Tag: The Sun

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Economics

[2567] A tribute to Anna Schwartz

Anna Schwartz is not a name too familiar with too many Malaysians. That is a shame because her works as an economist wield great influence in this era of economic uncertainty. Read up major financial newspapers, magazines, financial news channels or leading economic blogs and one will come up an idea which she—together with the more famous Milton Friedman—advanced when they were alive: the roles of central bank in addressing economic fluctuation.

She died on June 21 this year.

Anna Schwartz collaborated with Friedman in writing A Monetary History of the United States, 1867 – 1960. The book, written in 1963, introduced the world to monetarism, the school of economics that eroded Keynesian dominance in economics and policymaking in the 1970s. The book is one of the most influential modern economic books. It belongs on the same shelf as John Maynard Keynes’ The General Theory of Employment, Interest and Money, and other great books that changed the course of human history.

Both Schwartz and Friedman pointed out that the Great Depression of the 1930s was a result of tight monetary policy. The Federal Reserve shrunk the money supply at a time when money demand increased tremendously as everybody hoarded cash in panic. The Fed should have increased the money supply instead.

This is an important revelation because the pre-1970s orthodoxy was that fiscal policy was the only real economic stabilization tool: only government spending could fight economic downturn. The first monetarists proved that was not so. Monetary policy is a credible and a better short-run alternative to fiscal policy: manage the money supply instead; expand it in times of crisis.

Fed chairman Ben Bernanke is a scholar of the Great Depression. As a member of the Fed’s Board of Governors before he became the chairman, he issued a mea culpa. “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again,” he said.

Most central bankers have learned from the 1930s mistakes. Amid the 2008-2009 financial crisis, the Fed lowered its interest rate close to zero from above 5% in just slightly more than a year. The aggressive monetary policy, among others, is partly a lesson taught by Schwartz and Friedman.

Keynesianism was increasingly dominant especially after the Fed set its interest rate close to zero however. There is a theory called the liquidity trap: the central bank is unable to push the nominal interest rate below zero even as an even lower interest rate is warranted in a recession. That is a complicated way of saying that the central bank ran out of ammo once the interest rate had been pushed to zero.

As a matter of fact, interest rates in the US, Europe, Japan and UK were close to zero by 2009. Even so, the economy seemed to require more stimuli. The Keynesians were calling for more government spending. Indeed, governments all around the world embarked on massive stimulus spending to fight the 2008-2009 recession.

Friedman’s death in 2006 partly coincided with what now has been described as the Keynesian resurgence. As if the stars were aligned, the foremost Keynesian of our day, Paul Krugman, won the Nobel Prize for Economics in 2008. The Keynesian school returned three decades later.

Whatever the successes of the recent Keynesian approach, the cost is painful especially judging from the European experience: Keynesianism exacerbated the problem of public finance. That has turned the table again.

While Friedman’s death coincided with the Keynesian resurgence, Schwartz’s death coincided with the monetarist resurgence.

The proof is for all to see. In the US, Europe, Japan and in the UK, central banks are now at the forefront of stabilization exercises despite liquidity trap. In contrast, it is the government that has run out of ammunition to do more. Governments in Europe are paralysed as far as the stabilization policy is concerned due to economic and political realities.

The resurgence of monetarism—market monetarism to be exact—is important to advocates of small government. It yet again counters the urge to resort to fiscal policy in times of crisis that will inevitably increase the roles of government. Market monetarism does so by arguing the Keynesian liquidity trap is irrelevant by pointing out the central bank can supply as much money as it is necessary without much adverse impacts as long as there is demand for it.

Monetarism, yet again, provides a credible alternative to fiscal policy. That will humble those who take the government as omnipotent.

Schwartz—and Friedman—deserved to be remembered because of that.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Sun on July 6 2012.

Categories
Politics & government Society

[2536] Some liberals are not really liberals

I have been accused as a purist when it comes to defining the term liberal. I subscribe to a specific definition of the term liberal that will disqualify many other self-proclaimed liberals quickly. By specific, I am referring to libertarianism. Others prefer the term classical liberals and I find it hard to really differentiate the two in a substantive manner. In any case, that label is merely used to convey the idea that I and others like me hold the individual as the most important component of our society. The way we manifest our political philosophy is by mostly emphasizing or demanding the absence of coercion in running our lives. This is most easily observable when libertarians address economic questions by trying to circumvent any reference to any political authority. There are other qualifications but those details can be suitably discussed at a more measured pace some other time. I only lay out the major identifiers generally to prove that the definition is specific and will disqualify other self-proclaimed liberals.

The term liberal in the most general sense did evolve over time. The experience in the 20th century fused ideas in so many ways. Some decidedly non-liberal understanding of the world before the 1930s became generally liberal by the 1990s. The great economist John Maynard Keynes went out to save liberalism and capitalism from fascism and communism by introducing ideas that today are so imbedded in mainstream economics, but then opposed vehemently by the liberals of his time. The results of the intra-liberalism debate produced a new liberalism that not only sharpened its thesis but also synthesized some of its anti-thesis. A new hypothesis emerged in the post-Cold War 1990s with the rise of the Clinton and Blair administrations, after a political and economic classical liberal resurrection of the 1970s.

The evolution of liberalism forces me to admit at least this: even if I philosophically despised these evolved liberalism, their subscribers do have the claim to the title. They are like the siblings that you find hard to sit with. No matter how much you cannot stand the other, you know all of you share the same parents and there have to be some kind of decorum between the sides.

The debates between the different schools of liberalism still continue today to remind all of the original early 20th century debate in the mist of the Great Depression. But the essential difference is that those intra-liberalism debates now firmly take the center stage while in the past, the opponents in the ring were not liberal at all. Communism is dead and hard socialists of old only throw potshots from outside of the ring, unable to steer the debate even as liberals’ capitalism is in trouble. Possibly jealous of the success of liberalism in evolving itself, old liberalism’s 20th century foes from the left who call themselves liberals, ally themselves with the evolved liberals and sometimes pull the strings towards the left’s original home in the process.

The left’s liberals are those that I take pleasure criticizing because I know they are not liberals in the general sense of the term, even without appealing to libertarianism. At least the evolved liberals accept the market economy even if they do not have the courage to run their arguments to its natural course as libertarians do. In contrast, the left’s liberals are not really convinced of the arguments of the market economy. Have a discussion with them about economic liberalism and one will wonder what is so liberal about them. Pursue a fundamental question beyond the veneer and a fault line will emerge. The left’s liberals would tweak the market economy beyond recognition the minute the more genuinely liberal others blink.

Outside the realm of serious philosophical debates are the superlative liberals. They are liberals just because they are more progressive compared to our conservative society. They may be political moderates or centrists but they are not liberal ideologically in a way that some ideas are fundamentally derived from first principles, like proper liberals. But the superlative liberals call themselves liberals anyway, just because they met someone who holds conservative worldviews that disturbs them. Unfortunately, that is neither a sufficient nor a necessary condition to be a liberal.

And then there are the libertines. Or really, they are just socialites. While some liberals may live life large, but libertines by themselves do not ground their ideas the way subscribers of liberalism do, if they have any idea at all. Libertines’ liberalness is just like the superlative liberals’ liberalness. Their liberalness is devoid of liberalism. Moral and religious conservatives derisively call these libertines are liberals while alluding to liberalism, but that only because the conservatives do not understand liberalism as proper liberals do.

So, when I criticize non-libertarians of their diluted liberalism, I can accept the charge of being a puritan. When I criticize the superlative liberals and the libertine, I think I have full moral authority to dismiss them, if they claim themselves as liberals. In the latter case, I am not being a purist at all. It is just about calling a spade a spade.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
This was meant to be published in The Sun in March 2012. It did not appear on the appointed date for reason unknown to me.

Categories
Politics & government

[2463] We don’t need a big government voting bloc

In our modern Malaysia, one can hope that government policy comes about through the general will of the people peacefully through democratic means. One can further hope that this mean not merely crass majoritarianism but that which is respectful of individual rights. After all, the government and the state derive its legitimacy from the people, the citizens — an idea that is clichéd but time-tested and the prevailing idea of government in our time. It took us humanity hundreds if not thousands of years to finally subscribe to it either willingly or grudgingly.

The ideal democratic government and state translate the general will into policy and ideally, they must always accede to the general will.

What is ideal is not necessarily true on the ground however. How many self-proclaimed democratic states have turned against its citizens?

History has witnessed many of those examples, which should be enough to convince the democrats among us of the need to establish some mechanism to limit the opportunity for government to shirk from their responsibility to the people and more importantly, to prevent it from developing means to promote its own separate interest at the expense of citizens.

Since we really live in a largely majoritarian reality, herein lies the importance of a small government.

To understand the need to control the size of government, it is crucial to note that government employees themselves are voters and all voters are self-interested. They will vote for those who will promote their welfare and interest more often than not. They are exemptions, of course, but the assumption of self-interest remains the most robust assumption of human behavior. It expects the least and thus less susceptible to disappointment, unlike other more benevolent but naïve assumptions that exist on the economic left that have failed more frequently than the financial markets have crashed.

A large government employing a large fraction of citizenry will invest this group of voters with excessive political power. The larger the government, the more votes will go toward enhancing the welfare of its employees.

This creates a conflict of interest where the employees of the government can promote their interest collectively instead that of the wider voting population. With a power voting bloc, the institution that is supposed to execute the general will of the people takes a life of its own. How many times have large rewards been to government servants just before the election in Malaysia?

Essentially, that large voting bloc enables government servants to raise their own wages and grant themselves other benefits, a conflict of interest so brilliantly portrayed in an episode of the BBC’sYes Minister.

That conflict of interest is even more worrying when the taxpayers are mostly those who are employed in the private sector. What pain do the benefactors of the voting bloc suffers when someone else is financing the punch party?

With a majoritarian reality and an influential voting bloc, officeholders and the aspirants will not dare promote a responsible public finance. So not only it exacerbates the status quo, it reduces the likelihood of putting the party to a stop before it is too late to switch the tracks.

At the very extreme, such bloc makes the liberal rationale for the state irrelevant. The state now becomes overly sensitive to government servants, and less so to the citizens at large.

The 19th century American author Edward Bellamy somewhat circumvented the problem by making everybody the employees of the state. He detailed his views in his work of fiction, Looking Backward.

Ingenious, except he dreamed of a very different society. He dreamed of a utopian communist society where all wants and desires are fulfilled, and men and women work not for monetary reward but merely for recognition that scout boys proudly wear. Men and women of Looking Backward believe the government does everything for the benefits of the masses, ever so efficiently.

Where Bellamy spotted a utopia, Orwell saw a dystopia.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Sun on November 25 2011.

Categories
Economics

[2435] Oh the fickle markets

The stock markets all around the world are on a rollercoaster ride. It is yet another proof of the interconnectedness of our world and in a time like this, such interconnectedness can be a bane. The slightest news of little relevance—never mind the more substantial developments—from the other side of the world can rally or rattle the markets. These are days of pessimism and this kind of pessimism it is a little bit unhealthy.

It is painful to observe the stock markets. If to keep an eye on it is an exercise perfectly suited for sadists, to have a direct stake in the markets makes the whole enterprise all the worse.

Each day brings a kind of consternation. Will tomorrow be better or worse? Should I buy or sell now? Will tomorrow be delightfully unexpected or depressingly expected? Is that light at the end of the tunnel? Or is that a headlight for a speeding train?

These questions and its variants have been asked increasingly frequent over the past few weeks. The answers are not always forthcoming unfortunately. Sometimes, there is none to be had.

That is partly the fickleness of the markets resulting from the markets trying to incorporate everything it could. That fickleness grants rest to none, forcing all to stand guard around the clock.

The fickleness and volatility of the market are tiring. Whatever the benefits of the markets as a leading indicator of the wider economy, all the attention it demands is tiring. It consumes too much time and energy, all just for the small satisfaction of not losing money in a blink of an eye in this kind of prevailing environment we live in.

As a graduate student once, I had to model certain relationships involving the stock market. The volatility of the market presented a challenge because too much data can lead to the wrong conclusion. The data series was too “noisy.”

A friend suggested cutting the frequency of data from daily to weekly as a solution. Others suggested logarithmic difference. There was a bunch of other novel methods aimed at doing the same: filtering out the incessant noise in hope of squeezing something tangible and real out of the data series.

The stock markets do tell something, but its fickleness neither tells everything nor is everything it tells is necessarily true or relevant.

There lies some wisdom to go beyond the mathematics and economics puzzles. I find the wisdom helpful in keeping myself from frowning yet again, sighing continuously and from suffering mood swing as wild as the market.

I have decided that I will not go mad over the market. I have applied less weight to the importance of the stock market with respect to myself.  At least for now, I have decided to have less exposure to the craziness of it all.

If European politicians and bureaucrats could go on summer holidays amid a frighteningly global crisis, surely others inconsequential to world’s history can take some justifiable break of their own. The grand narrative of world’s history is unlikely to twitch for me.

I do not want to be the guy who sits in front of the screen staring in a broker house, hoping for the slightest opportunity to make money. Or that guy drawing meaningless lines trying to outsmart the market, the efficient-market hypothesis be damned.

No, I have decided to live a life more, and worry a little less.

There is money to be had, and it is always nice to have a little bit more money in the pocket. Yet, one has to asked, at what cost?

There is more to life, and the economy even, than the fickleness of the stock markets.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved
First published in The Sun on September 30 2011.

Categories
Economics Personal

[2418] Clarification about me and IDEAS

Last Monday, the Sun published a report on food stamp. They interviewed me for that report. The authors of the report quoted me as “a member of the Institute for Democracy and Economic Affairs (IDEAS) and is responsible for its economic studies arm.”[1]

While I spoke to one of the authors on behalf of IDEAS, I would like to clarify that I am not responsible for the “economic studies arm” of the institute.

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

[1] — Hafiz Noor Shams, a member of the Institute for Democracy and Economic Affairs (IDEAS) and is responsible for its economic studies arm, said: ”Food stamps are not the best idea, but not the worst either. It is a short-term solution to an immediate need.” [Pauline Wong. Michelle Chun. Experts: Food stamps only ‘short-term solution’. The Sun. August 22 2011]