Categories
Economics

[1718] Of would you rather have flexible prices, Jeff, or just cheaper prices?

MP Jeff Ooi said:

Yesterday, all four petrol companies in Singapore – Shell, Exxon-Mobil, Caltex and Singapore Petroleum Company – reduced their pump prices by 4 cents a liter for petrol. Diesel price remained unchanged at S$2.033/litre.

[…]

Currently, Malaysia retails petrol at RM2.70/litre and diesel at RM2.50/litre.

[…]

Incidentally, oil prices have fallen by about 7% since hitting a record high last Thursday. Oil prices fell to US$136 per barrel on Tuesday. (See Crude Oil price chart on the top right hand corner of this blog)

Will Malaysia defy the law of gravity, that what goes up must come down, and reduce the fuel burden on Joe Public? [Petrol price down… in Singapore. Screenshots. July 10 2008]

He seems to suggest that Malaysia should lower local fuel retail prices after global crude oil prices suffered a dip. Just like Singapore. He of course failed to identify or mention that prices in Singapore are free whereas Malaysian prices are inflexible due to our fuel subsidy regime.

As Friday has proven, the dip is merely temporary and more about fluctuation and not a general trend.[1] I am wondering if he would agree to increasing the retail prices whenever the global prices are up…

Whatever the MP feel, it would definitely be interesting if we have subsidy in an ad valorem manner. Under this arrangement, local prices will fluctuate according to global prices while the subsidy is set as a percentage of the fuel prices.

Regardless the cost and benefit of maintaining a subsidy, subsidy ad valorem-styled will certainly be a more robust policy compared to the current structure. More importantly, ad valorem subsidy will allow prices to act as a signal better compared to the current Malaysian policy.

The graph below illustrates the current subsidy program with local prices fixed regardless of global prices. The blue color represents the size of subsidy while yellow represent the amount paid for fuel by consumers. It makes our model far simpler if we assume that the consumer purchase only an unit of fuel per day. This assumption is made for simplicity’s sake and nothing else.

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As you can see, the subsidy merely acts as a buffer to fix local prices. If global prices actually go below the fixed level, tax is automatically introduced. Given expensive crude oil prices and the size of current subsidy at the moment, I doubt a tax would be introduced.

This policy probably be good if there is a tendency for global prices to revert to a mean. The fixed local prices can be the mean and this will mean in the long run, the cost of running the policy is zero, at least nominally.

The graph below illustrates ad valorem subsidy with the subsidy itself assumed to be at 40%:

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As you can see, the local price is capable of going low as global price drops, unlike as shown in the fixed local price structure. Depending on the subsidy, the size of subsidy can be made lower than what it will be under the other model.

The only weakness of ad valorem subsidy is that the subsidy lives on forever as long as the rate is above 0%. Compare this with the introduction of tax in the first scenario.

Due to reasons stated earlier — concerning signaling and robustness, as long as global prices do not fall below local fixed prices — regardless of my support for total elimination of fuel subsidy, ad valorem subsidy is better than the current fuel subsidy policy practiced by Malaysia.

And there you go: a simple analysis comparing two different subsidy policies.

I have a feeling that what Jeff wants is this…

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…which is totally an unreasonable and irresponsible policy.

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

[1] NEW YORK, July 11 (UPI) — Crude oil prices eased back after setting a record above $147 per barrel on the New York Mercantile Exchange Friday. [Oil prices ease after record Friday. United Press International. July 11 2008]

Categories
Solar car

[1717] Of Michigan is the first to qualify for the 2008 NASC

A great news from the Michigan team:

My apologies for not posting this update sooner, but I’ve been in and out of the car most of the day. I was in the car when the team completed our first 60 laps of qualifying, quicker than any other team–making us the first team to qualify for NASC! It was a hot and grueling 60 laps during the morning, and I was in the car for over 3.5 hours to prepare for and complete these laps. We were the only team that did not have to exit the track between 9:00 AM and 12:30 AM–a testament to Continuum’s reliability and our team’s strength. [Qualifying Update. The University of Michigan Solar Car Team Blog. July 10 2008]

Zippity doo da, zippity a…!

Categories
Economics Education Liberty Society

[1716] Of spark plug for liberalism in poor societies

Education empowers individuals by enabling them to utilize their faculties, freeing themselves from tyranny. With reasonably educated individuals dominating the society, the creation of a liberal society becomes more possible than ever. Self-empowerment is the seed to the creation of a liberal society and education is the key to such empowerment. Without the empowerment, individuals would forever stand timid in the face of tyranny, unable to rationalize the reason for liberty.

Education is the sculpture of a society and its importance cannot be overemphasized. Yet, the issue of education has always bogged me down. I struggle to answer the question whether the state is required in providing individuals with education, especially in poor societies.

I am predisposed to answer no.

The path is chosen due to my minarchist tendency which seeks to limit the roles of government to simply the protection of individual liberty and private property only. This is the only social contract which a libertarian seeks. Anything more increases the opportunity for tyranny.

All other areas should be left to means of individuals in the society. The reason for that is the market in many cases has proven to be more than capable to play roles played by statist state as effective if not better. It is part of the spontaneous order doctrine so close to the heart of libertarianism.

The issue of education and the state arises when I come to consider the effect of endowment on eventual outcome. In a poor society, attainment of education requires a quantum leap. Resources well beyond the means of the poor are required to invest in education.

It is not uncommon for children of poor families to face strong pressure to forgo basic education in order to answer immediate question surrounding matter of survival. Without coercion by the state in form of compulsory basic education as well as other aids, it would be highly probable for these children to stay away from any kind of formal education. As they grow up, they would become susceptible to manipulation of the elites whom might have insidious plan to promote themselves in a society. Through this manipulation which usually comes in form of populism, a mob could easily overrun individuals, transgressing individual liberty with impunity.

Only a strong liberal culture could fight such tendency fearsomely. It is worth repeating that the birth of a liberal society is only possible through self-empowerment usually brought upon by education. By education, I do not mean simply the ability to read and write. I am referring to the development of the critical minds which take more than merely learning about humanities and sciences. I speak of liberal education which students are able to explore their potential freely.

Leaving education to the workings of market of a poor society may not encourage the creation of a liberal society. There is always competing demand between immediate demand and the future prospect. Not too many people have the luxury of looking beyond a hill when no food is guaranteed on a table everyday, assuming there is a table in the first place.

The misalignment of temporal requirement for education could perhaps be tweaked to impress on individuals the importance of education through market means without the use of force. For instance, a philanthropist or foundation could fund schools or offer need-based scholarships, making the cost of education of a child more bearable to poor families. To bring the idea farther down the road, a corporation in need of talents could adopt a child by financing the child’s education. Graduated individuals under such program could repay their sponsors when they start their professional career.

Then again, this only repeats the problem of citizenship for liberals and mismatched timelines: the ones most likely to make such bond for the children would be the parents while the children really had no say in the matter. As they matured, they found themselves in bond they did not choose to be in.

How well private institutions tailored for basic education fares against the idea of universal basic education has yet to be explored however. Even on the surfaces, private institutions may disfranchise the poor for reason made clear earlier. And I am uncertain how a system dominated by private institution for basic level encourages a society’s progress towards liberal ideals.

All that considered, it seems that the institution of universal education on the basic level supported by the state looks promising in creating a liberal society, especially for poor societies. As for affluent societies, the problem of endowment is less of an issue. It is probable that members of an affluent society are well-educated and liberal enough in their outlook to fight tyranny.

The progression towards an affluent society however requires education and this creates a conflict in my thinking. Ignorance is a barrier to self-empowerment and liberty.

Perhaps, universal basic and general education with involvement of the state for poor society is the spark plug for liberalism. Perhaps, I am trying to be too rigid, ignoring a virtue of pragmatism.

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

p/s — Milton Friedman’s The Role of Government in Education is an essential read. Friedman’s Free to Choose is for further reading. For wider scope, the Friedman Foundation has more.

Categories
Environment

[1715] Of a World Heritage Site in Malaysia under threat

The mainstream media is celebrating the status of Malacca and George Town as the new World Heritage Sites. The Star for instance is giving the news a front page treatment.[0] I on the other hand am less than happy. If news of the award could be called a victory, I would call it a hollow victory. What is the point of having new World Heritage Sites when an existing site is under threat?

Late last month, a plan to build dams across Sarawak was leaked to the public. One of the proposed damn would sit on the Tutoh River. According to that plan, part of the Gunung Mulu National Park would be inundated as part of the dam on Tutoh.[1]

If any of us has forgotten amid the celebration, the National Park is one of the three World Heritage Sites in Malaysia.

I would prefer to have the UNESCO to postpone any decision to grant the two cities World Heritage status until the future of the Mulu has been ascertained. If Malaysia cannot guarantee the well-being of Mulu, I am unconvinced how Malaysia could maintain George Town and Malacca in the list 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

[0] KUALA LUMPUR: The citizens of Malacca and Penang rejoiced as they celebrate the inscription of their state capitals as World Heritage Sites. [Malacca, Penang cheer listing on world heritage site. The Star. July 9 2008]

[1] National treasures such as the world-renowned Mulu National Park may also fall victim when parts of it will be submerged under the planned 220 megawatts dam on the Tutoh river in northeastern Sarawak.

The Mulu National Park is listed by the United Nations Educational, Scientific and Cultural Organisation (Unesco) as a world heritage site because of its biodiversity and its extensive network of caves. [Sarawak’s 12 new dams alarm environmentalists. Fauwaz Abdul Aziz. Malaysiakini. June 19 2008]

Categories
Events Photography

[1714] Of my Sunday’s afternoon in Kelana Jaya

After all the hype, it was as dull as The Phantom Menace.

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Metblogs KL has more (please do not take it too seriously).