Categories
Economics

[2213] Of taking undue credit from the growth

When the economy first began to tumble down in 2008, those within the government were eager to point out that weakened external demand caused it. The financial crisis that began in the United States hurt global trade. Being a highly trade-dependent economy, there was no escaping for Malaysia. To put the blame on those in the government was unfair and wrong.

Now that the economy is rebounding in a spectacular fashion, those within the government are eager to claim credit for it. Perhaps, way too much credit.

Although it is arguable that the stimulus spending did contribute to the encouraging 10.1 per cent year-on-year growth of GDP — controversial claim but let us leave it at that — it is likely that the growth was mostly due to the same external factor that caused the recession in the first place. Contribution by the stimulus package was probably very pale compared to contribution from external demand.

It helps to rewind back to 2008 and 2009 when it all began. We need to understand that the cause of the recession was the drop in international trade, as far as Malaysia and other trade-dependent countries were concerned.

Furthermore, it is crucial to remember that not all of the RM67 billion of the stimulus package announced was actual spending. For instance, some came in form of guarantees. This lessens the potential impact of the stimulus, unlike what the proponents would like to believe. When they speak of the stimulus, they almost always speak as if the whole RM67 billion was direct spending, which is not true.

Even if all of the RM67 billion were in form of direct spending, it would still not counter the effect of falling trade volume. The spending did very little to reverse the fall. At best, one could claim that it cushioned the impact of the recession.

Here is a digression. Fiscal stimulus proponents argued earlier that it was a cushion. It was not much of a cushion, as we all saw. Their narrative has changed. They now claim that it aids recovery. Funny how the story changes, is it not?

The reverse in trade trend was so great that it created a great chasm in any graph. No government spending could overcome that chasm. The fact that the country entered a recession despite what Prime Minister Najib Razak called unprecedented spending is proof enough.

Toward the end of 2009 and in the first quarter of 2010, world trade recovered as spectacularly as it had fallen during the so-called Great Recession. For high trade intensity countries like Malaysia, it was extremely good news simply because it signals normalization.

Nothing more. This is a crucial point. The 10.1 per cent is merely a sign of normalization rather a sign of actual rapid growth, in the bigger picture. More than that, it is about the normalization of trade.

The big picture is this: The big growth numbers in high trade dependent countries that suffered significant contraction — be it in Malaysia, Singapore or Taiwan — are due to base effect rather than proof of excellent economic management skill of the countries with respect to growth. That chasm in the graph allows base effect to take a prominent role in exciting growth.

What is base effect?

Consider a person investing RM100 in a fund for two years. At the end of the first year, suppose the fund makes a loss of 50 per cent and hence, the person has only RM50 now. At the end of second year, the fund makes a return of 100 per cent and hence, the person has RM100 again.

Notice that the person, after two years, makes no profits or loss. Yet, the person makes a staggering 100 per cent return in the second year, if the second year is taken in isolation. That 100 per cent return is only impressive if the full context is unaccounted for.

Consider the case of Malaysia for the past two years. The year-on-year growth for the first quarter of 2009 was terrible: -6.2 per cent. The year-on-year growth for 2010 was magnificent: 10.1 per cent. What does two-year growth from the first quarter of 2008 look like?

A mere 3.2 per cent.

If one takes a ten-year horizon, then one will realize the mediocre contribution of the first quarter of 2010 to the Malaysian economy compared to other years. Take an even longer view and January, February and March of 2010 become insignificant points.

The reason for its insignificance is that base effect is temporary.

This story is repeatable in other Asian countries badly affected by the recession. Singapore suffered 11.5 per cent contraction in the first quarter of 2009. In the first quarter of 2010, it registered 15.5 per cent growth. Taiwan contracted 10.2 per cent. It grew 13.2 per cent later. These are extraordinary numbers caused by extraordinary circumstances, not by extraordinary government.

The story of able administrators becomes weaker and weaker as more and more countries with high trade intensity — which Malaysia is one of — exhibit the same pattern of growth. There must be a reason why multiple countries that share similar characteristic with Malaysia are showing great growth.

That reason is base effect. It comfortably explains the phenomenon to a large degree.

Are you still unconvinced about the centrality of base effect?

Take Thailand. Despite all of its troubles, it is expected to achieve stellar growth of 8.9 per cent in the first quarter. It contracted 7.1 per cent a year earlier. It is hard to believe that the growth in Thailand was due to good economic management by the government. Base effect is able to explain it rather well.

Supporters and proponent of fiscal stimulus maybe unconvinced by the base effect argument. They may insist on multiplier effect from two previous stimulus packages. Unfortunately for them, increased trade dominates the celebrated statistics of the first quarter. This increased trade drives the base effect.

And what about the multiplier from trade? Surely, the benefits of trade spill to other sector of the economy.

If somebody or something deserves to take credit for exciting the economy, it is world trade. It is consumers of the world. It is not the government or the fiscal stimulus.

Lastly, the second and third quarter of 2009 registered lower levels of GDP compared to the respective quarters a year earlier for Malaysia. That means the base effect will likely disappear only in the fourth quarter of 2010. Opportunity for spectacular growth will diminish soon enough.

For his administration claim credit — or for somebody to credit the administration — for the performance of the economy, before the base effect peters out, especially as early as the first quarter, is premature.

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 Malaysian Insider on May 24 2010.

Categories
Economics

[2212] Of fluctuations and market failures

This model provides an example of an economy where real shocks drive output movements. Because the economy is Walrasian, the movements are the optimal responses to the shocks. Thus, contrary to the conventional wisdom about macroeconomic fluctuations, here fluctuations do not reflect any market failures, and government interventions to mitigate them can only reduce welfare. In short, the implication of real-business-cycle models, in their strongest form, is that observed aggregate output movements represent the time-varying Pareto optimum. [Real-Business-Cycle Theory. Advanced Macroeconomics. David Romer. 2006]

Categories
Photography Society

[2211] Of posters around campus

I love getting across campus. I get to meet people.

And I get to see posters of various kinds. They update me of development in and around campus. And it entertains me.

Posters by Socialist Alternative are especially humorous. With so many outrageous accusations flying around, it is no wonder why many simply ignore them. Imagine this: there are posters debating whether Cuba is democracy, or whether it a really is dictatorship. They suggest that Cuba is a democracy.

Their outrageousness is a form of entertainment for me.

From time to time, I see posters which cause I sympathize.

Here is one of them.

Some rights reserved. By Mohd Hafiz Noor Shams.

I like how the posters dominate the boards.

Presumably, the janitor had just maintained the board while supporters of gay marriage became among the first to post their posters up, again.

Categories
Liberty Mudslinging

[2210] Of re:liberalism and authoritarian feminism

Dear Ms. Alicia,

In replying to your letter, I will probably admit to only this: perhaps I accidentally casted my net too widely by not using enough qualification when I criticized Farrelly some days ago.[1] I qualified my statement at the beginning but later, I did away with it. I tend to do this because I typically define something early and then, purely for the sake of convenience, use concise term with the expectation that my readers will understand its meaning. For instance, when I write liberal, I refer to classical liberal and not just general liberals who may or may not adhere to the tenets of classical liberalism. Such method usually works. After reading your letter, I discover that that expectation of mine fails in this instance. I should have tirelessly used the qualification until the very end. I may have been sloppy in that sense but I am not guilty of laziness or other accusations of yours.

When I referred to authoritarian feminism with respect to the burqa controversy several days ago, it was not my intention to paint feminism as authoritarian as a whole. I am merely referring to a strain of feminism that is authoritarian. Feminism as advocated by Farrelly clearly belongs to a strain of authoritarian. The litmus test for this is simply her call to use state power to ban the wearing of burqa.

You are right how a political belief such as feminism, or any political belief for that matter, is diverse and complex. Contrary to your assertion, I am well aware of that. The presence of diversity however does not negate the fact that the call for the ban of burqa has been based on feminism, whatever strain that is. It is exactly due to diversity that this can happen.

Neither is this illiberal opinion is a fringe one within feminism. Current development suggests that it is well-subscribed. Not standard — I do not claim so; I merely asked — maybe but popular nonetheless. Unless this illiberal opinion is somehow being overly represented in the media, its popularity is a proof enough that it is a major opinion within feminism. The fact that the debate is being played out in the open is another proof. Such debate suggests that this illiberal fraction within feminism exists. If it did not exist, there would not have been a debate.

I certainly did not base my thoughts on only two articles. You appear to be well aware of the burqa debates within feminism, and perhaps, the larger debate surrounding the burqa. I believe you yourselves are well aware of how popular the call to ban the burqa is among feminists. It is easy to find feminists who disagree and agree with the ban.

I am picking on illiberal feminism and feminists who are supporting the ban. It is this illiberal strain of feminism as advocated by Farrelly that I call authoritarian. If you do not belong to this authoritarian feminism, then good for you.

As a side point, just because one does not have the power to coerce others does not mean authoritarian thoughts do not exist. Authoritarian thoughts and actions can exist independently of each other. Being a fringe also does not mean one does not have the ability to wield the “weapon of authoritarianism.” It is a fallacy to think otherwise. History has shown how minority groups can be authoritarian. But I am digressing. Before there is any misunderstanding, I definitely am not pointing out feminism in this specific case within the confined of this specific paragraph. I am merely proving a point, and a secondary point at that for the purpose of this reply.

So, what if Farrelly exhibits authoritarian tendency? Farrelly is not a spokesperson for feminism, as you have argued.

True. But this argument is quite irrelevant. If it were relevant, it would raise a question: are you a spokesperson for feminism? What right do you have to speak on behalf of any kind of feminism then? The use of ”˜we’ by you would be certainly questionable, if we apply the logic of she-is-not-a-spokesperson without being unfairly selective about it.

My point is that this illiberal tendency within feminism exists and Farrelly is only an agent of it. Perhaps you are a liberal manifestation of feminism. It is unproductive to dismiss Farrelly so easily, given the popularity of the illiberal view. On top of that, Farrelly, after all, writes for an influential mainstream newspaper in Australia. Whatever right you claim, it is claimable by Farrelly as well. It is both a strength and a weakness of diversity within feminism.

After all that, I think since both of us disagree with the ban, I feel there is little to discuss. Indeed, I think there is little room for harsh words. The unkind words scented with personal attack early in your letter are quite unnecessary. Disagreement can be addressed in a civil manner.

Now that the issue of burqa is out of the way, there is one last order of business. It involves reverse discrimination — or positive discrimination or affirmative action, depending which term one prefers — for women. I have made my position clear earlier and my opposition is largely due to my concern for tokenism. For your benefit, allow me to provide a brief explanation with the hope that this disagreement will evaporate in my favor.

If any woman, and indeed, anybody, suffers from endowment effect that necessarily means that she or he does not start at the same starting line and indeed behind, they need to be empowered through skills. Train them. Educate them. A more refined approach is required to address historical accident.

Merely putting them in a position because of affirmative action is counterproductive. Such tokenism will adversely affect society through incompetence, disfranchise the capable and ultimately create unfair generalization of women as a whole.

Reverse discrimination in this manner is what referred to when I wrote beyond tokenism. I despise sentences that go “[a]nd what is this fear of the demands that women may make beyond tokenism that you speak of? A dystopian future of emasculated men?” It is clearly out of context. But I guess, effective rhetoric demands so. It is the cherry on top I suppose.

Let merit be the major determination of who holds what. If women everywhere are more capable than any man anywhere is, then let all positions be dominated by women. I have no problem with that. What I have problem is tokenism brought upon by reverse discrimination.

If a capable woman is prevented from rightly reaching the top due to male chauvinists, then by all mean prosecute the chauvinists under some anti-discrimination laws. If a man is prevented from rightly reaching the top because of some tokenistic system, then you can see me actively dismantling that system. Equal representation is one that demands equality of outcome. As a libertarian, all I want is equality of negative individual rights. I want equality of opportunity as radiated from equal rights.

Oh, just because I do not believe in affirmative action for women does not mean that I have underdeveloped thoughts about gender discrimination. If you supposedly have developed advanced thoughts on the matter, then do share. I would very much like to find out how your argument will be different to those I have listened in the past, either in terms of gender, ethnicity or even business.

Until then, if you demand equality of outcome, then I am proud not to sit on the same side as you. I have raised my voice against demands for equality of outcome in terms of race and ethnicity. I will be a hypocrite if I do not raise my voice against equality of outcome in terms of gender. Merit is the only fair result to an outcome in most, if not all, situations.

With that, I believe I have my say for now.

Thank you for your letter. It gives me an opportunity to clarify my earlier thoughts with measured fashion.

Kind regards.

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

[1] — Show me authoritarian feminism, and I’ll show you some poorly researched tosh: A letter to Mohd Hafiz Noor Shams. Alicia Izharuddin. Cycads. May 17 2010

Categories
Photography

[2209] Of round and round it goes

Luna Park!

Some rights reserved. By Mohd Hafiz Noor Shams.

It is not as big or as crazy as Six Flags but it was fun nonetheless.