One aspect of the stimulus package announced by the Finance Minister earlier was smart enough in its execution that it needs a mention. While the 3% return of money to workers is optional, the return is done automatically unless the workers request not to.[1]

This is similar to the thinking of libertarian paternalism. Despite the term libertarian in it, do not be fooled by it because libertarian paternalism is not libertarian at all. In it the idea of the state knows best, “nudging” — as they call it; there is a controversial book called Nudge which had the libertarian world went on frenzy mode — individual to the option which the state thinks is the best or more often than not, prefers, with no coercion.

The idea of this particular implementation is to spend existing savings. With a high saving rate of over 30%, resources for spending to give the economy a little jolt is there. It is never a question whether the Malaysian government has any resources to stimulate the economy — that is, if it needs stimulation — but rather how does the government ensure that there is spending rather than a simple cash transfer which only ends up as savings again and therefore blunting the stimulus package.

Researches cited by libertarian paternalism indicate that individuals to large extent suffer from status quo bias. It means individuals are comfortable with current settings even if new settings are more efficient than the existing ones. The automatic EPF return takes note of this pattern.

If there was no automatic return, it is likely that the money would not be spent or distributed more widely in the economy, due to status quo bias. Many people would probably leave it in the EPF.

By having automatic return, individuals suddenly hold more disposable income with all else being constant. Thus, greater capacity for spending.

Opposition against the automatic return has been expressed[2], seemingly opposing libertarian paternalism. How many is unclear but there are those with low discount rate who would like to keep those 3% in EPF and the execution plan by the EPF only forces them to do more work than necessary. Groups, including those with the capability to fight instant gratification have demanded for the process to be reversed: return needs to be requested. That, indeed, the way it must be done.

In any case, in the end of the day, I am just glad that I will get some of my money back. In fact, to hell with paternalism as a whole. I want all of my money back and I want to decide how I want to spend or save the money.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — Following up on the announcement, the EPF had instructed that those employees who did not wish to reduce their statutory contribution from 11 per cent to eight per cent a month would have to state that in writing by filling up a form. [EPF procedure to carry out 3pc cut ‘not practical’. New Straits Times. November 8 2008]

[2] — Various parties have voiced concern about the procedure for workers to reduce their contribution to the Employees Provident Fund (EPF) by three per cent for two years, which the government has proposed. [EPF procedure to carry out 3pc cut ‘not practical’. New Straits Times. November 8 2008]

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