From The Edge Daily, earlier this month, concerning cost and benefit of incineration vis-a-vis two other disposal methods (tag):
I apologize for the quality of the document. I scanned the table from the dead tree edition of The Edge
Category: Economics
Today, in the New Straits Times:
KUALA LUMPUR: The Domestic Trade and Consumer Affairs Ministry plans to cut the number of sugar wholesalers to improve distribution of sugar.
“There are now 2,845 sugar wholesalers and we want to reduce the number to have better control of the distribution. We want to ensure that there is adequate sugar supply,” said Domestic Trade and Consumer Affairs Minister Datuk Mohd Shafie Apdal yesterday.
I want to stress that the current Malaysian sugar shortage crisis is caused by price differentials of sugar within the region; Malaysia has lower sugar prices compared to its neighbors. This in turn causes distributive inefficiency within the country as sugar flows out of Malaysia. Hence, hoarding and smuggling are merely symptoms of that prices differential, not the root cause. Overconsumption is also not the cause — that’s just some dishonest political maneuvering.
Granted, by reducing the number of wholesalers, it will be easier for the Ministry to control sugar distribution. In a way, the government is trying to limit the effects of externality. But notice, the government is using more taxmoney to repair an already inefficient system. A reversion to a competitive market on the other hand will cost the government much less and close to nothing (discounting cost would be incurred by general unrest instigated by opportunists and protectionists).
However, by reducing the number of competitors in the market, the government unnecessarily increase the wholesalers’ market power — at least, power of the ones that will stay in the market. As a result, the market will move closer towards monopoly scenario and farther away from the ideals competitive market. A firm with sufficient market power will have the ability to increase price higher than competitive price. In fact, holding everything else constant, prices will increase while production will decrease from competitive equilibria respectively as firms try to maximize profits.
Since the government is able to control one more variable, there are two issues right now — first is price control which causes distributive inefficiency. Second is number of competitors (as explained, a reduction of competitors will pull the market toward monopoly scenario).
I’m not sure what the net effect is because it will depend on how well the government execute their monitoring and enforcement process to curb externalities. But there will be two extreme scenarios to consider.
One is when the quantity of sugar produced under monopoly without price ceiling (or rather, oligopoly) scenario will be less than quantity produced in a market with only price ceiling. This, in no uncertain terms will worsen the problem.
Two is when the quantity produced in the former state is greater than in the latter state. This will be no different than our status quo.
I’m too lazy to draw proper graphs to explain the whole thing graphically but I did draw them on a whiteboard and I did digitize them. This is one of them.
You’d probably need a little bit of economics to comprehend the badly drawn graphs. But the bottom line is, the final result will depend on which part has a great effect on the system. If the effect of price ceiling has a greater impact compared to price setting power, then the status quo would probably remain, ceteris paribus. If price setting power has greater impact vis-a-vis price ceiling, then we would probably experience a more severe sugar shortage.
Of course, I’m assuming that these wholesalers are competing against each other. By that, I mean, they aren’t owned by an entity, i.e. the government. If they are owned by the government, then this whole entry would be irrelevant.
I’m in the process of writing a long entry, inspired by… As an introduction, I want to share the following quotation by John Kenneth Galbraith (tag):
In economics, the majority is always wrong.
Of course, Voltaire said:
A witty saying proves nothing.
Be right back, in a day or two… if there’s nothing to blog about before I’m done with that long entry.
I had planned to blog on only soccer throughout the course of the World Cup. However, the real world is still real and soccer is just a temporary ecstasy. In the real world today and throughout this week, a couple things came up. I wanted to express what I feel on a number of things but I had to economize my time. So, I had to choice which topic I want to blog on. After some thinking, I decided to touch about sugar.
This is especially so when Utusan Malaysia and Chua Soi Lek decide to be two naughty boys today. Utusan, with huge fonts and cheekiness, declares on its front page today that Malaysians are consuming twice the level of sugar that we needed (tag). Read the article at Utusan Malaysia, if you could read Malay:
Terlebih ambil gula — Rakyat kita guna dua kali ganda daripada kadar diperlukan – Soi Lek
PUTRAJAYA 13 Jun – Menteri Kesihatan Datuk Dr. Chua Soi Lek hari ini berkata, pengambilan gula di kalangan rakyat Malaysia didapati dua kali ganda lebih tinggi daripada kadar yang diperlukan.
Beliau berkata, berdasarkan kajian, secara purata rakyat Malaysia mengambil 125 miligram gula sehari berbanding keperluan yang menyihatkan sebanyak 50 miligram.
“Dalam soal gula di Malaysia, seseorang individu hanya memerlukan hanya 50 miligram sehari tetapi malangnya apabila kita buat kajian didapati pada puratanya mereka menggunakan 125 miligram gula sehari,” katanya.
Too much sugar is bad, yes and I agree with it. Unfortunately, I doubt the sincerity of our good doctor – and Utusan – because of the timing. It’s hard to imagine that the timing of such statement is an accident since it coincides with our little sugar crisis.
Sugar shortage is not new. Back in April, reports of scattered shortage in the northern states were already out. Now, it gets worse.
Our health minister and Utusan seem to implicitly suggest that if we cut on our sugar consumption, the problem would go away. Sure it would but what causes this shortage is not our level of sugar consumption. If it were, then why didn’t we have any severe shortage last year?
It couldn’t be that the consumption level was drastically lower than a year ago, could it? Did the level of sugar consumption jumped wildly from what it was a year ago?
Tak. Ngak. Poo. Nee. Non. Nein. Nope. Neither is it caused by smugglers nor hoarders.
I want to reiterate that this shortage is caused by our little price control mechanism. Like I’ve said before, if there’s a price differential of a good between two markets – in my earlier post, I used Malaysia and the world as the two markets – the market with lower priced good would suffer a drain of the good to the other market that priced the good higher. It’s a simple arbitrage and nobody should need an economics degree to figure that out. Given, the fix is simple – throw away the rigid price control regime and let sugar prices float.
Just let free market reigns supreme – at least in the sugar market – and I promise you, our sweet little crisis will go away. Free market will take care of the current distributive inefficiency that we are experiencing. Trust me on that. Don’t trust Chua Soi Lek. He’s manipulating the fact. And don’t trust Utusan too.
By the way, Torres’ goal during the Spain-Ukraine match is the most beautiful goal so far in the World Cup tournament.
p/s – the results between Malay College and Raffles are out. Three games were played at Kuala Kangsar this year – basketball (under 15 and under 18) and rugby under 15. I’m not sure about rugby but for basketball, the Malay College won both matches. From the description I’ve received, it was a tough fight.
Hey David, you were saying something about Raffles? =p
One week ago, I blogged on why conservative Muslims would prefer gold standard to fiat currency. Today, I found out that Kelantan, a state ruled by PAS, an Islamic party, plans to introduce gold dinar and silver dirham in three months time (tag). Gold dinar and silver dirham are gold and silver standards respectively. More at Bernama:
Kelantan Plans To Use Gold Dinar As Currency
KOTA BAHARU, May 21 (Bernama) — The Kelantan government will introduce the gold dinar and silver dirham as currencies in three months time and even plans to pay state public servants with the currency.
State Public Administration, Economic Planning, Finance and Community Development Committee Chairman Datuk Husam Musa said the dinar and dirham currencies would first be implemented in the Islamic system of pawnbroking, the Ar-Rahnu.
…
Husam said when implemented, the public could buy the dinar and then exchange it for cash at the Ar-Rahnu pawnshops.
Talk about economic crystal ball…
However, I’m not interested in the predictive power of economics in this entry. I’m questioning the legality of such move instead.
Under item 7(a) within the Ninth Schedule of Constitution of Malaysia, finance, more specifically, “currency, legal tender and coinage” fall under the Federal List. It doesn’t fall under the State List or Concurrent List but instead – I stress – in the Federal List. This means only the central government has the exclusive right on matters pertaining to issuance of currency. Therefore, I suspect Kelantan’s move is illegitimate.
The existence of two standards is detrimental to intrastate trade and the need to exchange currencies – ringgit to dinar and vice versa – acts as a trade barrier. Furthermore, the introduction of gold dinar just in Kelantan – instead of countrywide – will undermine the authority of Malaysian central bank, Bank Negara. The introduction will indirectly hurt the country’s economy as there will be no congruent monetary policies.
This move is unneeded especially when Southeast Asia is contemplating on monetary union. The region as ASEAN plans to increase regional trade instead of reducing it. Introduction of a new standard will take the dream of an ASEAN-wide monetary union a step backward. In short, the introduction is counter-productive towards the ultimate ideal of ASEAN.
Finally, who will manage the gold standard? The central bank of Kelantan? What a ridiculous notion! Revolting!
Unless Kelantan plans to secede from the Federation, this move must be stopped. Bank Negera, which is responsible to Malaysian monetary policies must come forward and knock some sense into the state government of Kelantan.
I’m vehemently against Kelantan’s move and the existence of two separate standards within the Federation. There can be either one currency or the other. Not both.
p/s – I’m right. Introduction of a different standard within the Federation is illegal. From The Star:
Kelantan plans new currencies
By IAN MCINTYRE
KOTA BARU: The Kelantan government plans to introduce the gold dinar and silver dirham as currencies in three months, saying that it also hopes to pay state public servants with the currency.
However, Prime Minister and Finance Minister Datuk Seri Abdullah Ahmad Badawi shot the idea down.
State governments were not allowed to issue their own currency, he told reporters covering the World Economic Forum in Sharm El-Sheikh in Egypt when asked to comment on the statement by Kelantan Public Administration, Economic Planning, Finance and Community Development committee chairman Datuk Husam Musa
This makes me wonder, do PAS politicians ever read the Constitution?