Categories
Economics

[2462] With a fail-safe, no reason for supercommittee compromise

The failure of the supercommittee to agree on the distribution of US budget cut is not much of a news. It has been expected. Leaks of how difficult it was to reach a common ground made it way to news reports .

More importantly, the impact of the failure is not too big because the fail-safe automatic cut is going to happen anyway. Both the unsurprising result and the minimal impact of the failure are signified through the low level of attention given by the media on the issue. Focus on the failure is not nearly as intense as focus on the earlier downgrade of US debt by S&P’s.

In retrospect, the fail-safe mechanism is a brilliant political maneuver. It was a result of uneven bargaining where deficit hawks, perhaps irresponsibly, held the US government at random and squeezed as much juice as possible out of the situation. Default or cut it. It was a Hobson’s choice: default was out of the question. And now here we are with the fail-safe mechanism.

While the fail-safe mechanism now ensures the implementation of the USD1.2 trillion budget cut over the next 10 years, it may have also contributed to the failure of compromise. If the members of the supercommittee — whom belongs to competing political parties and we know they serve their political bias — know the cut is going to happen anyway with its distribution already apportioned, why compromise when a compromise angers your voters base?

In a way, the supercommittee is really a lame duck committee. No incentive to action with every incentive to do nothing.

Categories
Economics

[2461] The unexpected 5.8% growth

The GDP growth number for Malaysia shown on the Bloomberg machine surprised me. I had expected somewhere between 4.0% and 5.0%.

Trade numbers had been very good for the fast few months but I did not expect it to push the GDP growth figure close to 6%. In fact, I watched in awe the growth of the trade numbers given the current confusing state of the world’s economy.

For the GDP figures themselves, the year-on-year growth for the third quarter was 5.8%. The average growth expected by economists listed on Bloomberg was 4.8%. This number had progressively grown over the past months from a number close to 4.0% to what it is now.

Looking at the numbers sweepingly and superficially, government spending grew the largest percentage wise. It grew close to 22%. In terms of absolute value, consumption grew the largest and indeed, it was the main contributor to most of the GDP growth.

I am tempted to say the consumption growth was related to government spending (since the separation between government and the private sector is not so clear cut) but without the energy to mine for that, I will refrain from making more courageous statement.

But what exactly is the driver behind the consumption? In my head, I can only think of government. If I want to know more, I clearly need to dig deeper into the numbers.

Was the growth due to base effect? I do not believe so. Base effect is not a convincing case in post-recovery period. Year 2010 had been a year of normalization and year 2011 grew from a somewhat normalized base. So, I am discounting base effect from explaining the unexpected high growth rate.

Categories
Economics Humor

[2460] Prof Dan on the Daily Show!

That is my former econometrics professor at Michigan, the famed Daniel Hamermesh! And he was on the Daily Show!

Categories
Economics

[2459] Did you spot something?

If you were the editor, what would you do?

PETALING JAYA: Total vehicle sales in October 2011 rose slightly by 3% to 53,654 units from 52,297 units a year earlier, boosted by the fact that it was a longer working month (versus September) and the return in consumers’ buying interest. [Eugene Mahalingam. Vehicle sales up. The Star. November 17 2011]

Here is a clue: year-on-year.

Categories
Politics & government

[2458] PEMANDU needs an expiry date

A friend asked me once what I thought of PEMANDU. He expected me to praise it since he knew where my economic bias lies. Here was PEMANDU advocating liberalization in a number of ways. There I was, a person who has been accused of being a neo-liberal at one time or another… there was a match in preferred policy. Despite that, I gave the friend a non-committal answer because I was unsure how things would turn out in the end.

Things have become clear since and I have rationalized my thoughts, I think, quite comprehensively. This is what I think of the unit under the Prime Minister’s Department.

Many of these initiatives can be done without PEMANDU at the helm. A number of initiatives are Proton-like, with Proton being more or less a rebadged Mitsubishi. Many projects merely received a nod from PEMANDU and that alone allows those projects to be listed as PEMANDU-related projects.

To be fair, there are actual initiatives like the Government Transformation Program with all of its indicators. Many initiatives offer real measurements of progress in some areas. In the past, progression and regression were purely a matter of opinion. These measurements provide an anchor for a more objective discussion. That is laudable. The work on the mass rapid transit is two, save some problems like how contracts are being awarded. One can have a list of the good stuff done and planned. Its push for a more responsible approach in public finance is another praiseworthy effort, although contradictions raise skepticism.

How does one react to PEMANDU’s call for subsidy and deficit reduction when the unit itself praises fiscal populism?

How does one react to a call for private-led economy when it is the public sector that is leading the charge?

How does one react to market-friendly affirmative action?

Beyond the superficiality and the contradiction lies one consistency. PEMANDU signifies the concentration of power. Roles once spread among various ministries — which can be a system of check and balance — have now been transferred to the Prime Minister’s Department. The fact that the prime minister and finance minister are the same person serves only to strengthen the point.

Pemandu is now the economic central planner, the construction contractor, judge and all. It is even your emailman, judging by its enthusiastic support for the 1Malaysia email project.

Power concentration can be useful when the government itself is debilitated, filled with deadwood, stuck with legacy issues and trapped in time. For example, PEMANDU’s public communication is slick. One can imagine how badly such communication would have been handled by the Ministry of Information. The ministry is still fighting the communists after all of these years.

Just as the concentration has its benefits, there is a cost. The cost is a weakened check and balance system.

There is such a thing as too much power and Pemandu is accumulating powers within the government. Given its wide-ranging influence, it is becoming a ministry by itself, headed by an unelected minister who reports to yet another unelected minister.

Meanwhile, other parts of government are becoming weaker as their roles diminish. Where is the Ministry of Works in the MRT equation? Where is the Ministry of Finance in the subsidy debate? PEMANDU appears to play the larger roles, implying its influence. This will adversely affect the democratic nature of governance in Malaysia, whatever much left there is. The continuous existence of PEMANDU will continue the trend of power accumulation.

For this reason, PEMANDU should not exist for eternity. There has to be an expiry date so that these concentrated powers will not accumulate to a point that it becomes a struggle between an authoritarian and the rest of Malaysia. There must be a point when those powers will be redistributed back across the government.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Malaysian Insider on November 7 2011.

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

erratum — In the original article at The Malaysian Insider, I misidentified Menara Warisan Merdeka as Menara Wawasan. Furthermore, I mistakenly associated it with PEMANDU. I have removed the reference here. Apologies for the mistakes. Here are the deleted sentences: “Take the Menara Wawasan proposal by PNB. PNB could easily go ahead with it without Pemandu stamping a GNI value to it.”