Category: Economics

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Economics Environment Sports This blog

[620] Of raw economic model on fresh water conservation

Dams around Klang Valley are running low on water. Despite that, I see some people water their plants during a rainy day while others wash their vehicles as if fresh water is unlimited commodity. Disgusted by the indifference shown by those people, I sat on a corner one day and tried to think what could make them care before water actually ran out and subsequently, the need of rationing. It didn’t take me long before I realized that the answer a mere basic supply and demand model.

Currently, at least in Kuala Lumpur, consumers face tiered-pricing scheme. The first 20 cubic meter cost RM0.57 per cubic meter. The next 15 cost RM0.91 per cubic meter and anything extra costs RM1.70 per cubic meter. Now, because the prices are fixed regardless of supply level — assuming ceteris paribus of course! — consumers really don’t have the incentive to conserve whenever there’s a shortage.

If we could somehow float the water price according to abundance, perhaps the flexible price or prices itself could give an appropriate signal to consumers. To put it bluntly, whenever there’s unreasonable scarcity, the price would say “hey bitch, conserve for fuck’s sake”. After all, efficient pricing theory suggests that in free market, without asymmetrical information, all information is expressed in prices. Yes, only in economics where all information could be compressed into a number…

Those that are unable and unwilling to conserve will be forced to pay more. Just imagine how high water prices should be right now in Kuala Lumpur. Note too that water supply is not an easily tradable commodity. So, as an example, if there is a water shortage in Kuala Lumpur, we really can’t just import it from, say, Singapore even if water is cheaper there. Hell, I don’t know why we want to import water from Singapore. But I trust you get the idea.

However, since water is a basic necessity of life, and the poor might be able to afford a high priced water, perhaps we should impose a price ceiling up to a certain amount (or even some quota per person in an average household) — an amount sufficient enough to sustain a non-wasteful lifestyle — something similar to the original first-20-cubic-meter-cost-57-cent (or sen) scheme. Anything higher than that amount should be charged at equilibrium price. Or, maybe even at equilibrium price plus any loss incurred due to the price ceiling. Since it should be very expensive in real term, conservation is almost guaranteed.

Four paragraphs to describe supply side; one paragraph for demand side. One paragraph to rule them all. Ack! Imagine the same thing but diametrically. Price will be higher due to low supply and high demand.

With exorbitant price, demand should decrease (assuming demand elasticity allows a decrease) and bring about a state where rates of water discharge at various dams are lower than replenishing rates. Thus, making an increase of supply possible. And greater supply lowers water price. With this regime, it’s obvious that water price will sway a lot but it will be at a dynamic equilibrium and more importantly, it’s an efficient and sustainable pricing. At the same time, it will combat Kuala Lumpur and Klang Valley’s problem.

And if demand outstrips supply, perhaps the reality of ridiculously high water price would actually rally local masses to demand certain somebody to finish up a project that connects Pahang’s water cache to Selangor’s. I wonder who is that certain somebody is…?

p/s — I’ve installed WordPress on my server. It’s here. Still need to import Blogger’s stuff into WordPress. I’m not sure about using WordPress right now. I kind of have this sense of loyalty to Blogger. But having a complete control of everything is tempting.

pp/s — na na na na na, na na na na na, na-na-na na-na-na na-na-na na, Let’s Go Blue! The Wolverines defeated the Spartans in OT again!

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Economics Photography

[618] Of budget day, competitiveness ranking and cats in washing machine!

Malaysian 2006 national bajet budget is fast approaching. One of few things that I wish is that the government won’t run populist policies, like preventing fuel prices hike for instance. In fact, I do hope, however unlikely it might be, an introduction of floating fuel prices regime in the end future. Gradually, of course.

Worry about inflation? Let the government worry about fiscal-side and let the central bank worry about monetary policies. It’s time we differentiate the two institutions clearly. By differentiate, I do mean an independent central bank. There are proofs that countries with independent central bank have significantly lower inflation.

Worry about unemployment due to lower inflation? Ah, that’s another problem. Rest assured however that in the long run, both inflation and unemployment don’t matter!

While some of us are nervously wondering what awaits us in that Pandora’s box, we must realize that there is more than one way to skin a cat or cats. One way is to wash them rigorously in a washing machine.

Another wish is total elimination of income tax and introduction of consumption tax. (wait, we’ll have both income tax and consumption tax in 2007! Somebody is cheating us!) In short, full cost accounting. Heh, a green’s wet dream.

A not-so-bad news in the eve of budget day is the recently released World Economic Forum’s competitiveness ranking. Malaysia’s ranked 24th out of 117, up seven rungs from last year.

And, erm, no cat was harmed in any whatsoever way.

Inconvenienced? Well, the mother cat was pretty mad. Very.

p/s – cool stuff! KoRn with World of Warcraft!

pp/s – added Primate Noise to my blogroll.

ppp/s – Santa is real! Be afraid. Be very afraid because the Danish Air Force learned about Santa the hard way.

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Economics Environment Politics & government

[599] Of fuel subsidy, tax reduction and Malaysian budget deficit

An awful lot of Malaysians are happy with the road tax reduction in the face of rising fuel cost. The government assures more is to come. The libertarian part of me jumps with joy. My green half however warns me that the government current policy might be unsustainable.

Fuel prices have been marching forward continuously for many months now. Give and take a jump of another USD20, crude oil price will be at an all-time high. The highest price in 2005 term is USD86 per barrel. Crude oil prices are currently around USD65 per barrel. Roughly a week ago, it was USD70 per barrel.

Consequently, all countries running gasoline subsidy are finding out that the program eats a lion’s share of their expenditure. Indonesia is a perfect example of this. Its subsidy program is so huge – a quarter of government expenditure in fact – that capitals are flowing out of Indonesia at a frightening rate. That capital outflow then forces Rupiah, the Indonesian currency, to plummet 10% against the USD this year alone. This could happen to Malaysia too and it’s crucial to reduce or even eliminate Malaysian fuel subsidy.

The Rupiah today rose after the Indonensian authority confirms that they will cut fuel subsidy further. Almost similarly, Malaysian government has allowed fuel price to increase step-wisely a few times this year. Three times if I’m not mistaken. That in effect reduces deadweight loss.

Despite so, the government has made several promises that are too bold.

First and foremost, the government promises that there will be no more price hike till the end of the year. There reason why this might be more than the goverment could chew is that there can be no guarantee how the global crude oil prices will react in the short term. The market is too susceptible to immediate events like Katrina, of which had forced the crude oil to break the USD70 benchmark. Not to mention, for the northern hemisphere, winter is looming in four months time. Given the no-hike promise, a too liberal price increase could match or even outdo the reduction in deadweight loss.

Second is the promise of more tax cuts. Bigger cuts mean lower revenue.

Combining possible fall in income from taxes with the inability to reduce expenditure, this is a formula only Republicans will endorse. It’s a recipe for budget deficit. A fall in income must be followed with a fall in expenditure if a budget is to be sustainable. Of course, economics allows greater expenditure against an inferior income but it must be noted that only in time of crisis should anybody allow that. This is where normative and positive economics diverge. On top of that, Malaysian 2004 budget deficit stands at 4.5% of its GDP. 2005 deficit is expected to stand at 3.8% of the GDP.

This is type of economics practices by Republicans – from Reagan to W. Bush – might increase the expected deficit for 2005. Our government is doing what an economic populist would do.

This might backfire soon – all the cheer might turn into jeer when the deficit swells in size.

p/s – even the World Bank is worried of climate change.

pp/s – fun flash animation. Don’t you love your SUVs?

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Economics

[575] Of Wal-Mart and Carrefour

Whoa. I’ve just found out that out there in the jungle, rumor is out and about that is trying to take over . Both giants have denied the rumor, however.

Imagine what kind of giant would be born if that rumor were true. Wal-Mart, already the world’s largest company, buying out French giant Carrefour – that’s just unfathomable. What would be more unthinkable is that a French company is being bought by an Uncle Sam Arkansas-based retailer.

But if it were true, the marriage would offer a huge economies of scale to Wal-Mart. That alone would render other competing retailers as ants waiting to be squashed upon.

Thank goodness all these are mere hearsays. Else, the next time anybody goes to Paris, they would need a Wal-Martian visa.

Categories
ASEAN Economics Environment

[573] Of there go your uncertainty. And it’s less hazy today!

I woke up on Saturday and saw an alert on global warming:

After correcting for the mistake, the researchers obtained fundamentally different results: whereas Spencer’s analysis showed a cooling of the Earth’s troposphere, the new analysis revealed a warming.

Using the analysis from Mears and Wentz, Santer showed that the new data was consistent with climate models and theories.

“When people come up with extraordinary claims — like the troposphere is cooling — then you demand extraordinary proof,” Santer said. “What’s happening now is that people around the world are subjecting these data sets to the scrutiny they need.”

USA Today also reports the same thing. On a related subject that came up a few days ago:

Summers in European cities have grown up to 2.2 Celsius (4.0 Fahrenheit) hotter since the 1970s and global warming may cause ever more sweltering temperatures, the WWF conservation group said on Thursday.

Do I hear a naysayer? Wake up already. With this, I do hope the world can go beyond Kyoto and something more effective, backed with sterner but sensible action.

Regardless, the monster is sparing Kuala Lumpur today.

Compare that to similar shots taken three days ago.

This is definately a relief though I think I’m having a fever due to my singing in the haze yesterday.

p/s – Heh. Indonesia wants Malaysia to pay for oxygen produced by Indonesian forest in reaction to DAP’s demand for compensation (via). That’s the spirit…

In all seriousness, this shows how porous the nation state’s border is, considering all externalities, jokes aside.

pp/s – Heh. I have a sweet idea how to handle that suggestion.

Let’s assume all public spaces are privatized, including the atmosphere and the ocean and hence, Indonesia would be able to charge Malaysia for Indonesian oxygen utilized by Malaysians. However, assume that all nation states in this world are able to monitor their borders and have full knowledge of what crosses their borders.

Now, it’s safe to say that oxygen produced by Indonesia, or as a matter of fact any gas produced by anything that is owned by anybody, knows no boundary. Ergo, each year, countless Indonesian oxygen crosses into Malaysia illegally. Therefore, we should sue Indonesia for failing to prevent Indonesian oxygen from reaching Malaysia and hence, forcing Malaysians to breathe Indonesian oxygen!

If this is nonsensical at best, idiotic at its worst, that Indonesian engineer should have known better. Unless of course, if we were to privatize everything, it would be a different story altogether.

ppp/s – my goodness, Indonesia actually refuses Malaysia and even ASEAN’s help! What is wrong with the Indonesian government? Just accept the fact that you can’t effectively act within your own domain and desperately needs help!