Author: Hafiz Noor Shams

For more about me, please read this.

Categories
Economics

[2287] Of a not so surprising consumer spending trend

There is an article in the New Straits Times about consumer spending in Malaysia. It reports that spending of the so-called affluent individuals was not affected by the recession in 2009. The managing director of Synovate, the firm responsible for the survey, was surprised.[1] Is the trend a surprise?

It would be a surprise if the affluent workers were affected by the recession but I do not think they were, or at least were not badly affected.

The recession that hit Malaysia in 2009 came through the trade channel and in the trade channel, the manufacturing industry dominated it. A majority that worked in industry are blue-collar workers, who did not earn high salary. The high-salary individuals were likely those with college degree and they were up in the chain of command or in the service industry. At the height of the recession, news of blue-collar workers suffering retrenchment were aplenty; Freescale, Western Digital, Seagate, etc. The same was not true for the white-collar workers; we did not hear too much of CIMB, Citibank, Ernst & Young, (or, McKinsey and gang. If any, they probably increased their intake given the kind of dealings they have with the bloated Malaysian government! Okay, okay. Unfair jibe), etc, in the news in the same context as the blue-collar workers.

So, are you surprised that those with salary of over RM5,000 per month did not cut their spending in 2009?

I do not understand why anybody should be surprised in hindsight. In fact, if a person believes in Friedman’s permanent income hypothesis, there is no room for surprise.

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[1] — Affluent Malaysians show no sign of cutting purchases in good times and bad.

MALAYSIANS are big spenders, splurging on high-end technology items like flat
screen, plasma or LCD televisions, and smartphones, last year, ”defying expectations”, a survey has revealed.

Nearly half of consumers who earn more than RM5,000 a month own a flat screen,
plasma or LCD television, and over the last year, smartphone ownership among them rose by about a third.

A recent Synovate survey, comprising 1,708 respondents in Kuala Lumpur, revealed that “affluent” residents — those who earn more than RM5,000 a month or have a combined household income of more than RM6,500 — are splurging on these gadgets and gizmos, and the trend is set to continue.

The survey was also conducted in 10 other countries, including Hong Kong, Singapore, South Korea, Taiwan, Thailand, India, Indonesia, the Philippines, Japan and Australia.

Synovate Malaysia managing director Ben Llewellyn believes that this defied expectations given the fact that the greater Malaysian economy was impacted by the global financial crisis during the period surveyed. [Our elite flaunt success with big spending. Audrey Vijaindren. New Straits Times. December 12 2010]

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p/s – hat-tip to @ctchoo, who is also the owner of de minimis. I first spotted the New Straits Times report at his/her Twitter account. Yes, I spend an insanely large amount of time on Twitter.

Categories
Economics Politics & government Society

[2286] Of underestimation in Transparency International’s report

While I am at the issue of bribery, I would like to touch on the recently released Transparency International’s Global Corruption Barometer 2010 report that the chart from the Daily Chart blog is based on.

After reading it, or rather, skimming through it, I suspect some of the results underestimate what are actually happening on the ground. Of a particular interest in one question where it asks whether the questionnaire participant has bribed a public official within the past 12 months. According to the report, in Malaysia the survey was done through face to face method.[1]

Now ask this question. If some stranger asked, ”Have you bribed a public official before?”, what would be your answer?

Given that you do not know who the stranger is, and if you have bribed a public official before, would you actually say yes?

What if the stranger is a police officer and he or she is trying to trap you? What if the stranger recognizes you and reports you to the police after the interview? What if the stranger shares the information with the public, thus ruining your reputation?

Would it not be safer to say no?

I would think there is an incentive to be dishonest and say no. It is the most rational action to take given the uncertainty caused by the face to face method.

Thus, the aggregate answer to the question is likely to underestimate the true occurrence of this specific kind of bribery.

The further implication arising from this problem is this: the report indicates that 9% of members of the Malaysian sample have bribed a public official before in the last 12 months. Assuming good faith that the survey is representative, one could generalize that 9% of Malaysians have bribed a public official before. Due to the concern of underestimation however, the best one could say about the result is that at least 9% of Malaysians have bribed public official before in the same period.

If one wants to take the implication to the extreme, notice that there is no qualification about the maximum limit. Scary, is it not?

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[1] — Global Corruption Barometer 2010. Page 35 and 39. Transparency International. December 2010

Categories
Economics Politics & government Society

[2285] Of why is bribery wrong?

Bribery is wrong. That is a given. Yet surprisingly, I am struggling to explain why it is wrong.

The best I can come up with without referring to other sources is that bribery undermines a system of rules and it gives those involved in the transaction unfair advantage against those who adhere to the rules.

This casts too wide a net however, hence an imperfect reasoning. Not all rules are good and bad rules should be broken. Without looking into what separates the good rules from the bad, the breaking of good rules is a necessary condition in making bribery wrong but it is not a sufficient condition. The determination of wrongness depends on the kind of rules being broken.

Unfairness is also only a necessary condition but the concern for unfairness is only secondary because it arises from the breaking of rules. If a rule is broken, then it is immediately unfair because there are those who follow the rules, with an exception that I will go into below near the end of this entry.

The collective necessary conditions can be construed as the sufficient condition.

Is there any other sufficient condition?

I can at least define a minimum why bribery is wrong, which I propose as another sufficient condition. This goes back to the rationale of establishment of a third party or the state to protect individual rights. If a person bribes the authority to erode the rights of others to the briber’s benefit, then the briber has committed a wrong. When the rules involve individual rights, then the breaking of these specific rules becomes the sufficient condition for bribery to be wrong.

This minimum or sufficient condition is highly unsatisfactory however. Bribery can be wrong even when it does not involve the protection of individual rights. Consider a person who wants a document be kept confidential and there is a company offering safekeeping service, much like a bank. The person engages the company. And then, a third party becomes interested in the document and bribes the company in order to access the document. Quite clearly, a wrong has been committed. Or, maybe the wrong is not due to bribery but due to a breach of trust? I do not know. It requires more thinking.

In any case, if the idea that bribery is wrong is dependent on the idea of rule-breaking, then what if there is no rule? Would bribery be wrong under that situation? Under this situation, bribery ceases to be a concern anymore because the idea of bribery ceases to exist. Any action that can be construed as bribery under rule-based environment suddenly becomes just another mundane transaction in the marketplace under no-rule environment. Bribery simply becomes a purchase of service.

Now comes to the original question that piqued my interest in the idea of bribery in the first place, that subsequently made me to question my basic understanding of why bribery is wrong. What if there are rules but everybody breaks it? The Daily Chart blog at The Economist has a chart reproducing the findings on corruption from Transparency International.[1]

It shows that in Liberia, nearly 90% member of the public had bribed an official. Nearly ninety percent is nearly everybody. I am highlighting this because if everybody does it, it effectively takes the necessary condition of fairness out of the equation. Since nobody follows the rules, then the person who engages in bribery is not being unfair to anybody. Without the fulfilment of the necessary condition of unfairness, does bribery cease to become a wrong?

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[1] — ONE in four people paid a bribe during the past year, according to the latest Global Corruption Barometer, which is published annually by Transparency International, an anti-corruption campaign group… Among the countries surveyed, this kind of everyday corruption was most prevalent in Liberia. Britain was the cleanest. [Something for your troubles. Daily Chart. December 9 2010]

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p/s — I have found two very good short pieces by Richard Posner on corruption in general. They are:

  1. Economics of Corruption
  2. Corruption

I especially like Posner’s distinction between corruption in the public and private spheres. In retrospect, this blog post of mine involves bribery in the public sphere, i.e. public institutions.

Categories
Economics

[2284] Of a simple solution to Raja Nong Chik’s problem

Minister for the Federal Territories “is peeved” that local traders and hawkers in Kuala Lumpur are subletting their licences to foreigners. He prefers the licence owners to run their business to them renting it out to foreigners.[1] That is a value judgment and based on his preference, there is a problem.

I also see this phenomenon as a problem but the word that catches my eyes is sublet, and not foreigners. I do not mind the origin of the license users unlike the Minister, and others who harbor xenophobic sentiment.

It is likely that the licenses are in the hand of those who do not value it the most. If they were, then there would probably be no rent-seeking activity. If they were, the owners of the license would use it rather than redistribute it to others.

I have a solution for my concern.

Auction it to those who value it the most, regardless of origin.  Change the value and adopt the best market mechanism to allocate the licenses. This is likely to address the problem of subletting. While at it, the authority — the City Hall, which is under the purview of the Minister — get to get more revenue to boot.

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[1] — KUALA LUMPUR, Dec 4 — Federal Territories and Urban Wellbeing Minister Datuk Raja Nong Chik Raja Zainal Abidin is peeved that there are still traders and hawkers in the city sub-letting their licences to foreigners.

“Not only Malays are doing this but also Chinese traders in Petaling Street and Indians in Brickfields. It seems to have become a 1 Malaysia,” he told reporters after attending the ministry’s educational assistance programme for the poor at the Chinese Assembly Hall here today.

He said this when asked about the mushrooming of foreign hawkers in Jalan Raja Bot, Chow Kit here lately. [Nong Chik wants end to traders sub-letting licences to foreigners. Bernama. December 4 2010]

Categories
Economics Education

[2283] Of my issues with introductory macroeconomics

Although normatively one should not judge a book by its cover, positively, first impression matters. The first few lessons in economics are likely to affect a person’s perspective on the roles of government. Those who are familiar with economics and who ended up skeptical with the concept of activist government have to suffer those first lessons that suggest increased government spending in the economy is good.

Introductory macroeconomics at the undergraduate level typically presents the Keynesian consensus quite forcefully. Students tend to spend considerable amount of time studying the mechanics of simple IS-LM. The simplified model, while useful as a primer and for the cultivation of understanding in the workings of the economy, tends to overemphasize the effectiveness of government spending in the economy. In the jargons of macroeconomics for example, increase (decrease) in government spending positively (negatively) shifts the IS curve to increase (decrease) aggregate demand that eventually increases (decreases) economy-wide output, given all else the same.

Other complications do get introduced to shake that ceteris paribus assumption by a bit like the crowding out effect of higher interest rate on other components of the GDP and the dynamic of monetary policy. Here, for the first time, macroeconomics cautions students that sometimes, the effect of change in government spending can be ambiguous.

Add more complications and only then, government spending can be bad. Unfortunately, by adding more and more complications, the pedagogic value becomes marginal, making it wise for teachers of introductory macroeconomics to stop at the level where the lesson of the semester suggests that government spending is largely favorable.

By the time simple complications such as monetary policy are introduced, the perception that government is almighty will already have been ingrained in students. Consider the Keynesian multiplier. Students will learn this concept early, well before greater realism appears in the picture. Specifically, it is the idea that an increase in government spending has amplifying impact on total output, never mind that the rate of the multiplier itself is controversial.

My biggest grip has always been the silence regarding government finance. Increased government spending has to be funded. This concern is only answered at the later stage of introductory course, where Ricardian equivalence is finally mentioned. When it is mentioned however, it sounds like a minor curiosity only.

Given the bias, it is a miracle how anybody could finish undergraduate economics and become skeptical of government spending being the panache to short-term economic fluctuation.