With Chinese New Year being just around the corner, many are expected to leave Kuala Lumpur behind to visit families and relatives who live outside of the city for a week or so. Many of those living or working in the city have left the city.

With the Chinese forming more than 40% of the population of Kuala Lumpur, and possibly with others who may just take the opportunity to travel out, the city is poised to suffer from a massive demand and supply shocks. Without any intervention from the relevant authority, the economy of Kuala Lumpur is expected to go into recession this week and the next.

Keynesian economists are already in panic mode and they are pushing the City Hall to expand government expenditure to combat the expected sudden output loss. The City Hall has indicated that it is prepared to spend more on mobile toilets. In a surprising turnaround, the City Hall has invited Bersih to hold a big clean election rally to boost demand for security and sanitation services.

As a concession to the supply-side economists, the City Hall is incorporating tax cuts within the city. The authority is also prepared to increase immigration quotas to combat the supply shock. Indeed, the City Hall is in close contact with Sabah state government to import excess labor that is prevalent in the state to the east.

The demand and supply shocks are expected to bring about deflation even as unemployment rate remains low. There is a labor shortage in fact.

While the monetarists are silent on the supply side of the problem, they are advocating the central bank to reduce the policy rate as quickly as possible. To avoid complication that arises when the rate reaches the zero lower bound, a group of monetarists calling themselves market monetarists are demanding the central bank to guarantee certain nominal gross domestic product growth. The central bank appears reluctant to set such an explicit target but in a recent press conference, the governor has hinted that the bank is prepared to minimize fluctuation in the aggregate demand.

Amid the calls for government action, there are groups which are vehemently against any stimulus. The real business cycle economists, educated at various freshwater schools, insist that there is nothing the government and the central bank can do. “The economy will be at its optimal path. In fact, the economy has always been at its optimal path. Any attempt by the government will cause the economy to deviate away from its stable state. And after all, a majority of people are going on a holiday. I fail to see why that is even a problem,” said an economist at a domestic bank. He refused to be named in fear of backlash from the establishment which might not take diverging views too kindly.

Meanwhile, Austrians criticize the manipulation of monetary policy and assert that it will cause future recession. “The only real way to prevent future recession is to prevent the central bank from playing with the rates. We should back money with gold and other precious metals,” said an Austrian economist seen holding F.A. Hayek’s The Road to Serfdom. Another proponent of gold standard coming from Islamic school of thought agreed. “Besides, it is haraam that we make money out of money. A gold standard will kill off a system of interest rate by reducing the possibility of inflation.”

A Marxist was quick to add, ”Capitalism is corrupt. This coming recession will see the collapse of capitalism. I have been saying this since 1990s. Some have been saying this since 1930s. Since 1867, in fact. You just wait and see.”

Economists from major schools of economics were seen rolling their eyes. “There are reasons why Marxist, Austrian and Islamic economics are heterodox economics. They’re nuts. We lived through the 1930s but these people are stuck in the past. These people have no idea what they are talking about.”

Private economists expect the domestic economy to recover completely by March as Kuala Lumpur experiences reversed migration flow after Chinese New Year end.

Economists however warned Kuala Lumpur may suffer from another recession in August, when Muslims in the city will celebrate the end of Ramadan. “There are just too many holidays in Malaysia. The government should really stop introducing new holidays every year. The government should stop interfering with the holiday market. It’s recessionary, every time,” said the freshwater economist. He suggested that we do away with holidays. ”But I don’t think it will ever happen. At least not before the election. Everybody loves holidays. Any politician who dares to take away those holidays will lose his or her seat.”

2 Responses to “[2656] Chinese New Year to cause a recession in Kuala Lumpur”

  1. on 06 Feb 2013 at 10:36 hishamh


  2. on 06 Feb 2013 at 12:15 Akzam

    That was a fun read! :D

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