held, a good thing for the nation.

Many claim that Pak Lah needed to dispense the money for this political leverage. I hope not, but even if it is for that purpose, when Pakatan Rakyat takes over, they now can use this money rather than it tied up to the subsidies because they won't have the guts to pull it out anyway. When that happens, I seriously hope they won't reinstate these subsidies again.

Dump Malaysian rice

Leonard today made a simple but very true observation; Malaysians don't like to eat Malaysian rice. Many would rather pay dearly for very expensive rice imports (that have risen by more than 200%) than buy cheaper and poorer quality Malaysian rice.

So there was never a question about whether if Malaysia had enough paddy fields in the first place. We don't need more paddy fields. Heck, we don't even need paddy fields. Let's say that imported rice really is better, therefore, if all Malaysians can consume imported rice, that would be an improvement in the average standard of living already.

What we need is for the government to stop their agricultural self-sustainability nonsense. Much productivity is wasted trying to grow Malaysian rice which can't fetch good prices because they simply fail to compete with imported standards even when they're cheaper by a lot! Might as well use that labor for something else.

But what about the poorer people that can only afford cheaper Malaysian rice? Import cheap foreign rice. Some may disagree and point out a cost is involved because we're importing stuff, but a cost, an opportunity cost is too involved when we keep labor at paddy fields as well. That cost is the difference of incomes between a low yielding farmer and a better yielding worker at some better yielding industry. If done correctly, not only will rice imports not be a bane, it'll be something desirable since after all Malaysian rice isn't of too good a quality.

Many of our so-called nationalists have a problem with imports (hey Americans have this problem too). They forget that not only the seller, the buyer as well benefits from trade. It is a win-win situation else the trade will not have taken place. No man is an island. So is a nation. Good news is, no one needs to be self-sustainable, not unless they're about to do something that would end up with trade embargoes from everyone else.

The hypocritical Tun DrM

The recent piece by Tun Dr. Mahathir Mohamad "The Racist Card" is definitely one to ponder. DrM starts by claiming that those fighting for the minority races in Malaysia, who happens to call their Malay-ultra counterparts racists, to be themselves racists as well. The reasoning is pretty simple - they took a racial stand. However, in claiming that, Tun DrM has basically committed hypocrisy, for he himself have done exactly what his opponents have done - while HINDRAF proponents claim that Malay-ultras are racists, DrM claims that HINDRAF proponents are racists. To DrM's reasoning, the HINDRAF proponents are racists because they are taking a racial stand. His reasoning can be extended to himself, DrM is a racist because he is taking a racial stand.

Here is a quote from his blog

Who is racist; Param Cumaraswamy or Dr Mahathir?

Both? With the exception that Cumaraswamy is for equality while Mahathir is for Malay supremacy?

What's the point in this the reader may ask? I'm not sure as well. What I do know however, is that one side demands to be acknowledged superior while the other only desires equality. Movements like HINDRAF have a clear message; that the status quo isn't justice towards them. While many have become sympathetic towards the plight of this group that only wants to be equal, DrM is on the side of the group that desires to be lords, not equals among other ethnicities, thus the idea of Malay Supremacy and the Malay rights.

Most comments in the quoted piece clearly had the idea that the Malay cause is more superior than the other races' plight for equality. Funny thing is how Malay supremacists think their cause isn't one which will make them look like filth in the eyes of the world.

Tun DrM should be ashamed of himself for claiming that many non-Malay citizens cannot speak in Malay. My stint with with the National Service is just exactly the opposite. Though people may not have the highest proficiency in it, they do try to speak in BM, and theirs is one which is understandable. It is these kinds of statements that promote racism. Shame of yourself Tun DrM. I wonder if you've met and known better more lay persons than a commoner like myself has.

What's worse is, people continuously lick his shoes. What has he done really? Stimulating the economy by building Proton and other million Ringgit projects? A beggar knows how to spend too! His legacy? Before him, we weren't too behind countries like Singapore and South Korea. After him? Go figure. We did grow, but then again, even neglected children will grow into adults.

If the Abdullah Ahmad Badawi Administration is horrible today, they are still "higher" than yours Tun. If it was you, you'll probably do Ops Lalang 2, and Malaysia will yet be another step backward in its plight to a limited government and a democracy. You are a leader who never gave this nation something that it can and will carry for eternity. When Malaysia's oil reserves dries up, many will wonder what was your contribution towards the sustainable growth we were all tricked to believe existed.