Categories
Economics

[1744] Of crude oil prices may not continue to fall for long

Before we get the party going in celebration of falling crude oil prices, beware. This decrease could well be just a pause before prices march to yet another record.

I am suspecting so not because I subscribe to Malthusian logic. Malthusians all over fail to notice that humanity has an amazing capability to adapt. As prices of typical energy rise to a sufficient level, the search and utilization of substitute sources will take place. As a result, the demand for expensive source of energy will fall, bringing along its prices down.

The prices will stay down, given all else being equal, if technological, or rather increase in efficiency in consumption of the energy occurred. Improved efficiency produces a situation where fewer fuel is required for the same amount of production.

I suspect that it is possible that we may be seeing merely a dip in prices of crude oil because I am unconvinced at how the recent fall in prices is caused by structural changes.

On the surface, three factors seem to be causing crude oil prices to fall. They are contracting demand curve probably due to high crude oil prices, appreciating greenback and the slowing down of several world’s major economies. All factors are possibly cyclical and none is structural. When I refer to cyclical changes, I refer to changes in volume and when I refer to structural changes, I refer to changes in efficiency.

The relationship between crude oil price and the health of the global economy is easy to pinpoint.  A slowdown causes demand for crude oil to decrease. While the relationship may well be the reverse, the point is that it is a matter of typical business cycle and has nothing to do with improvement of technology.

The strengthening of the US dollar also has little to do with improvement in technology. To understand how stronger dollar leads to cheaper crude oil, it is important to understand the mechanics that works between trade and exchange rate. Weaker dollar causes cheap export and cheap export causes foreigners purchasing more US product. With weak dollar, the strength of the USD has to return as improvement in net export accumulates capital. If theory does not convince you, then let the number must do the job: the US trade deficit already dropped for the month of June.[1] With stronger dollar and with crude oil priced in riyal or some other currencies, fewer dollars is required to buy the same volume of oil.

Now, the third factor — contracting demand curve — may come closest to encouraging structural changes. The problem is however, I am not convinced that there is a actual improvement in technology. What I see is people using smaller instead of larger vehicles, public transportation, etc. But that is merely temporary lower consumption because once prices become sufficiently low, consumers would abandon small cars and public transportation and anything that only reduce volume of crude oil consumed rather than substituting it.

While there is indeed greater usage of electricity, natural gas and biofuel to replace crude oil, I am unsure how widespread it has been. Besides, the fall in crude oil prices have been too drastic in such a short time that I have trouble accepting the fall is caused by technology.

Why after all the adoption, the decreases in crude oil prices come only now and in such a dramatic pattern? Effects from structural changes should come gradually due to various lags that exist in the real world, not abruptly.

This has led me to speculate that the trend we are seeing is caused by merely and mostly reduction of consumption with little substitution energy consumed as replacement. It is likely that what we are seeing is merely reduction in volume rather than increase in efficiency. If my take is correct, then once prices reached a level somewhere down below, consumption would return to assume its record breaking rise performance which we saw weeks earlier as volume would go up while efficiency level would stay constant. This might be so due to little structural change in the global economy.

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

[1] WASHINGTON (AP) — The U.S. trade deficit unexpectedly fell in June as exports advanced to an all-time high, offsetting another big surge in oil imports.

The Commerce Department reported Tuesday the trade imbalance dropped to $56.8 billion in June, down by 4.1 percent from a revised May deficit of $59.2 billion. It was the smallest deficit in three months and much better than the $61.5 billion deficit Wall Street had been expecting.[June trade deficit shrinks as exports climb. Martin Crutsinger. Associated Press. August 12 2008]

Categories
Politics & government

[1743] Of political competition for better institutions

Unity is a popular concept nowadays. It began with the Malay unity talks and in response to that, M. Kulasegaran of the DAP called for Malaysian unity talks to bring the Barisan Nasional and Pakatan Rakyat together. How close is still unclear.

Meanwhile, the harsh bipartisanship that exists at the moment has prompted fears that this country is falling apart and real issues are not being addressed. All that, however, is nonsense. The political competition we are seeing today is one of the few good things that have happened to this country in a long time.

The uncertain political climate brought about by the ongoing political competition has been cited every now and then as being detrimental to economic growth. I agree with this premise to some extent but that does not necessarily make me wish to turn down the volume. On the contrary, I am excited to witness this chapter of Malaysian history.

Opinion on whether this uncertainty is unfavorable really depends on the time horizon one wishes to adopt as a frame of reference. In the short term, the political uncertainty caused by various factors — from allegations of sodomy and the Altantuya trial to political defection — does indeed shoo away business. The simplest indicator would be the Composite Index. Each time another factor amplifies our political scenario, the Composite Index takes a nosedive.

Looking beyond the hills, beyond instant gratification and beyond quick bucks, what we are experiencing provides us with the best chance to improve our institutions, from the courts to the legislature and to the executive branch of our government. A chance to fix our institutions is a chance to take our economy to greater heights. Laid out in front of us is a rare opportunity to fix our illiberal democracy.

We Malaysians have proven our capability at building skyscrapers, dams, bridges and cities out of nowhere, though cracks do emerge from time to time. At this juncture, I do believe we are in need of abstract rather than physical developments. Among these abstract developments is the strengthening of our institutions.

Strong institutions are an important check-and-balance mechanism and its importance is self-evident. Strong institutions enable the state to play out its foremost function and that is the protection of individual liberty. Strong institutions keep the state honest and true to its citizens.

A strong government, however, has no incentive for such a mechanism. History has proven this; after years of having a strong government, this country has seen its institutions weakened and subservient to the executive. If this country had continued to see a strong government, the chance to fix our institutions would be delayed further into the future while the decay continued.

That has slowly eroded credibility in our institutions as their independence has been continually suppressed for political purposes. As a result, trust in our institutions is probably at its lowest point ever. The civil service, for instance, once the pride of this country, is now a laughing stock.

This is especially worrying if the judiciary is involved. If the system is perceived as incredible and not neutral, it would be incapable of dispensing justice in the eyes of the public. Peaceful arbitration would be hard to achieve and might even give rise to a culture of vigilantes with gross disregard for the rule of law. Having that happening would be far worse than going through whatever we are experiencing at the moment.

This scenario may suffer from a little exaggeration but the first sign of trouble and the rationale for vigilantes is when the citizens themselves begin to frequently question rulings passed by the courts, believing that the institutions are unable or refuse to do their job.

Contrary to strong government, a small government does not have the power to undermine various public institutions such as the courts even if it wants to. A small government, in fact, gives a chance for these institutions to regain their independence once robbed by the executive.

The current political competition also puts pressure on these institutions to become more neutral, as they should be. Whereas once our institutions under strong government had only one political master to answer to, now the monopoly of power is broken.

With stronger institutions, people would have greater confidence in doing business in this country because they know that their rights would be secured. Corruption could be weeded out and this would bring the cost of doing business down as individuals feel empowered with credible public institutions. The improvement and newly rebuilt trust in these institutions could be one of those structural changes which would only benefit us.

To achieve that possibility, it is imperative for us to continue to fuel the flame of bipartisanship. Let the politicians squabble and continue to weaken the government. I am more interested in the rejuvenation of our institutions.

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A version of this article was first published in The Malaysian Insider.

Categories
Liberty

[1742] Of thoughts on mob rule, the police and MP Zulkifli Noordin

PKR is a confused party. I have refrained from visiting the subject for the longest time because I thought I have proven my points and the other side have proven theirs especially with the coalition PKR brought together as the result of the March 8 Malaysian general election. Today, MP Zulkifli Noordin from PKR just proved my point again and I just have to say I told you so.

I was not surprised when I found out that a mob forced a forum held behind closed doors to an abrupt end.[1] It is clearly a transgression of liberty in form a tyranny of the majority. For this reason, I am long not a fan of unconditional democracy. Majoritarianism is the purest form of democracy and it does not guarantee liberty. And this was demonstrated on Saturday.

After all, this is not the first time a mob overcame a group of individuals’ liberty. There is a trend here to be seen here.

I am also not surprised at how the police handled the situation. In an illiberal democracy that we live, I have lost trust in the police. I view them with embedded prejudice and I am incapable of holding a neutral view of the police anymore. The reason is simply because the police are uninterested in protecting liberty.

I am holding this view because I have experienced how disinterested the police force was in protecting my liberty against transgression by foreign citizens. When the Olympic Torch passed through Kuala Lumpur back in April, I went out to protest how the PRC handled protesting Tibetans. In the process, citizens of People’s Republic of China used mob power to silent me, pushing me around and the police did nothing despite see what was happening. When a person tried to help me, the person was assaulted by the mob.

The police came in later only to force the assaulted to leave the area while the mob was left off the hook.

The same scenario happened earlier in the morning of the relay day. Several individuals whom protested peacefully against atrocity committed by the PRC government were assaulted by the mob from PRC and police arrested the assault victims, not the mob.

The police was never interested in protecting liberty. The police was never interested in protecting minority rights. The fact that the police could side with foreigners raised in a mostly unfree culture against our own citizens demonstrates how disinterested the police is in protecting individual liberty.

The same case recurred at the Bar Council.

In libertarianism of minarchist strain, one of the primary roles of the government is the protection of individual liberty. Absolution of this responsibility by the state necessarily breaks the link of the state from the individuals of the state, making the state irrelevant and the state has proven to be downright hostile to individual liberty. As such, I have trouble trusting my state.

Moreover, while I do not believe in the law that stifles liberty, it is clear that the weight of the law was not evenly applied on Saturday. The demonstration by the mob was clearly illegal under our illiberal law but yet, the police did nothing to disperse the mob. What the police did was advised the organizer of the forum at the Bar Council to unceremoniously end it instead of providing the organizers with protection. This questions the credibility of the state.

It must be added that the protest against the forum itself is perfectly fine from liberty point of view, regardless of laws set in place. As Thomas Jefferson said long ago, law is often but the tyrant’s will, and always so when it violates the rights of the individual. What is wrong was how a number of protesters prevented others from exercising liberty.

While the transgression of rights by the mob and the failure or refusal of the police to protect liberty are indeed disgusting, all that however does not disappoint me considering how jaded the history of individual liberty is in Malaysia. Might is right in Malaysian culture, contrary to the concept of a liberal democracy in which individual rights are embedded and protected from crass majoritarianism.

What is disappointing is Parti Keadilan Rakyat’s indirect association with the mob. One of its MPs, Zulkifli Noordin actually led the protest. It is comforting that the party has come out and condemned the use of mob rule as well as the MP almost immediately.[2]

But then again, this demonstrates what is wrong with PKR. So engrossed with big tent politics, PKR is all happy to invite anybody into their tent, regardless of philosophies. The party has been successful in practicing big tent politics and the past general election has proven its advocates right. And lately, terms such as “competition of ideas” and “diversity of thoughts” have been adopted within the party to further rationalize the idea of big tent politics.

I am a big fan competition of ideas but my affection for it stops when coercion is used and clearly, threats were issued by the mob. And because of that, I will not miss MP Zulkipli Noordin leading the mob to storm the forum hall at all if he loses the ongoing election petition.[3]

As for advocates of big tent politics however, it has come to a point where big tent politics is threatening to tarnish the party’s relatively liberal outlook.

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

[1] At 9.50am, a handful of protesters, led by Kulim Bandar Baharu parliamentarian Zulkifli Noordin from Parti Keadilan Rakyat (PKR), muscled their way to the front of the first-floor auditorium at the Bar Council headquarters in Leboh Pasar Besar here amid an ongoing and lively discussion on the 2006 court case of R. Subashini, whose ethnic Indian husband T. Saravanan had embraced Islam and converted their five-year-old son without her knowledge or consent. [The day the loudest won… or did they? The Malaysian Insider. Debra Chong. August 9 2008]

[2] The People’s Justice Party (keADILan) regrets that the police force present failed to control the situation but instead appeared to collaborate with some of the demonstrators who wanted to force their way into the hall to stop the seminar. This incident reminds us of what happened during the APCET conference on East Timor that was held a few years ago, when members of Umno-Bn forced their way in to sabotage the seminar.

We take serious view of the rough action taken by a small band of the demonstrators who shouted rude and uncivilized language against some of the organizers and participants of the Seminar. We regret that unfortunately the “fiercest” among them was someone known to be a lawyer and member of parliament who pretentiously claimed himself to be “representing all the Muslims”. [Condemning action against Bar Council seminar. Parti Keadilan Rakyat. August 9 2008]

[3] It was a direct reference to PKR’s own Kulim Bandar Baharu MP Zulkifli Noordin who led the protest and the storming of the forum hall here which prompted the police to ask the organiser, the Bar Council, to call off the session only an hour after it started. [PKR condemns protest against Bar Council forum. The Malaysian Insider. August 10 2008]

Categories
Liberty Sports

[1741] Of is that the first gold medal for Michigan?

Michael Phelps won a gold.

BEIJING — The Michael Phelps gold medal count commenced early Sunday morning here with the 400-meter individual medley final, and his pursuit of a record eight golds began with a victory and a world record. [Phelps Smashes World Record to Win Gold. Greg Bishop. New York Times. August 9 2008]

And yup, Phelps is a Wolverine.

There are 22 Wolverine athletes in this edition of the Olympics.[1]

And, not to forget, another Wolverine, Hao Wu, was jailed in 2006 by the PRC government.[2]

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

[1] University of Michigan Roster for 2008 Beijing Olympics. MGoBlue.com. August 6 2008.

[2] Wu was detained by the Chinese government on February 22, 2006 for almost five months. According to the Global Voices initiative at the Harvard Berkman Center for Internet and Society, Hao had been producing a documentary on “underground” Christian Chinese house churches in China when he was detained by authorities in the People’s Republic of China.[Hao Wu. Wikipedia. Accessed August 10 2008]

Categories
Conflict & disaster Economics

[1740] Of financing Iraqi reconstruction effort is an obligation for the US

US politicians have begun questioning the virtue of the US spending over USD20 billion on Iraq whereas the Iraqi government has merely spent less than USD4 billion on the construction exercise despite having USD70 billion of budget surplus.[1] By comparison, the planned expenditure for the 2008 Malaysian budget was approximately USD55 billion and we are running on deficit.

As reported by the New York Times, security problem in Iraq is discouraging the Iraqi government from spending. Turbulent environment is not conducive for developmental effort, forcing Iraqi institutions to hesitate before even beginning to spend money for new projects. As a result, large Iraqi surplus sits safely idle in banks, earning enormous interest amounting to half a billion to date.[2]

Despite the large surplus and low expenditure, I do not think that would rationalize the call for the US politicians to cut back the US reconstruction expenditure in Iraq, especially when the reason for reconstruction originates from destruction brought upon during the US-led invasion back in 2003.

I am in the opinion that the US has every obligation to finance the reconstruction exercise with its own resources, regardless of the resources available to the Iraqi government. To put it simply, if a person breaks it, the person should pay for it.

This however does not mean that the Iraqi government should not spend anything. It is far more helpful if both governments could simultaneously spend to improve Iraqi public infrastructures like roads and communication lines for example. Restoring old infrastructures and building new ones should take place simultaneously to hasten development of Iraq. In other words, both reconstruction exercise, which is the responsibility of the US, and further developmental exercise, which is the task of the Iraqi side, should happen concurrently.

It would be far more acceptable for US politicians to call for the Iraqi government to match the US developmental expenditure instead. Nevertheless, the inability of the Iraqi government to spend has to be addressed first before the call could be earnestly made and that means securing peace in the war torn country. After all, the low figure for expenditure is about inability to spend rather than refusal to spend.

With greater security, those projects could bring economic returns to the Iraqi society. With insufficient security in place, those projects would just be another targets for the insurgents.

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[1] “The Iraqi government now has tens of billions of dollars at its disposal to fund large-scale reconstruction projects,” Mr. Levin, who is chairman of the Senate Armed Services Committee, said in a joint statement with Mr. Warner. “It is inexcusable for U.S. taxpayers to continue to foot the bill for projects the Iraqis are fully capable of funding themselves. We should not be paying for Iraqi projects, while Iraqi oil revenues continue to pile up in the bank.” [As Iraq Surplus Rises, Little Goes Into Rebuilding. James Glanz, Campbell Robertson. New York Times. August 5 2008]

[2] The deposit at the Federal Reserve Bank is so large that the United States has been obliged to make $435.6 million in interest payments to Iraq through the end of last year, according to the new report. [As Iraq Surplus Rises, Little Goes Into Rebuilding . James Glanz, Campbell Robertson. New York Times. August 5 2008].