Category: Economics

Categories
Economics Politics & government

[2058] Of does prisoner’s dilemma ring a bell?

In denying the allegation that he received RM10 million from Kuala Dimensi Sdn. Bhd., MCA President had this to say:

I am not surprised that the smear tactics and character assassination against me had picked up pace especially with the latest revelations by the PKFZ Task Force.

If indeed I have received pecuniary and financial benefits for myself or the Party, there will be more reasons for me to protect the interests of the givers, as opposed to proceeding to expose their misdeeds. By doing so, I am risking my personal and family safety as well as my own credibility.

The allegation by Dato’ Seri Tiong King Sing that I have taken the RM10 million “loan” from him for use by the Party’s divisions, are obviously made with several motives, including diverting attention away from the alleged irregularities exposed by the Task Force. It could also be meant to create suspicion among my Party comrades that I have pocketed funds meant for the divisions. The fact that he indicated that it was a loan could mean that he wants the option of taking me to court to further embarrass me. [Smear campaign just another obstacle. Ong Tee Keat. August 12 2009]

I presume, Mr. Ong Tee Keat has never heard of prisoner’s dilemma.

If one applies prisoner’s dilemma, it should not be too hard to understand why somebody is defecting. Of course, this is assume that Mr. Ong was involved in the whole fiasco.

Whether true or not, it is still a possibility. It is not as impossible or ludicrous as Mr. Ong insists at all.

Categories
Economics

[2047] Of euphemism of the day: number forecast operator

Number forecast operator…

PETALING JAYA: All three number forecast operators (NFOs) in the country will benefit in the longer term as the government tries to curb a rise in illegal gaming by increasing the number of legal lottery games, although Berjaya Sports Toto Bhd (BToto) may face some initial pressure from new games awarded to its rivals, analysts said. [Government approves more lottery games. Rachel Kam. The Star. July 28 2009]

I say just call it gambling operator. Or betting operator. Or gaming operator. Or lottery operator.

Number forecast operator…

The industry does not even forecast number.

Sometimes, some people go too great a length trying to whitewash things.

Categories
Economics

[2045] Of unemployment targeting? That is new…

Today in The Sydney Morning Herald:

THE dollar soared and financial markets began pricing in interest rate rises after the Reserve Bank governor declared that he will soon have to push up rates and that he might do so without waiting for unemployment to stop climbing.

The bank is thought to have never before lifted interest rates while unemployment was rising.

But yesterday the governor, Glenn Stevens, told a business audience in Sydney that he did not regard himself bound by such a convention.

”˜”˜I’ve never seen written down, or I have never heard in discussion in the institution, some rule of thumb that says we wait until unemployment has peaked before we lift the cash rate,’’ he said. ”˜”˜It depends what else is happening, and also depends how low we went. [Rate rise looming, warns top banker. Peter Martin. The Sydney Morning Herald. July 29 2009]

I am not quite sure if the reporter is right when he writes “[t]he bank is thought to have never before lifted interest rates while unemployment was rising”.

Maybe, I am just not familiar with Australian thinking but central banks — that is, independent central banks — typically target inflation and not unemployment rate.

Central banks may incorporate other factors like economic growth, for instance, but the primary factor, as I understand it through my pre-2008 crisis economics lesson, is always inflation.

Categories
Economics

[2041] Of …actually, it might last longer than initially thought

Remember the immediate previous post about deflation in Malaysia and how it was expected to succumb to inflation later in the year?

Yesterday, being a centrally-planned economy that Malaysia is, the Cabinet decided against a hike.

KUALA LUMPUR, July 22 — Malaysia’s government today vetoed price hikes for electricity and natural gas, fearing a repeat of anti-government protests that saw its popularity slump in 2008.

Under proposals discussed by the cabinet today, the country’s influential Economic Planning Unit had suggested a 24.6 per cent rise in the price of natural gas and a 4.9 per cent hike in electricity prices from Aug. 1 to reflect the rising cost of energy. [Malaysia government rejects energy price hikes. Bernama via The Malaysian Insider. July 22 2009]

I am not sure if inflation will come back as soon as analysts predicted earlier. I know, I know, they based the return on the expected hike of taxi and bus fare hike. But I think this decision can potentially affect inflation expectation in a way that prolongs the deflation.

Categories
Economics

[2040] Of a temporary respite to an outdated model

Ah, do we not all wish to return to a time when economics was much simpler, when it was thought that there was a simple trade-off between inflation rate and unemployment rates, when the original Phillips curve worked well, when stagflation had yet to be coined and experienced, when non-accelarating inflation rate of unemployment was unheard of and the days when Keynesian economics reigned before it was blown into pieces by the 1970s crisis?

Well, it is back!

Finally, a return to the good old undergraduate textbook economics problem!

KUALA LUMPUR, July 21 — Malaysia’s consumer price index (CPI) is likely to have fallen in June from a year earlier by 1.35 per cent, the first annual decline in two decades… [Malaysia CPI set for first fall since 1986. Bernama via The Malaysian Insider. July 21 2009]

The original Phillips curve states that there is a inverse relationship between unemployment rate and inflation rate. The unemployment was at 4.0% in the first quarter of the year, much higher than the previous quarter (3.1%).[1] Given that the unemployment rate for 2008 was 3.3%, it is not hard to show that 4.0% is a stark increase even on year-on-year basis. And so, when deflation occurs, along with heightened unemployment rate, the environment fits into the original Phillips curve.

Anyway, enjoy it while it lasts because…

…although a period of deflation is expected to be short lived. [Malaysia CPI set for first fall since 1986. Bernama via The Malaysian Insider. July 21 2009]

Yup. The celebration for the original Phillips curve will not last long. Thank heavens for Edmund Phelps and Milton Friedman’s works!

Phelps, winning the Prize in Economics because of it, introduced and expected-augmented Phillips curve. It basically says that while the inverse relationship between inflation and unemployment rates still hold in the future, when inflation expectation change, the whole curve will shift. Or, in other words, inflation (or rather, monetary policy) does not affect the real economy in the long run.

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

[1] — Please refer to the following table:

Employment
2008 3rd Quarter
2008 4th Quarter
2008
2009 1st Quarter
Total Labour Force
(‘000)
11,123.4
11,170.8
11,028.1
11,208.5
Employed (‘000)
10,779.7
 10,819.8
10,659.6
10,757.8
Unemployed (‘000)
343.7
351.0
368.5
450.7
Unemployed Rate
(% of Labour Force)
3.1
3.1
3.3
4.0

[Employment (Updated 30 June 2009). Department of Statistics of Malaysia. Accessed July 21 2009]