Categories
Economics

[2405] The end of the world? Not today, Galvatron

Now that we are staring at the possible end of the world — or rather, the possibility of the US defaulting on its payment — I am an optimist (hey, the yield rates are still low. That gotta mean something). In any case, a default would likely be temporary. Never mind that the US can still prioritize its payments to prevent default by suspending some relatively non-essential government operations.

Even if it would be more serious like the one in Greece, I have made my position known: the market can live without government bonds. The short run would be ugly. But in the long run, we will be fine.

Categories
Economics

[2403] The world has gone crazy

“…Treasuries have become a form of insurance against their own downgrade.” [Chris Reese. Bonds climb with safety buying as stocks dip. Reuters. July 26 2011]

Categories
Conflict & disaster Economics Liberty

[2402] The cost to the Beijing development model

The rapid and successful economic development of China so far has been presented as the superiority of central planning over the approach taken, for example, by India. It is the Beijing development model as some would say. Authoritarian top-down approach gets things done, unlike the messy democratic means from the bottom up. All those criticisms weigh things down needlessly.

The recent high-speed train disaster that killed nearly 40 persons[1] should give advocates of the authoritarian approach a considerable pause the next time they try to sell the Beijing model over democratic ones. Reports are coming out that these infrastructure projects were rushed for the 90th anniversary of the Communist Party.[2] Results do not look good for the Chinese government.

The Beijing way of doing things has become controversial, especially after the accident.

How much of infrastructure projects all around China suffer from abuse of power or corruption in general? Was the accident a symptom of a rotten system?

Between authoritarian and democratic states, the former lacks real mechanism to make the state accountable. It will be hard to answer the questions even in democratic states, much less in ones like China’s.

Typical of authoritarian governments, the Chinese government is trying to muzzle investigations into the incident.[3] This is amid angry allegations of corruption with respect to these projects and specifically, the high-speed train system. That is an example how there is little accountability in China. Any reprimand is for public show only. Such reprimands have proven to be inconsequential. In Malaysian parlance, small fish.

Even before the train disaster, the system was already suffering from service interruptions, barely weeks after its official opening. Something must be wrong when so many glitches happened so frequently so soon.

Something is rotten in the state of China. That rottenness is the cost of the authoritarian model. There is a cost to absence of check and balance, of accountability, of freedom. It is a shame somebody has to die to learn that.

While India suffered from embarrassing criticisms before and during the last Commonwealth Games due to perhaps their incompetence in meeting deadlines, at least we knew the problems before it was too late. Remedies were taken. For China, there is a guessing game: which one is the facade and which one is real. As the train disaster showed, we found out about the rotten apples way too late.

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

[1] — BEIJING—The first high-speed train passed through the tracks where a deadly train collision occurred in eastern China, as authorities sought to soothe public concern over safety and the handling of the accident as well as jitters about the future of its prized high-speed rail system. [Norihiko Shirouzu. Beijing Seeks to Soothe Train Jitters. Wall Street Journal. July 26 2011]

[2] — China’s high-speed rail line between Beijing and Shanghai has been beset by glitches in the two weeks since it opened to great fanfare on the eve of the Chinese Communist Party’s 90th anniversary celebration. [David Pierson. China’s high-speed rail glitches: Racing to make errors?. Los Angeles Times. July 16 2011]

[3] — BEIJING — China has banned local journalists from investigating the cause of a deadly high-speed train crash that has triggered public outrage and raised questions over safety, reports said Tuesday. [Allison Jackson. China seeks to muzzle reporting on train crash. AFP. July 26 2011]

Categories
Economics

[2400] Good news for the hawks

An argument goes that rate hike will not address inflationary pressure in Malaysia.

It is not as effective against cost-push inflation as it is against demand-pull inflation. And right now, the economy is experiencing cost-push inflation. More importantly, the push is coming from abroad. It is practically exogenous, discounting the liberalization exercise (which itself originates from exogenous pressure applied on government finance).

Hike the rate and price increase will not slow down by much. Local demand is not big enough to slow down the advance of the prices powered mostly by the larger foreign demand.

So, there is little need to increase the rate.

If the mysterious author at Economics Malaysia is correct, then rate hike might be more effective than proponents of the cost-push narrative are willing to accept. The author believes that the economy is already running at its full capacity. He believes the unemployment rate basically is bottoming out and is unlikely to go down any further in a significant manner.[1]

I am will not go into the numbers but the logic is sound.

Because it is sounds, it suggests that demand-push inflation making its round, thus making the exogenous cost-push story line less weight in the determination of monetary policy.

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

[1] — I’d still take this as a signal that the economy is at full capacity, as we’re looking at near historical lows in the unemployment rate. While GDP growth likely softened in 2Q 2011, there’s been little impact on jobs so far — June’s numbers however may show a different story. [Hishamh. May 2011 Employment Report: Softly, Softly. Economics Malaysia. July 25 2011]

Categories
Economics History & heritage Politics & government

[2391] Tunku Abdul Rahman on the development of East Malaysia

As the Malaysian Parliament planned to vote out Singapore from the Malaysian federation, Tunku Abdul Rahman said this in the Dewan Rakyat:

…On the other hand, our relationship with Sabah and Sarawak has been excellent. We are desirous of carrying out extensive development programme in these two States, because we realise that under the colonial rule the development in the two States had been neglected. We know that they had joined us on their own accord and of their own free will, in hope that they would enjoy not only the independence, the prestige, which freedom brings with it but also to enjoy other fruits of freedom. They fit into the pattern of administration with the rest of the States of Malaysia so admirably well; and unless we can carry out some development however small it may be their hope and trust in us will, I am afraid, inevitably lessen… [Hansard. Parliament of Malaysia. August 9 1965]