Category: Economics

Categories
Economics Politics & government

[1083] Of passing the buck too quickly

Earlier at BBC News, I read on how President Bush is planning to reduce the US budget deficit:

US President George W Bush has said his forthcoming budget plans will seek to curb domestic spending.

“Cutting the deficit during a time of war requires us to restrain spending in other areas,” Mr Bush said in his weekly radio address.

He said his plans for the next fiscal year would show that his aim of erasing the deficit by 2012 could be achieved without giving up tax cuts.

I beginning to notice the in trend right now. Reduce fossil fuel consumption, reduce carbon emission, reduce budget deficit, etc, etc, after he steps down as the President.

I realize that there are issues that demand attention that spans several generations. Nevertheless, I cannot help but wonder if that is the case or it is simply Bush passing the buck.

Regardless, I think President Bush is trying to cut the wrong corners:

Mr Bush said the budget for the year starting in October 2007 would underline the need to tighten spending on domestic programmes – including on education, energy and health.

The Washington Post newspaper said domestic spending would increase by 1% – less than inflation.

Meanwhile military spending in Iraq and Afghanistan would increase.

Certain areas, especially education, are too critical to see spending tightening. At time when globalization is at nearly full steam, I do not think anybody could afford to cut spending on education. Not Malaysia. Not Egypt. Not the Netherlands. Not the United States.

If I were Bush, I would slow down on the military spending instead. The first step in reducing military spending is to avoid too many military conflicts.

Some might call this a gun and butter model. Maybe it is, to some extent.

Categories
Economics Society

[1081] Of foreign labor and crime rate

There are xenophobic Malaysians and that is the truth. Some of these xenophobes take it one step further and allege that the increased population of foreign workers is the cause of increased crime rate.

I am usually uncomfortable with the allegation. In a way, the phobia forms part of anti-free market thinking; protectionist thinking. Further, it seems that foreign workers are being made scapegoats.

Without proper citation however, if I were to challenge the allegation, their words would be as good as mine. That changes today as I have found a reputable source to back me up. At The Economist:

Malaysians think that the increase in foreign workers has worsened crime rates. Official figures show that foreigners in the country commit proportionately fewer crimes than do Malaysians themselves.

Anyway, the xenophobia is not unique to Malaysia though the reason might differ. Nevertheless, it is a typical protectionist rationale:

Locals in the receiving countries already seem to be worried about competition for their jobs. In a recent poll for the ILO, 59% of Thais said their government should admit no more foreign workers, and only 10% thought more should come. Even in prosperous, cosmopolitan Singapore, just over half of locals oppose admitting more foreign workers, according to a poll in the Straits Times.

Also, in Singapore, according to Rajan:

In other words, foreigners are proportionally underrepresented amongst criminals. So not only is “most crimes in Singapore are done by foreign labourer workers” false in the absolute sense, neither is it true on a proportional basis.

So, let us reject out irrational prejudice against foreign labors.

Categories
Economics Liberty Politics & government

[1077] Of Malaysia-US FTA is under threat

With respect to the current negotiation on Malaysia-US FTA, chairman of the House Committee on Foreign Affairs, the Democrat Tom Lantos made the most unhelpful comment:

The recently-announced oil and gas deal between Iran and Malaysia is equally abhorrent. That is why today I am sending a letter to our trade representative, Susan Schwab, requesting that all negotiations between the United States and Malaysia on a free trade agreement be suspended until Malaysia renounces this proposed deal.

According to Bernama, “abhorrent” deal refers to this:

Abdullah was reacting to a statement made by US House of Representatives Foreign Affairs Committee chairman Tom Lantos who demanded that US President George W. Bush suspend all FTA negotiations with Malaysia, in protest over the US$16 billion (RM57.6 billion) deal signed last month between Malaysia’s SKS Group and the state-owned National Iranian Oil Company.

All this is on top the fact that negotiation is tough:

A proposed Malaysia-U.S. free trade pact may falter if negotiators fail to make firm progress in bridging differences at a fifth round of talks next week, a U.S. official warned on Wednesday.

Negotiators will meet again for a week starting Monday in Malaysia’s Sabah state on Borneo island, where they will seek a compromise over opening up of Malaysia’s services and government contracts – two key hurdles to a deal – said Deputy U.S. Trade Representative Karan Bhatia.

Labor and environmental issues are also holding up talks, he said.

Further at Forbes by Associated Press :

Malaysia has warned it will drop free trade talks with the United States if it is asked to scrap a multi-billion-dollar gas deal with Iran, a news report said Friday.

[…]

In an angry reaction, Trade Minister Rafidah Aziz told Washington to stay out of Malaysia’s affairs and warned the government will not bow to any threats, the Malay-language Utusan Malaysia reported

While I am very keen of the Malaysia-US FTA, I have to agree with Rafidah Aziz. No one shall dictate Malaysian relationship with Iran. Besides, that oil and gas cooperation is not a government-to-government dealing.

Malaysia must have the liberty to forge relationship with anybody. It is our liberty and in my priority list, liberty sits higher than an FTA.

Despite that, I urge both the Malaysian and the American negotiators to ignore Lantos and realize a closer relationship between the two countries. It is only through trade could we guarantee our prosperity. In Kant’s words, “the spirit of trade cannot coexist with war.”

Further, what better way for Malaysia to get back at Lantos other than having a successful fair FTA?

Categories
Economics

[1068] Of blanket subsidy is inferior to targeted subsidy

Subsidy leads to inefficiency. Notwithstanding the reasoning, sometimes subsidy could be justified; sometimes, efficiency is not the only consideration of a society. The word subsidy is commonly heard when a society tries to address the problem of inequity; subsidy is a tool of wealth redistribution.

I maintain a high dose of skepticism against any subsidy policy. Yet, I am prepared to lower my opposition if such subsidy is well-tailored. A well-tailored subsidy however does not include blanket subsidy; blanket subsidy is the worst form of subsidy one could ever think off. An example of blanket subsidy is the current Malaysian fuel subsidy.

A blanket subsidy is a lazy policy — at best, clumsy — formulated to solve a perceived problem. It generalizes society, assuming that everybody in the society is in need of the subsidy; that people are fully homogeneous. On the contrary, people are heterogeneous to a very large extent. If people were completely homogeneous, I do not doubt that communism would have ruled supreme.

That generalization is costly. The generalization, believing that the lower, the middle and the upper economic class are equally needing of or benefiting from a blanket subsidy is an expensive proposition. It is expensive because it gives benefit to those that value such subsidy the least; the rich values subsidy less than the poor. A blanket subsidy does not make that discretion. Therefore, a blanket subsidy regime pays too much to increase societal welfare whereas in fact, a better policy would have done the same job with lesser resources. One of those better subsidy regimes is a targeted subsidy.

A targeted subsidy policy specifically identifies a segment of a society that is in need of aid and then aids only those that in need of aid.

With a targeted subsidy, resources that would have been used under blanket subsidy could be used to make investment in education or other areas that could permanently and structurally increase societal welfare.

Not only that blanket subsidy as a policy is expensive, somebody has to fund it in order to maintain such policy. Resources ultimately has to be sourced from the society; the taxpayers. The society has to be taxed in order sustain any subsidy. Therefore, to defend a blanket subsidy as a mean to increase societal welfare is almost oxymoronic. The society is being taxed to support a subsidy — you pay me to pay you, all else being equal.

In my opinion, rather than support a subsidized regime as far as the current Malaysian fuel subsidy is concerned, it is better to promote tax reduction instead. Or a hybrid tax reduction-targeted subsidy policy if we are so hooked up on the crack that is subsidy. Rather than you pay me to pay you, why don’t you just keep your money for yourself?

Categories
Economics Humor

[1063] Of who says economics is a dry and boring subject?

Have you ever wondered how Malaysian economic growth correlates with Malaysian carbon emission? Or economic performance against income per capita? Or internet proliferation against telephone proliferation?

Head over to The Gapminder World; another great tool by Google. Kudos to Prof. Mankiw for the discovery!

Just a friendly reminder — be mindful of the golden rule that is correlation is not causation.