Category: Economics

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Economics Politics & government

[1198] Of wind of change in Ijok? Stop making hasty conclusion please

In the blogosphere, words have it that there is a wind of change in Ijok — the Chinese are voting against the government. Screenshots is talking a lot about it as well as local media. I have to disagree on their analysis though, unless my calculation is wrong. I did some test statistics and I do not see how one could assert what they assert.

Let us see the pattern at Batang Berjuntai, a Chinese area.

According to Screenshots, the results are:
2004: BN 761; PKR 306
2007: BN 605; PKR 624

We shall do some computation for 2004 first. Assuming there were only two candidates in 2004 as well as ignoring spoilt votes, the standard error for it is roughly 1.01%. For 2007, the standard error is approximately 0.99%.

Therefore, the standard error for voting in Batang Berjuntai based on the two years is about 1.42%. And nope. To find the standard error of the voting pattern, we do not take the average.

Now, in 2004, the difference between the two party is 37.48% out of total votes garnered by both. In 2007, it is 20.57%. That means the difference between the two elections between the two parties is -16.91%.

I suspect the difference is meaningless. So, my null hypothesis is this: the difference is really 0.00%. The alternative hypothesis is that the difference is real, i.e. not zero. Doing a z-test, -16.91% minus 0.00% is -16.91%. Divide that by the standard error of 1.42%. and one will get -0.12 for z. This means my hypothesis is located only 0.12 standard error away from the mean, i.e. strong case for the null hypothesis which translates to no real change. Hence, my skepticism of the allegation of a swing.

In Pekan Ijok however, the alternative hypothesis seems to hold.

The bottom line is that the signal is mixed and inconclusive. The best way to make an authoritative conclusion is to know each and every person’s vote. Or at least, a sample with clear link to ethnicity. Without that comprehensive knowledge, it would be best to stand guard instead of making hasty conclusion. Patting oneself at the back does not achieve anything. Congratulating oneself for “truthiness” is laughable.

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

p/s — A more sensible explanation by Ong that goes beyond race and religion, in the comment section:

The incessant reference to Chinese voters swinging to opposition is certainly missing the point that the voters in so called chinese areas are really urban voters -eg Ijok toan has only 67% chinese. Similarly the malay and Indian areas are really small holders and estate voters respectively. Seen in this way the hike in agriculture prices are definitely playing a role to win voters to BN/Status Quo. At the same time corruption in government contracts, beraucratism etc are increasingly putting off the urban voters.

People, please go beyond race and religion. It is tiring listening to the same old tune over and over again. Are we so ingrained in communal politics that only race and religion could make sense of everything?

Categories
Economics

[1186] Of the invisible hand conspires to diversify Malaysian export

The mainstream media is celebrating the strengthening of the Malaysian ringgit against the United States dollar. Through the glory days when a dollar cost roughly only 2.5 Malaysian ringgit is something that many long for, I find the jovial mood caused by stronger ringgit is something awkward. I am in the opinion that the media, through the tight leash put on by the government, is manipulating laypersons’ sentiment. These laypersons unfortunately have little economic education and do not understand what stronger ringgit mean. I have discovered that nationalists with little economic background tend to cite a stronger ringgit as a proof of sunny day. But perhaps, the strong ringgit against the dollar might signal stabler sunny days in the long run.

I have mentioned earlier that stronger ringgit relative to the US dollar would hurt Malaysian export to the US; a large portion of Malaysian export goes to the US. This is on top of the slowing electronics demand in the US. With the USD growing weaker, US citizens would consume more of local product and less of imported goods.

The ringgit is growing stronger compared to the dollar. Analysts are betting the ringgit to hit 3.4 for a dollar in the coming months and yet, still convinced the the ringgit is undervalued almost two years after the ringgit was unpegged from 3.8 to a dollar. Yet, against other currency, the ringgit is remarkably weak.

Malaysia is heavily dependent on the US economy. For this very reason, I expect Malaysia to experience economic slowdown this year, in tandem with the trend — albeit increasingly confusing trend at the moment — in the US. This dependency is caused by us putting our eggs in a basket. If a slowdown is to occur as expected, the important lesson Malaysia needs to learn to diversify.

Indeed, with stronger ringgit against the dollar but weak against almost everything else, the invisible hand is conspiring to push Malaysian export towards diversification. Slower export to the US would be cushion by greater export to elsewhere. New and more baskets are available out there.

Weak currency encourages the local export component to grow while stronger currency encourages the import component. Rationally, given everything else the same, one would expect Malaysian export to start looking into other markets where the ringgit is weak. Some of those places are Australia, India, the United Kingdom and the European Union.

With diversification, we would cushion ourselves from the harsh realities that others face, making globalization a little bit easier to shallow.

Categories
Economics Environment Liberty Politics & government Society

[1181] Of a way to celebrate Earth Day

Earth Day falls on April 22 every year and the next Earth Day is about five days away. Those that care should start things running by reading The Power of Green at the NYT:

One day Iraq, our post-9/11 trauma and the divisiveness of the Bush years will all be behind us — and America will need, and want, to get its groove back. We will need to find a way to reknit America at home, reconnect America abroad and restore America to its natural place in the global order — as the beacon of progress, hope and inspiration. I have an idea how. It’s called “green.” [The Power of Green. Thomas L. Friedman. NYT. April 15 2007]

This is possible of those of writing that shakes the green world. If I am not mistaken, the last writing of such importance was The Death of Environmentalism.

The article is pretty long. If you are interesting in watch a video on it instead, go to the video section of the NYT.

Categories
Economics

[1176] Of appreciating ringgit to slow down export too

In November 2006, I mentioned how the Mundell-Fleming model works by applying it to the then-current economic situation in Malaysia. Among many points that were mentioned in that post is the connection between government spending and net export. The rationale is, greater government spending drives up the interest rate and encourage capital inflow, which later, appreciates the Malaysia ringgit. The appreciation hurts export as local good become relatively more expensive compared to foreign goods.

For the past two or so weeks, the issues of too much net capital inflow to Malaysia as well as increasingly large foreign reserve are popping up and has fueled rumor on further liberalization of the Malaysian ringgit. Though the current appreciation is definitely not exclusively caused by government spending, I have no doubt that the thumb prints of government spending through the Ninth Malaysia Plan is somewhere the Malaysia economy.

Further, about a month ago, the executive director of Malaysian Institute of Economic Research (MIER), Mohamed Ariff criticized the idea of having too big foreign exchange reserve:

THE size of foreign exchange reserves held by central banks the world over is often viewed by analysts, investors and policy-makers as a key indicator of macroeconomic strength. This notion is pitifully assailable, not only because inter-country comparisons are fraught with pitfalls, but also because the bigger-the-better argument does not hold water.

[…]

A robust domestic economy would also shift the focus from preoccupation with exports, current account surpluses and large reserves to internal dynamics that would drive imports closer to exports and the balance of payments closer to equilibrium with current account balance and stable external reserves. [When larger reserves may not really be good. NST. February 9 2007]

It would be interesting to observe the Malaysian export trend in the next few months if the ringgit appreciates further. I however am convinced that export will slow down, induced, in part, by both stronger currency and weaker demand in the US.

Another thing is, at the Wall Street Journal Asia:

A mild slowdown in the U.S. could actually further the government’s efforts to rein in growth. It might also encourage Chinese companies to focus more on serving domestic consumers than overseas ones—another shift China’s leaders are trying to promote. [China’s export engine survive a U.S. slump. WSJ Asia. April 10 2007]

In other words, China might actually look forward for a slowdown in the United States to cool down its economy. But admittedly, the article suggests that a minor slowdown in the US would not hurt China too much. That however does not change my mind that China could not be Malaysia’s savior if an US slowdown occurs, for reasons stated here.

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

p/s — on Saturday morning, I came across this:

PETALING JAYA: The year-on-year slide in Malaysian exports for the month of February cannot be attributed to the strengthening trend of the ringgit, said Second Finance Minister Tan Sri Nor Mohamed Yakcop.

Nor Mohamed was reiterating economists’ view at the beginning of the month that the weakening in exports was due partly to shorter working days and a decrease in overseas purchase of items such as electrical and electronic products, transport equipment as well as petroleum products. [Minister: Drop in February exports not due to strengthening ringgit. The Star. April 13 2007]

Fair enough.

Categories
Economics

[1175] Of supply-sider versus demand-sider, round n

Approximately 40 years after the debate began, the battle between supply-siders and the Keynesians (and to some extent, monetarists) continues.

It first came to surface with Bruce Barlett’s article at the NYT:

Today, hardly any economist believes what the Keynesians believed in the 1970s and most accept the basic ideas of supply-side economics — that incentives matter, that high tax rates are bad for growth, and that inflation is fundamentally a monetary phenomenon. Consequently, there is no longer any meaningful difference between supply-side economics and mainstream economics. [How Supply-Side Economics Trickled Down. Bruce Bartlett. NYT April 6 2007]

Mark Thoma at the Economist’s View enlightens his readers on the difference between supply-side and New Keynesian schools…:

There is much more to say about all of this, I haven’t even mentioned New Classical models, but that will have to do for now. Summarizing, contrary to what is implied in Bruce Bartlett’s commentary, there are two distinct schools in economics, the RBC school and the NK school, and they have very different policy implications. Not everyone will agree with this, and that is the point I suppose, but I would argue that the mainstream view today is the NK model, though the RBC school has strong advocates and has made important contributions to our thinking (the long-run incentives Bruce Bartlett mentions are a good example). [Bruce Bartlett: How Supply-Side Economics Trickled Down. Economist’s View. April 6 2007]

…while DeLong gives a little bit summary of what is going on the next day:

Mark Thoma quotes large chunks of Bruce Bartlett’s views on supply-side economics… [A Very Good Conversation on Supply-Side Economics. Grasping Reality with Both Hands: Brad DeLong’s Semi-Daily Journal. April 7 2007]

Then, it is Paul Krugman at Economist’s View, defending Keynesianism:

The key thing is that good Keynesianism, as embodied even in undergrad textbooks of the time, was *perfectly OK*: Dornbusch and Fischer, 1978 edition, offered a description of what disinflation would look like that matches the experience of the 80s reasonably well, and the textbook does not seem all that dated even now. The idea that we needed a new doctrine to get our heads straight is just all wrong. [Supply-Side Economics: Paul Krugman Responds. Economist’s View. April 11 2007]

James Galbraith on his opposition to supply side and monetarism:

Brad DeLong’s summary of Bruce’s summary of our vulgar Keynesian policy beliefs is, here, reasonably close to the mark, except in one respect. No one in my circle doubted the capacity of monetary policy to crush the economy if pushed sufficiently far. Rather, we believed (accurately, as events would prove), that monetary policy worked against inflation *only* insofar as it brought on a brutal recession. We did not accept the monetarist/supply-side claim, which was presented at the start of the Reagan administration in official projections, that the trick could be pulled off without a recession. We were, of course, perfectly right about that.

Second, as a matter of economics, we thought that the combination of supply-side economics and monetarism was fundamentally incoherent — and we were well aware that the supply-siders and monetarists disagreed with each other more violently than they disagreed with us. As an anti-monetarist and one of the very few Democrats willing to criticize the sainted Paul Volcker, I found myself in rough alliance with the supply-siders more than once (and I have a few handwritten notes from Jack Kemp in my files somewhere). [Jamie Galbraith Speaks for the “Vulgar Keynesians”. Economist’s View. April12 2007]

Watch those comments at the Economist’s View.