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Several must buy stuff in Cameron Highlands: strawberries, flowers and sweet corns.
Sigh, I am not quite in a blogging mood at the moment.
I know, the car at the top of the picture is distracting but I want to have that yellow line in it. That line sort of strengthens the idea that this is right besides the road.
I like this one.
The observation deck is part of a beautifully designed long structure owned by Boh — a famed producer of tea in Malaysia — housing a cafe, a tea shop and a small museum. My favorite part of the building is the cafe which finds itself hanging in midair, overlooking the tea farm in Sungai Palas, Cameron Highlands.
Boh has a website about the place.
It is true that the world is more integrated than ever. Major developments on the other side of the world may affect the local environment. Being one of the top trading nations in the world with an export-driven economy, it is undeniable that a reduced consumption in the economies of our major trading partners — specifically the United States — will adversely affect our export sector and ultimately the Malaysian economy.
As the economic crisis unravels and insidiously spreads globally, it is crucial to keep in mind that the local economic environment is different from that of the US. A problem faced by the US economy may not be the same as that faced by the Malaysian economy.
The integration of the world economy is within the grasp of many Malaysians. It is amazing how many Malaysians are attuned to the economic turmoil in the US. This is a cause for celebration because this demonstrates the existence of the free flow of information. That in many ways is crucial in creating a liberal society with empowered individuals.
The idea of connectedness is enhanced by the fact that many households have access to CNN, CNBC and Bloomberg, among others, which keep them informed with the latest nightmares-turned-real on Wall Street and its counterparts across the world.
But something is horribly wrong with the picture. The centric-ness of perception bugs me.
It has been joked that the world according to a typical American begins with Hawaii and California in the west and ends with the West Coast with a whole lot of red states in the middle. To the north are people who end their sentences with “eh” for some unclear reason while to the south, always there are huddled masses yearning to breathe free trying to break into the US. Anything else beyond the US borders is irrelevant, except for some obscure countries like Iraq, Afghanistan, and that one country where French fries supposedly come from and Europe. The perception is that the average American worldview is US-centric.
This is an unkind gross generalization of Americans but to a large extent, it describes the coverage of CNN, CNBC and Bloomberg. These news channels report — especially CNBC and Bloomberg given the fact that these are financial channels — news from the US perspective. It is more likely to give greater coverage over the US economy instead of the local economy. And it does not help when the coverage is biased towards that of the stock markets rather than the real economy.
While many Malaysians are exposed to events outside of our borders, one has to be cautious in taking the US economy as a complete parallel of the Malaysia economy. Yet, here in Kuala Lumpur under the incessant rain, I find Malaysians unreasonably subscribing to US-centrism.
I therefore wonder whether it is possible that some are merely absorbing US-centric commentaries word for word without critically considering their relevance to the local economy? Being informed is great but what use is it when one merely memorizes the lines without comprehending the implication or non-implication in this age of information overload?
This is not another “decoupling theory” which suggests that a particular economy could be isolated from global events. Whenever the US sneezes, the world catches a cold and that world includes Malaysia since the country is not an autarky by any stretch of the imagination. Instead, this only stresses the different issues which Malaysia and the US are facing. Malaysia needs to run a set of policies different from that seen in the US and other countries in crisis.
Despite the importance of the US to the Malaysian economy, the two economies are different. For example, first of all, the main cause haunting the US economy is the deflating of the housing bubble. For Malaysia, there is no housing bubble; even if there was one, it has not deflated it. Secondly, sub-prime lending along with the associated securities are practically non-existent in Malaysia. Even if there was one, that would be dependent on the housing bubble. The closest shave Malaysia saw was probably the one involving AIG. After considering the level of debt, foreign reserve, laws and regulation as well as other important indicators, the difference between the two economies is as clear as daylight.
There may be more close shaves later and if one does hit us, it is likely that the crisis would be exogenous in nature — meaning originating from outside of our borders — instead of endogenous or caused from within. In all likelihood, if a crisis does hit us — knock on wood — it is likely that Malaysia will defend the local economy from exogenous waves rather than protecting the local economy from itself.
The impacts will be different from that seen in the US and the solutions will be different from those employed in the US. Therefore, any effort to stimulate the Malaysian economy will require policies tailor-made to local circumstances rather than cut-and-paste ones.
That requires the relevant authority to keep close tabs on various indicators of the local real economy. These indicators at the moment suggest that issues plaguing the US economy are different from what Malaysia is facing, though the issues are connected in one way or another.
A version of this article was first published in The Malaysian Insider.
In the Parliament, a Member of Parliament was concerned with the outflow of money due to foreign workers sending part of their wages back home. Finance Minister Najib Razak, in answering the MP, gave a piece of statistics which highlights the benefit of foreign workers.
PARLIAMENT, Oct 22 – Malaysia’s 2.1 million foreign workers repatriated RM9.11 billion for the first half of 2008 and Deputy Prime Minister Datuk Seri Najib Abdul Razak said the government expects it will total RM18.1 billion for the entire year.
“This averages out to RM720 per month sent home by each worker. However, the strong national reserve can withstand this as it amounts to just 4.7 per cent of our current reserve,” the Finance Minister told Parliament today.
He added that for every one per cent increase in foreign labour, Malaysia’s real Gross Domestic Product (GDP) grew by 0.19 per cent.
Datuk Halimah Sadique (BN-Tenggara) had asked if any action would be taken to address the outflow and whether the government intends to impose any levy or tax on it. [Foreign workers repatriate RM9 billion until June 2008. The Malaysian Insider. October 22 2008]
Let us see. It says 1.00% increase of foreign workers leads to 0.19% increase in GDP. With nominal GDP of Malaysia being approximately RM505 billion in 2007, that means an additional 21,000 foreign workers add almost RM1 billion to the GDP. Now, assuming there is a linear correlation, 2.1 million foreign workers add RM100 billion to the economy. That is about 1/5 of the GDP of Malaysia. Granted, a linear relationship is unlikely and I can begin to criticize myself for the careless use of statistics but it does give us an estimated benefit ceiling.
A slightly more accurate estimate which circumvents the validity of linear assumption is this: 21,000 foreign workers lead to an outflow of about RM180 million (RM720 per capita per month; 12 months; 21,000 workers). In comparison, these workers add roughly RM1,000 million (that is RM1 billion) to the GDP at this particular point of time.
So, what is RM180 million to RM1,000 million? What is RM18 billion compared to RM100 billion?
Assuming that outflow is a loss to the local economy, returns from wealth generation is, at most, 400% larger than the outflow.
As we all can see, support for the continuing usage of foreign workers is grounded on empirical data.
Yet another fiscal stimulus is proposed and this time, Bernanke backs it.
Oct. 20 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke endorsed additional fiscal stimulus, saying the credit crunch is “hitting home” as Americans find it harder to get loans, threatening a prolonged economic slump.
Lawmakers “should consider including measures to help improve access to credit by consumers, homebuyers, businesses and other borrowers,” Bernanke said in testimony to the House Budget Committee. “Such actions might be particularly effective at promoting economic growth and job creation,” he said, calling consideration of a stimulus “appropriate.” [Bernanke Backs More Stimulus, Citing ‘Weak’ Outlook. Scott Lanman. Bloomberg. October 21 2008]
Earlier in the year, a fiscal stimulus in form of a one-time tax break was executed. The rationale behind the first stimulus was unconvincing and true enough, it did not work as the proposers had hoped for.[1]
There is however hope for the second stimulus to succeed, unlike the first which fell victim to the game of expectation from the outset.
Access to credit in the real economy is the crux of the current crisis. Acts to improve access will go a long way in making the stimulus matters.
While I opposed the first stimulus, I may be supportive of the second effort, especially if the plan seeks to untighten credits. It is becoming clear to me that the banks’ reluctance to lend money may be a form of market failure, similar to the idea of lemons in the used cars market where there is a lack of trust as well as a form of negative externality. Banks simply do not know who to trust and hence, hoard money at the expense of the economy.
In the used car market, market failure occurs when buyers simply do not know which used cars are bad (lemons) and which are good. Prices for good used cars are higher than lemons for the obvious reason. With information asymmetry faced by buyers and sellers enjoying complete information, sellers have the incentive to sell the lemons at the prices of good cars, thus gaining handsome profits. Buyers, realizing this, simply refuse to participate in the market to avoid from being cheated and losses. Hence, market failure as transactions do not occur.[1a]
This however is not to say that the whole crisis is caused by the market. The US government has blood on its hand. Government interference in the market has caused a cascading effect throughout the US economy, leading to a government-induced market failure.
As a green libertarian conscious of the fact that market can fail and government does have a role in combating market failure, I think I can support the second, more properly tailored fiscal stimulus.
I do wonder however how could a fiscal policy improves credit access? Could the government lends directly to the market? Would the government become a guarantor to various borrowers?
But hey, since the US government already owns some banks, why not just order those banks to lower down their rates… (sarcasm) What better way to untighten credit in the market than that?[3]
On a separate note, Mark Sunshine at the Economix writes that a tax-rebate might work because the US economy might have entered into a liquidity trap in which the economy becomes unresponsive to monetary policies.[2] While I do think fiscal stimulus might work, the effectiveness of one-time tax rebate is suspect for the same reason the first stimulus failed. A fiscal stimulus based on government spending might work better than a one-time tax cut.
Whoa. What am I talking about? Heresy!
[1] — Momentum for fresh measures built after an earlier stimulus package failed to prevent a jump in the unemployment rate to a six-year high and the longest slump in retail sales since at least 1992. [U.S. Moves Toward Stimulus as Bernanke, Bush Shift. Ryan J. Donmoyer. Scott Lanman. Bloomberg. October 21 2008]
[1a] — See The Market for Lemons on Wikipedia for more information on the subject.
[2] — Momentum for fresh measures built after an earlier stimulus package failed to prevent a jump in the unemployment rate to a six-year high and the longest slump in retail sales since at least 1992. [Will Paulson’s Two Plans Unplug the ‘Liquidity Trap’?. Mark Sunshine. Economix. October 4 2008]
[3]p/s — Apparently, there is a rumor about that flying around…