employment – the _

[2969] First Love as unfulfilled human potential

First Love is a sad story, with an unsatisfying happy ending. Over the past few weeks, I have slowly rationalized the sadness—why did I feel so sad?—by linking two disappointments together. One disappointment is about unfulfilled love, and the other, which is our focus today, is unfulfilled human potential.

While watching the series in the first week of December, I felt sad quite early, well before I understood how First Love was about unfulfilled love (ignore the title and the song it refers to, as both foretell the story ahead of its narrative arch by too much). I knew the cause of my sadness quickly: both lovers, after growing up dreaming of achieving something great, ended up becoming a building security personnel and a cab driver. They became failures.

Both jobs are unglamorous. The two would not rank highly in things most young men and women would like to do during their mid-life years in any economy.

In the series, there is a subplot where one cab driver laments about the direction of his life. In telling the story of adult Yae Noguchi somewhere in the middle of the series, we are told that she has fallen on hard time: unable to finish university due to an accident, married early, divorced and then forced to give up her son due to relative poverty.

As the series progresses and jumping around the timelines, the sadness intensifies, because… well spoiler if you have not watched me… both of them worked hard to get into a good school. In some ways, those are underemployment, a reality for many.

p/s — happy new year. Speaking of potential, I have further thoughts on output gap and BNM rate hikes. Maybe I will post them just before Thursday, the rate decision day.

[2906] Stimulus during a period of intense social distancing/partial lockdown

How do you stimulate an economy during a period of intense social distancing or partial lockdown, with many workers not working, a majority of productions offline and most movements restricted?

It is the ultimate supply-side disruption.

Malaysia has just announced a movement restriction order, which is an eventuality especially given the 3-week the government came to a grinding halt that led to a significant loss in lead response time.

With the restriction in place, I think the earlier stimulus announced by the government may have lost some of its meanings. Its objectives have changed.

The social distancing like this is a severe form of supply-side disruption, with effective labor supply dwindling, except perhaps those with automated processes. No stimulus could stimulate growth, because the space for improved demand is limited by supply capability. There is no demand to be had beyond whatever provided by the supply-side frontier. Or perhaps the best we could do is to lower inflation once we hit that supply frontier.

And so, the priority of a stimulus would be transformed from stimulating demand to:

partial income replacement
cost saving assistance
facilitating restriction
perhaps more importantly, preserving output potential

For Point 1 and 2, it is about ensuring the population would meet the minimum level of wellbeing. In fact we should try as much as possible to maintain the welfare of the people. We clearly do not want people and businesses to die during a period intense social distancing or a lockdown. This is where cash transfer is helpful, and perhaps more liberal employment insurance too.

Point 3 is employing methods that make restrictions more palatable. Like encouraging delivery services and the use of cashless payments.

Point 4 is the ultimate objective. When things become normal, we want the economy to jumpstart and hit its pre-crisis mode as soon as possible. Here, we try to avoid having permanent, or prolonged potential loss. Permanent losses could happen as workers become out of work for too long, and losing their momentum to work or even their skills. So, the relevant policy is labor hoarding and incentives to keep firms in business. Both will need convincing expectation-setting by the government.

In other economies like in the US and Europe after the financial crisis, we know that recovery happened long after the crisis ended. In Greece for instance, the economy took a very long time to reach pre-crisis output, even after the crisis is over. So, it is a very possible scenario and that is something we should avoid.

We may need a “demand-side” stimulus later, but for now, our stimulus has very a different objective altogether.